Petronas scores wins in tough year

KUALA LUMPUR: A tough environment where the prices of oil and gas had compressed margins saw Petroliam Nasional Bhd (Petronas) post lower earnings but the oil giant managed to increase its cashflow and also lower costs during the year.

For its financial year ended Dec 31,2019, Petronas executive vice-president and group chief financial officer Tengku Muhammad Taufik Tengku Aziz said at a briefing that cashflow from operations, a key point for the company, had actually improved despite the challenging environment.

According to its presentation slides, cashflow from operations rose by 5% to RM90.8bil, with free cashflow rising 9%.

“We had achieved higher cashflow from operations and we even increased free cashflows.

“This was contributed by our improved working capital management. At the same time, there were higher capital investments from the previous year at RM47.8bil and this was mainly for upstream projects, ” Taufik said.

Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin delivering his speech during the Petronas Q4 and FY2019 Group Financial Results Announcement yesterday. - IZZRAFIQ ALIAS / The Star.Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin delivering his speech during the Petronas Q4 and FY2019 Group Financial Results Announcement yesterday. - IZZRAFIQ ALIAS / The Star.

Meanwhile, overall costs for FY19 had risen to RM205.6bil from RM196.0bil but that was due to a non-cash exceptional item.

“If we strip this loss aside, you will notice the group’s loss in fact had decreased from FY18 as a result of the ongoing group-wide cost optimisations, ” Taufik said.

He said Petronas has sufficient liquidity to cover its borrowings and a robust balance sheet allowed it to sail through uncertain times.

“At this juncture, Petronas continues to remain resilient operationally, ” he said.

On its planned dividend payment to the government, ” president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin said Petronas is planning to pay RM24bil in dividend to the Government this year.

“We have no plans for special dividends, ” he added.

Petronas financials were impacted by lower revenue and net impairment on assets but mitigated by the outcome of the group’s continued efforts in maintaining fiscal discipline and operational excellence, Petronas said in a statement.

Revenue fell by 4% to RM240.3bil compared with RM251.0bil in the previous financial year, mainly due to lower average realised prices for major products.

The decrease was partially offset by the impact of higher sales volume, mainly for petroleum products and liquefied natural gas (LNG), coupled with the effect of the weakening ringgit against US dollar.

For its fourth quarter of 2019, the group saw net profit fall by 71%, dragged down by impairments. The group’s net profit for the latest fourth quarter dropped to RM4.1bil from RM14.3bil in the fourth quarter of 2018.

Excluding the impact of the impairments, Petronas’ net profit declined much less by 14% to RM9.2bil compared with the fourth quarter of FY18.

Revenue for the fourth quarter of FY19 fell by 8% to RM64bil from RM69.9bil in the year prior on lower average realised prices for major products.

Full-year net profit for FY19 fell by 27% to RM40.5bil from FY18 due to lower revenue as well as net impairment on assets amounting to RM7.3bil.

“Excluding net impairments, net profits (for 2019) had declined 6%, which is largely in line with the decrease in revenue.

“Moving forward, we can expect the outlook for the oil and gas industry to be bearish, given the ongoing geopolitical uncertainties, prolonged trade tensions and near-term demand disruption due to the Covid-19 outbreak that is escalating, ” Taufik said.

Petronas said bottom line in the fourth quarter was affected by net impairment on assets and lower revenue, partially offset by reduced tax expenses.

“These impairments are largely driven by lower (petroleum) prices. Every year, we have the carrying value of what we have from our balance sheets versus the price outlook from production. If the price outlook is less than what we have evaluated on our books, then we take that value.

“It is the same all across the industry. Oil majors which are our peers will also face this type of pressures, ” Zulkiflee said.

Petronas said its gearing ratio decreased slightly to 19.4% as at Dec 31,2019, compared with 19.7% in the previous corresponding year, due to lower borrowings following the repayment of loans.

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