Petrobras: We posted a net income of R$5 billion in the first nine months of 2017

We posted a net income of R$5 billion in the first nine months of 2017

resultados-ingles1_ajustado _002_.jpgOur net income reached R$5 billion in the first nine months of 2017, reversing the loss posted in the same period a year ago and reflecting the improvements made in operating performance, in line with the metrics set forth in the company’s strategic planning. In 3Q17, our net income closed at R$266 million, at the same level as in 2Q17.

The safety indicator (TAR) continued showing progress, reaching 1.09 reportable incidents per million man-hours at the end of the period. The Adjusted Net Debt/Ebitda ratio, one of our top metrics, decreased from 3.54, on Dec. 31, 2016, to 3.16, on Sept. 30, 2017.

The adjusted EBITDA was R$63.6 billion in the first nine months of 2017, with a margin of 31 percent and stable year-on-year. This result shows that lower operating expenses and more exports, at higher prices, offset the drop in oil product margins. In addition, expenditures with imports were lower because of the higher share of domestic oil in the throughput and of the domestic gas in the sales mix. In the quarter, the adjusted Ebitda was R$19.2 billion, also stable compared to the previous period.

With stable operating generation and lower investments, our free cash flow was R$37.5 billion in the first nine months of 2017. In the quarterly view, our free cash flow was R$14.7 billion in the third quarter of 2017, the tenth consecutive quarter with positive free cash flow.

Ongoing active debt management made it possible to extend the average maturity from 7.46 years, on Dec. 31, 2016, to 8.36 years on Sept. 30, 2017, combined with a decrease in the cost of debt, which dropped from 6.2 percent per year to 5.9 percent per year in the same comparison. Net indebtedness in US Dollars decreased 9 percent, to R$88.1 billion, on Sept. 30, 2016, down from R$96.4 billion on Dec. 31, 2016.

In the first nine months of 2017, we had a total oil and natural gas output of 2,776,000 barrels of oil equivalent per day (boed), of which 2,660,000 boed in Brazil, 3 percent more than in the first nine months of 2016.

Oil product sales on the domestic market were impacted by the contraction in demand and tougher competition with other players, closing at 1,959,000 bpd, 6 percent less than in the first nine months of 2016. We maintained our position as a net exporter with a balance of 385,000 bpd due to the 39 percent increase in oil and oil product exports and a 19 percent drop in imports compared to the first nine months of 2016. Contributing to the decrease in imports was the increase in the share of domestic oil in the throughput.

In the quarter, the highlights were the increase in diesel fuel sales, improvements in oil product distribution and in power generation margins, in addition to the reduction in the refining margins. Additionally, the result was impacted by non-recurring items, such as expenses with adhesions to programs to regularize federal debts and legal contingencies.

Glossary

Financial statements usually use terms that we are not always accustomed to see, so we prepared the glossary below to help you understand these terms in the Petrobras context.

Leverage: Ratio of the company’s net debt to its cash generation.

BOE: Barrels of oil equivalent. Unit used to compare a volume of natural gas with a volume of oil.

BPD: Barrels per day. Barrel is the standard liquid measurement unit in the oil industry, and it is equivalent to 0.159 cubic meters of oil. The BPD acronym refers to the average daily oil output in a given period.

Brent: A blend of the oils produced in the North Sea, considered light, of good quality, and used as the benchmark by the oil industry.

Capex: Capital Expenditure, meaning investments, i.e., the money we use to acquire capital goods - which are used to produce other goods, especially consumer goods such as machinery, equipment, building materials, industrial facilities etc.; production goods -.

Net Funding: The volume of funds the company raises among financial institutions deducted of the amount of resources the company returns to such institutions through amortizations and debt prepayment, among others.

Risk rating or rating: A rating that credit rating agencies assign to an issuer; such rating considers the issuer’s ability to pay off debts and the chances it will not be able to make such payments. An issuer may be a country or a business. Investors use the rating as a parameter to know the degree of risk of the debt securities they are acquiring.

Ebitda: Earnings Before Interest, Taxes, Depreciation, and Amortization. Ebitda is an indicator that contributes to the understanding of the company’s operating cash generation potential, i.e., it allows us to estimate how much we generate from resources only in our operating activities.

Adjusted EBITDA: This is calculated as the Ebitda net of certain items, such as results of investments made in investees, impairment, and asset disposal and write-off, among others, which contribute to a better understanding of the exclusive operating generation of the Company’s own activities.

Free Cash Flow: The operating cash generation surplus after the payment of investments in the business areas.

Operating Cash Flow: The amount of financial resources generated/consumed by the company’s (usual) operating activities. This does not include cash inflows or outflows arising from loans/funding.

Degree of investment: Financial risk rating. The business that has it is considered as representing a low financial risk, and its securities can be acquired by more conservative investors.

Impairment: Impairment loss is when it is verified that the recoverable value of an asset or set of assets at present is below its carrying amount - which appears in the company’s balance sheets -, this difference (loss) has to be posted in profit or loss and in the company’s balance sheet. If the variables and the context that led to the loss improve, it may be reversed in a new recovery test. This test, also known as the impairment test, is a mandatory procedure and is regulated by the accounting standards (Brazilian and international) and by law (Act 6404/76 and its amendments - governing Brazilian Corporations that have shares traded on a stock exchange); companies must carry it out at each balance sheet closing.

Net income: The positive result of the company’s operations, considering the sum of revenues (e.g., sales), deducted of costs, expenses, and taxes. When the result of the sum of costs, expenses, and taxes is greater than the total revenue, there is a loss.

Gross Margin: Gross profit (loss) divided by the sales revenue.

Net Margin: Net profit (loss) divided by the sales revenue.

Operating Margin: Operating profit calculated based on the operating profit (loss), excluding from the calculation the write-off of capitalized expenses unduly divided by the sales revenue.

Adjusted Ebitda Margin: Adjusted EBITDA divided by the sales revenue.

Opex: Operating Expenses is the operating cost, i.e., the money we use to conduct our daily activities.