Financial statements in dollars for the first quarter show Petrobras' problems.
The global economy is undergoing significant changes that will soon reach Brazil. Neoliberal globalization policies may be coming to an end. Brazil is likely to increase its alignment with the Chinese economy. These changes will affect Petrobras. We hope they arrive soon.
INTRODUCTION
I recently published an article about Petrobras' results for the first quarter of 2020 (unaudited).
http://blognarua.blog.br/?page_id=632
At that time, the company had only published its figures in reais (Brazilian currency), and I limited myself to analyzing what caught everyone's attention the most: the absurd reductions in the recoverable values of assets (impairments) recorded during the period.
This Thursday (May 21st) the company published its results calculated in dollars which, in my opinion, facilitates understanding and improves the possibility of comparisons with historical data.
Therefore, I sought to analyze the main aspects.
ECONOMIC SITUATION
The $9,7 billion loss in the quarter, compared to a profit of $2 billion in the fourth quarter of 2019, was mainly caused by impairments of $13,4 billion ($2,2 billion in the fourth quarter of 2019). The impairments had a positive effect of $3,3 billion on deferred income tax and social contribution. However, these effects (impairments and taxes) are temporary, as they will soon be reversed, in part or in whole, with the adoption of new assumptions.
Revenue fell 14% compared to Q4 2019, totaling US$17,1 billion, despite a significant increase in export volume, caused by the completion of exports that were in progress (in stock) at the end of 2019. The 21% drop in the price of Brent crude oil outweighed the positive aspects.
Gross profit fell to US$7,3 billion, compared to US$9 billion in the fourth quarter of 2019.
Another relevant aspect was the negative financial result of US$4,6 billion, compared to US$1,6 billion in the fourth quarter of 2019, caused by exchange rate variations, despite the adoption of... Hedge accounting by the company.
The expectation for the second quarter of 2020 and for the remainder of the fiscal year is a decrease in revenue and gross profit, due to a reduction in the price of Brent crude (US$ 50 in the first quarter) and in the consumption of refined products in the domestic market.
The accumulated loss could be reduced by reversing impairments, that is, by adjusting future losses that were declared in an exaggerated manner in this first quarter.
FINANCIAL SITUATION
Given that impairments are economic/accounting entries that do not affect the financial situation, from this (financial) perspective the company showed improvements compared to the 4th quarter of 2019.
As always, the company demonstrated its ability to generate cash, with Operating Cash Flow reaching US$7,8 billion in Q1 2020, slightly higher than the US$7,5 billion obtained in Q4 2019.
Current liquidity (the ratio of current assets to current liabilities) improved significantly, reaching 1,21, compared to 0,97 in the fourth quarter of 2019. Even so, it remains far from Petrobras' historical records, which have always been above 1,5.
The cash balance more than doubled, going from US$7,4 billion in Q4 2019 to US$15,5 billion in Q1 2020, mainly due to a US$10 billion fundraising round carried out by the company during that period.
However, the expectation for the second quarter of 2020 and the remainder of the fiscal year is for a decline in Operating Cash Flow caused by the reduction in the price of Brent crude and in domestic consumption of refined products.
ASSET SITUATION
Petrobras' Net Worth does not reflect the values of pre-salt fields acquired by the company under the production-sharing regime, such as Libra (2013) and the recent surplus from the transfer of rights (2019). This means that the book value of the company's shares is completely out of line with reality. An explanatory note with an estimate of these values should be provided by the company.
Investment disbursements totaled only US$1,9 billion in the first quarter of 2020, compared to US$3,2 billion (excluding bonuses from the surplus auction) in the fourth quarter of 2019, far below the capabilities and needs of a company like Petrobras.
CONCLUSION
The year 2020 will be negative for Petrobras in several respects. Unfortunately, taking advantage of this situation, the company's management has been unjustifiably taking aggressive actions towards its own employees and Brazilian society in general.
An HR policy based on coercion, harassment, and terrorism, unparalleled in the company's history, was implemented.
Constant attacks on workers' achievements, as in the case of AMS, demonstrate the administrative incompetence of the company itself.
The significant reductions in research investments made in recent years were not enough, according to the administration. Now they want to eliminate everything, as the article shows…The logic of cash flow and dismantling” (copied below) which highlights: “To preserve its cash flow in the face of the crisis triggered by the Covid-19 pandemic, Petrobras has decided to suspend installments for the next three months on several ongoing projects in 247 laboratories at partner universities.”
The global economy is undergoing significant changes that will soon reach Brazil. Neoliberal globalization policies may be coming to an end. Brazil is likely to increase its alignment with the Chinese economy.
These changes will affect Petrobras. We hope they come soon.
* This is an opinion article, the responsibility of the author, and does not reflect the opinion of Brasil 247.