Repsol Sa Sp/Adr

Good morning, ladies and gentlemen. Welcome to Repsol's 24-27 Strategic Update. My name is Ramón Álvarez Pedrosa, Head of Investor Relations. I would like to thank you all for joining us in person today at our headquarters in Madrid. A warm welcome also to all of you joining us virtually this time. The event will be led by our CEO, Jose Jon Imath, who is joined by Antonio Lorenzo, CFO, and all members of the executive team. Just a reminder, all materials being presented today are already available at our website at brepsol.com. This is a live streaming event. A replay will be available once the session has finished. A quick summary of what is being presented today. First, we will discuss the highlights of our four quarter and full year results 2023. Second, we will continue with a deep dive into REPSOL strategic guidelines for the period 2024-2027. After the presentation, I will be moderating a Q&A session. For those analysts assisting in person and interested in asking a question, our investor relations team will bring you a microphone. For those analysts joining us online, you will be able to ask your question using the Ask a Question tab. Just to make you aware of the logistics for today event, the presentation and the Q&A session is scheduled to finish at 12 p.m. And this will be followed by a Spanish wine. We invite you all to stay with us and use this opportunity to talk with our executives, senior management, and investor relations team. And now, without further ado, I leave the word to Josuyon Imath. Thank you very much.

Good morning everybody and I really thank you for coming to our headquarters today. I mean, I remember that the last time we presented the strategic plan 2020, We were in the worst of the pandemic, November 2020. And let me say that the image was fully different, unfortunately. And also, thank you for those that you are following this presentation online by streaming. This is not exactly a strategic plan. Let me say that this is a strategic update. And I say that it's a strategic update because the pillars, the foundations, the strategic foundations of what is the strategy of the company were presented that November 2020. And what we are doing now is evolving from this plan. I mean, adapting this plan to a new reality. Our vision about the end of the decade remains unchanged, staying committed in Repsol with our target of decarbonizing the company, of getting net zero. Remember that we were the first oil and gas company in the world committed with this target. and also we are fully committed to take opportunities that we could capture from the energy transition over the coming minutes i take you through the details of this update but before entering and jumping into the update i like to to put some light about the performance in 2023 that we presented and released this morning. Starting at the macro level, last year was characterized by a volatile but supportive commodity price scenario. And all that was combined with a quite resilient, refining environment. Remember that in our previous call in the third quarter, at the end of October, we expressed, and I expressed, to use some positive view about the last quarter of the year. And I think that this scenario we had confirmed in some way that view. Brent oil averaged $84 in the last quarter of the year, 5% lower than in the same period a year ago. Price continued to be pressured by concerns on demand, high inventories, and the strong US supply. But on the other side, we had all the geopolitical tensions in the Middle East that in some way were adding further volatility to this price. For the full year, Brent averaged $83 a barrel, roughly 19% below 2022. In the gas market, the Henry Hub averaged in the fourth quarter $2.9 per million BTU, 54% below the same period in 2022. And this price was negatively impacted by record production levels in the US and high inventories. In the full year, the Henry Hub averaged $2.7, a 59% decrease from the levels of 2022. Repsol's refining margin averaged $9 per barrel in the fourth quarter. That was, remember, in line with our expectations, remaining at very healthy levels thanks to sustained middle distillate spreads and a strong, of course, it's not very usual at this season, gasoline cracks. As of today, no, sorry, last year, in 2023, the indicator was $11.1 per barrel. Finally, by the end of the year, the dollar lost some ground in anticipation of interest rate cuts in the U.S., putting the average for the whole year in $1.08 per euro. Jumping now into the upstream, our business kept its focus on the efficient execution of growth projects and portfolio transformation, emphasizing sustainability and profitability per barrel. First quarter adjusted income was 554 million euros, 7% lower than in the last quarter of 2022, mostly due to lower realization prices. That was partially offset by a higher production and lower taxes. For a year, earnings stood at 1.8 billion euros, and this figure compares with an adjusted income of 3 billion euros in 2022. Production averaged 595,000 net barrels a day in the fourth quarter. That was an 8% higher year over year. This increase mainly came from the commissioning of New Wales in the Eagle IV and the Marcellus and also the full consolidation of the UK since November, more than offsetting the disposal of our Canadian assets that you remember that was fully completed last year. Full year production reached 599,000 net barrels of oil equivalent a day, 9% higher than in 2022. And our average gas realization price in 2023 was $3.8 per 1,000 cubic feet, 49% lower than the previous year. Here we are including all the gas prices, also the gas that is sold in the European market. or with European or Asian references. On the 1st of November, we took the full control of our UK operations. That was, remember, part of the transaction of the agreement we settled with Sinopec that put an end to the long-running arbitration process between both companies. This acquisition has a net cash flow impact of $1.1 billion to Repsol. Cash out is expected in the second quarter of this year, 2024, but the account payable was already registered in the group's net debt figure as of December 2023. So it's included in what is the net debt at the end of the year. In the industrial division, fourth quarter adjusted income was 561 million euros, 51% lower year over year, mostly due to lower results in refining, because it's comparing with the previous margin, and wholesale and gas trading. Full year earnings reached 2.7 billion euros. That was a figure 16% lower than in 2022. and that was mainly due to the lower contribution of the refining and the chemical businesses. In refining, margins remained robust in the fourth quarter. That was, as I said previously, aligned with our expectations and was decreasing sequentially compared to the third quarter and fundamentally due to weaker medium distillate spreads. The average full year was $11.1 per barrel, supported by strong demand, low inventories, and strong middle distillates and gasoline spreads. The utilization of the distillation capacity increased to 92% in the last quarter, and the use of our conversion units reached 108%. You know that we are comparing with the nameplate of the plants. The margin premium in the first quarter was $2.1 over the indicator. Full year average, $2.3. And that was positively impacted by the higher availability of heavy cruises over the whole year, the contribution of biofuels, and also higher utilization rates. The positive refining margin environment has extended so far into 2024. That was, again, supported by the middle distillate spreads. As of today, over 2024, our margin is around $11.4, $11.5 a barrel over the 2024 year. In the last quarter of the year, our refineries received two additional cargos of heavy oil from Venezuela for a total of 14 cargos in 2023. Last, let me highlight that our new C43, the advanced biofuels plant in Cartagena, received in December its first cargo of used cooking oil. these days is starting the operations in Cartagena. In the chemical business, demand in Western Europe remain weak, with prospects of a recovery being pushed back to 2024, the second half of 2024. Fourth quarter, petrochemical margin indicator was 165 euros per ton. was in line with the third quarter and 26% below the same period a year ago. And the full year average was 24% below 2022, reflecting lower sales prices, and that was partially compensated by lower energy costs and also a cheaper NAFTA. The EBITDA at CCS contribution of chemicals in 2023 was negative, minus 83 million euros for the whole year. The customer division delivered record levels of EBITDA in 2023, despite lower sales in service stations and in wholesale. The contribution of our successful multi-energy strategy built around the Wylit app is helping us to capture new clients, retain our customer base, and generate cross-selling opportunities. In this line, the number of digital users of Wylit reached almost 8 million by the end of December, a 2 million increase over 2022. Fourth quarter adjusted income was 102 million euros. That was 58 million lower than the last quarter of 2022. That was mainly due to the lower a direct sales figure, and lower margins in LPG because the gap effect in the regulated formula of the LPG that was playing positively in 2022 and negatively in 2023. Full year earnings were 600 14 million euros, 56% higher than in 2022, boost by the outstanding performance of the mobility business. The business increased its operating result by 71% year over year. And I want to underline that our retail power and gas business reached 2.2 million customers as of December, 700,000 new clients increasing in 2023. Finally, low carbon generation. Renewable generation in Spain reached record levels in 2023, covering more than half of the power demand in the country. Fourth quarter adjusted income was 16 million euros, which compares to a result of 7 million euros in 2022. That was driven by a higher renewable generation that was partially upset by lower results in CCGTs and a lower pool price in Spain. Full year adjusted income was 75 million euros, 48 lower than in 2022, as a higher production in wind and solar couldn't compensate the lower contribution of the CCGTs, the combined cycles, and also lower pool prices. In November, Repsol incorporated Ponte Gadea as partner with a 48% minority stake to a 618 megawatts portfolio in Spain for 363 million euros. It was the third time that Ponte Gadea has taken a stake in Repsol's renewable assets. We are very proud of that. And the fourth asset level rotation completed by Repsol. The acquisition of ConnectGen in the States for $782 million announced in September is expected to be closed in February this month. And with this transaction, we are adding a material onshore wind platform in the U.S. with a 20 gigawatt pipeline that also includes solar and energy storage projects. Last year, we set up a record of 1.1 gigawatts of new renewable capacity in 2023. And thanks to the new solution, we reached the figure of 2.8 gigawatts of total renewable generation capacity in operation by year end, by December. Spain, US, Chile, and Italy. In 2024, we expect to add another 1.3 gigawatts in operation. Thanks to new additions in Spain, they start production in outposts in the States and the ramp up of the FRI project also in the US. The strong financial and operational performance across our four divisions allow Repsol to deliver a very solid set of results and cash generation in the year. At group level, fourth quarter adjusted income was 1.2 billion euros, putting the total result to December to 5 billion euros, 26% below full year 2022. The cash flow from operation was 2.2 billion in the last quarter of the year, full year. Cash flow from operations was 7.1 billion euros, and that was also aligned with the last guidance in the third quarter of 2023. Net debt stood at 2.1 billion euros as of December, a 7% reduction compared to the previous year. And as mentioned before, this figure includes what is the cash out, I mean, the financial debt that is going to match with the cash out we are going to make this second quarter of this year, coming from the agreement with Sinopec. Shareholder distribution total 2.46 billion euros through a combination of dividends and share buybacks. Delivering on our committed remuneration objective. Remember that we talked about 2.4 billion euros in July when we presented the second quarter result. That is 35% of the cash flow from operations generated in 2023 after deducting the 2.4. 2 billion euros cash out for the settlement of Maxus, as we also announced, or close to 34% of the total cash flow from operations, if we include this figure. That is surpassing the higher end of our initial distribution range of 25% to 30% announced at the beginning of the year. The strong cash flow generation from our business together with the contribution of disposals and portfolio actions allow us to finish the year in a very strong financial position with very low giving. And this position give us some kind of comfortability to face uncertainties in the macro environment and to continue also offering an attractive distribution even in less favorable commodity price scenarios. As part of this commitment to improve the remuneration to our shareholders, we are increasing the 2024 cash dividend to 90 cents per share, percent higher, comparing with 2023. And in addition, yesterday, the Board of Directors approved a 35 million share buyback program to be launched during the next days, weeks, with the intention of canceling 40 million shares before the end of July. This figure will be complemented later in the year to comply with our cash flow from operation distribution commitment. So the figure something between 25-35%. With this, we can continue to our update roadmap for 2024 to 2027. Let me start by summarizing the delivery complete in the last three years. Since we launched Our previous strategic plan, Repsol, has achieved an extraordinary financial performance, built on a supportive environment, is true, but also the solid operations across all the four divisions of Repsol. It has been three years of remarkable cash generation and earnings, delivering more than 21 million euros of cash flow from operations and 14 billion euros of adjusted income over the last three years we have reduced our net debt by almost 5 billion euros and are getting from 25 to 7 percent over the period furthermore we have distributed more than 6 billion euros to our shareholders combining dividends and buybacks and we have cancelled at 20 percent of the total capital the total shares of the company over the last three years we have also invested 13.4 billion euros developing our business and 32 in low carbon platforms and after the investment and asset rotation it implies a net capex of 11.3 billion in the period We have significantly exceeded the financial targets that we presented in the 2021-2025 plan over this period of three years. And the extra cash generated was applied heavily among higher distributions. capex, more capex than that was announced in 2020, and debt in accordance with the capital framework that we defined in our strategy. This let us move faster towards our longer-term objectives, accelerating the portfolio transformation, increasing the returns to our shareholders, and maintaining a solid balance sheet that provides flexibility in the face of uncertain macro scenario. Our team has pursued a very intense activity, both in our Iberian hinterland and also in our international operations. In Iberia, since 2022, we have approved several transformation projects in our industrial hubs that you could see in this slide, with a focus on reinforcing profitability, efficiency in our legacy asset, but also creating an scalable low-carbon platform in our industrial business. In retail, we have had 6 million digital clients over the period, and we have increased 1.1 million power and gas customers. Remember that Repsol is now the fourth operator in the retail power business in Spain, and we launched this business at the end of 2018. So we have built this position almost from the scratch. In renewables, we have put in operation 0.9 gigawatts. in Spain of new greenfield generation capacity. And that was aligned with our growth model in this business. Yet you know that it's fully focused on returns without limited equity exposure. completing the asset level rotation operation that was completed four times over the period in Spain. Globally, we have made great progress in the high grading of our upstream portfolio, approving new projects, taking FIDs. At the same time, we were optimizing our geographical footprint. In renewables, we enter the U.S. markets through our stake in Hecate and the acquisition of ConnectGen. And we have put 0.6 gigawatts already of new capacity in operation during this period. And in Chile, we start up our first 0.2 gigawatts through our JB with . Our company-wide a procurement program generated more than 260 million euros in savings 2021-2023. In addition, we launched the second wave of our digital program. And last but not least, we have made major progress developing a corporate model we envision, adapting our corporate model to every vertical, bringing world-class strategic partners to our upstream and the low-carbon generation businesses. The delivery story allowed us to make consistent progress towards the operational targets set in our previous strategic plan. Upstream average production was somehow behind the target in large part because of a successful divestment activity. Green hydrogen will continue to be a key strategic line of action to decarbonize our industrial assets. However, we have decided to postpone some FIDs to ensure we are getting the right level of returns and risk for our capital. Positive market fundamentals support our main macro assumptions for this strategic update horizon. We see, it's curious, Some of you, you were in the ESG day in London, and we were talking about the energy trilemma. I think that things are changing. And in Europe, we are starting to give in a bit more of relevance to the security of supply and the energy affordability on top of the target of the carbonizing the economy. And this balanced view is positive for Repsol. The outlook for our industry remains solid, with a growing energy demand that will support resilient, although volatile, prices. And in addition to the growth of renewable sources, conventional fuels will continue to play a key role in energy mix. We expect that recent underinvestment, raising energy demand and geopolitical aspects, will support commodity prices in coming years. We expect refining margins to remain strong in the short term, due to restricted Russian supply and the capacity reduction in the world post-pandemic. From 2025 on, it is true that we see margins normalising, but still at healthy levels, driven by the balance of capacity additions and closures, higher export competition and less supportive demand. For gas, in 2024, we see the U.S. spot prices to remain close to last year, consistent with a scenario with a high inventory level, a high production. In the longer term, momentum for LNG investment and contracting activity has remained strong. while players continue to position foreign markets with limited Russian gas to Europe and increasing more and more Asian LNG demand. In the regulatory framework, we see the need for steps that have to be taken to ensure the right incentives and stability needed for investments in the new low-carbon sources. These investments are crucial to achieve the decarbonization objectives that will generate material value pools and to be tackled by players like Repsol that are able to develop sustained advantages in the new markets. For this strategic update, we have worked with two planning scenarios. We don't have any crystal ball, but we have to play with the scenarios. What we call the central in this presentation is based mainly on market consensus and a lower, more conservative case. Both cases share a common price debt for 2024. That is the guidance for the 2024 year we gave before. The lower case aims to demonstrate that even Under those low assumptions, the cash dividend growth that we will discuss later is fully guaranteed in Repsol in coming years. We are providing details on these scenarios in the appendix of this presentation.