Petrobras Publishes Financial Statement but Money Lost to Corruption Remains Unknown

01/28/2015 - 11h20

Petrobras published on Wednesday morning (28) its financial statement for the third trimester of 2014, having twice delayed publication.

The company saw its profits fall 38% in comparison with the previous trimester, from US $190.5 million to US $120.5 million. Compared to the same trimester the previous year, profits were down by 9%.

However, the statement does not take into account money lost to the corruption scheme currently under investigation in Operation Lava Jato, nor the fall in the recoverable amount of Petrobras assets as a result of the scandal.

The company had delayed publication of the statement from November 14 in order to make these adjustments.

Petrobras claims that the methodology used to subtract money lost to corruption between 2004 and 2012, included illegitimately as investment, proved "inadequate".

As a result, it reneged on the promise to subtract this value from its assets. According to the company, the methodology contained "features which did not have a direct relation with illegitimate payments."

In a communique published with the financial statements, Maria das Graças Foster, Petrobras president, recognized the need for the adjustments, but said, "the exact quantification of the values that were illegitimately included is impractical, given that the payments were made by external suppliers and cannot be traced in the company accounts."

Foster said that the methodology used, then subsequently discarded, suggested the need to amend US $23.8 billion in company assets, with US $34.4 billion needing to be subtracted and US $10.6 billion needing to be added.

In total, assets worth US $73.3 billion were analyzed, "practically a third of fixed company assets", according to the document.

DECISION

The decision to discard the methodology was taken following a meeting of the company's administrative council on Tuesday (27), in which the problems were highlighted.

The company says that it will "ground" another methodology, requesting information from the Securities Commission (CVM) and its American equivalent, the Securities and Exchange Commission (SEC).

According to accounting procedure, the values the company publishes as losses will be subtracted from its assets. Part of this, which cannot currently be defined, will be classified as expenses in the trimester in which this occurs, reducing profits for this period.

As Petrobras failed to make the adjustments it had promised, it warns that the current figures may be subject to revision.

The communique says that the previous methodology would have made an adjustment "comprised of a range of values of diverse natures, impossible to quantify individually", such as exchange, price projections, input margins and products sold, among others.

NO APPROVAL

The statement should have been published by November 14 last year, but it did not receive the approval of the auditing company PricewaterhouseCoopers (PwC), as required by capital markets legislation.

Following the testimony of the ex-Petrobras director Paulo Roberto Costa, currently under house arrest, PwC refused to sign off the company's financial statements until the effects of the corruption scheme had been identified and discounted from the balance.

As a result, Petrobras found itself obliged to revise the assets constructed by companies denounced by Costa, which, since December, have been prevented from signing further contracts with the company.

While the statement published on Wednesday does not meet the full requirements of the law, it does satisfy the demands of the company's creditors, who would otherwise have had the right to bring forward debt repayment to January 30.

EXPENSES

The company attributes the fall in profits in the third trimester to "higher operational costs, owing principally to the fall in values related to the construction of the Premium I and Premium II refineries [in the states of Maranhão and Ceará]", estimated at US $1 billion.

The statement also includes losses with the PIS/Cofins tax, which was collected in error between 1999 and 2002. In total, the net financial expenses in the trimester were US $378 million, US $12.4 million more than in the previous trimester.

The figure for EBITDA (net earnings), fell 28% between the second and third trimester of 2014, from US $6.3 billion to USS $4.5 billion. In the same trimester of the previous year, profit was US $3 billion.

The debt/EBITDA ratio, used by markets to assess debt levels, rose from 3.92 to 4.63 between the second and third trimester.

Foster's aim had been to reduce this to 2.5 by 2015, the rating required by risk classification agencies to maintain a company as "investment grade". Such companies pay less interest to markets when they need to borrow money.

LOSSES

Of the seven sectors of Petrobras' business, six registered operating losses. The company's supply branch registered a loss of US $2 billion, compared to US $1.5 billion in the previous trimester.

Total annual losses were US $5.4 billion.

The Gas and Energy branch registered losses for the third trimester of US $105 million, compared to profits of US $273 million the previous trimester.

Taking the whole year into account, the sector registered a profit of US $368 million, compared to US $489 million in 2013.

Losses in the company's biofuel sector went from US $26 million in the second trimester to US $35 million in the third.

The Exploration and Production sector was the only to register positive balance in the third trimester, with net profits of US $3.9 billion.

However, the result is 6% less than that registered in the previous trimester, of US $4.2 billion. For the year, the sector registered net profit of US $12.2 billion.

Translated by TOM GATEHOUSE

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