TotalEnergies SE (TTE) 2004 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to this TOTAL First Quarter 2004 Results Conference Call. At this time, all the participants are in a listen-only mode. Later we will conduct a question-and-answer sessions and instructions will follow at that time. If anyone should require assistance during the conference, please press "*" followed by "0" on your telephone keypad. Just to remind you all this conference is being record. I would now like to hand over to your Chairperson, Mr. Robert Castaigne. Please go ahead, sir.

Yes. Good afternoon. And good morning to you in [inaudible]. Today I wish to have few words about the first quarter results, the market environment, and the business segments. And then I will take your questions. As a whole, we had a strong first quarter. Actually when expressed in dollar terms, it is a new record level of earnings for us.

Earnings per share were up by 13% in dollar terms. There were no special items in the first quarter of last year, and almost no special items in the first quarter of 2004. Because of the significant decrease in the value of the dollar to the euro minus 14%, the environment was negative for our first quarter results in euro. Just a few additional points to make [clear].

First, we are continuing to buy back shares, 4.3 million in the first quarter, [especially] the 1.8 million in April, this is approximately 1% of total shares so far this year.

Second, our net-debt-to-equity ratio at the end of March was very low [inaudible] 18.7%, but as soon we pay a dividend this month, it will go up by about 10 points.

[inaudible] there is a mistake in the press release; the dividend payment date should be May 24, as we said in the February press release, and not May 25. Anyway, we have submitted for the shareholders approval at a [general] meeting next week, the net dividend of 4.7 euro per share, which is a 15% increase from last year in euro. Going forward, our intention is to continue buying back shares, using the free cash flow after CapEx and dividend, and at the same time to keep reviewing at [around] 25-30%.

Now, looking at the results, operating income from the business segments was lower by 9% at 3.6 billion euro. Net income adjusted for special items decreased by 7% to 1.98 billion euros. By comparison, our net income expressed in dollar increased by 9% to 2.47 billion and earnings per share increased by 13% to $3.97 per share.

The Group's return on capital employed was 19% for the 12-month period ended March 31. Our annualized first quarter return on capital employed would be 21%, which is at the high [inaudible] after adjusting for special items. Cash flow [inaudible].

Cash flow from operating activities was up by 7% to 4.08 billion euro, which contrasts with the 7% decrease in our [euro-based] net income, and is explained primarily by the strong reduction in working capital.

CapEx was 1.6 billion euros this quarter, which is about $2 billion. I can't say that our spending is in line with our budget, which, I'd remind you, is $10 billion for this year.

Now, I would like to touch on the few of the highlights for the quarter. In the Upstream, production increased by 4.7% to 2.63 million barrels of oil equivalent per day. We are [inaudible] production growth, [inaudible] of which 32 [inaudible] in the first quarter and [inaudible] were much higher, [inaudible] due to the 1% [inaudible].

The remaining 3.7% can be explained by new start-ups such as Amenam in Nigeria, Matterhorn in the Gulf of Mexico, and by [production] of Sincor in Venezuela, which was a affected by the strikes last year, and also stronger production from Indonesia and Argentina.

Our target [inaudible] is 4% on [inaudible] for coming years between 2003 and 2008. We are not [setting] targets for 2004. [inaudible] the higher oil pricing has an impact on [inaudible] we do not [inaudible] is a problem if we cant [enjoy] the type of fuel price that we have now.

Downstream, operating income was down compared to last year, mainly because we are [having] margins well below the very high levels reached one year ago, remember the situation where we ware and also we had slightly [lower] marketing margin, as well, the impact of the weaker dollar.

Chemicals, operating income increased, but it seems that we may be [inaudible] in the cycle. [inaudible] reorganization of the chemicals [inaudible] senior management [inaudible] chlorochemical, intermediate, and performance polymers was made last month, and this represents [inaudible] in this quarter of creating this new independent entity.

Before closing, I would also like to say a word about the proposed Sanofi-Aventis merger. We supported the increase [inaudible] bid that Sanofi has made for Aventis. In our view, as the shareholders of Sanofi, we have confidence that this combination will create value. Having said that, we can feel that this is not a [inaudible] and we would seek to monetize its position [inaudible] we jump in.

So, to sum up, we had a very good first quarter, [inaudible] Chemicals, operating income increased, but it seems that there may be something recovery in the cycle. One way of the [inaudible] reorganization of the chemicals, the senior management of the new entity, CIP, chlorochemicals, intermediates, and performance polymers was named last month, and this represents as I said, cross sales of treating this new and independent entity.

Before closing, I would also like to say a word about the proposed Sanofi-Aventis merger. We supported the increased and our friendly bid that Sanofi has made for Aventis. We know, you as the shareholders of Sanofi; we have confident that this combination will create value. Having said that, we can feel that this is not a corset and we would seek to monetize the position of as and when we jump in.

So, to sum it, we had a very good first quarter, particularly in the last times. In the beginning of the second quarter, the oil market environment continues to be favorable both in terms of oil price and refining margins in Europe and we are confident that on our track record and on [inaudible] deployed, that we can continue to bid even on the [inaudible] for profitable growth. Thank you, for your time. Now I am ready for your questions.

Thank you, Mr. Castaigne. Ladies and gentlemen, if you would like to register for a question at this time, please press the number "1" on your telephone keypad. Once again if you would like to register for a question press the number "1" on your telephone keypad to register. The "#" or "#" key to cancel you question. Our first question is from Neil Perry from UBS London. Please go ahead, sir.

And Robert, hello. It's Neil Perry.

Yeah.

I have been reading comment that you were making at the press conference and said that your potential interest, can you clarify as far as you can, what your position is in towards, at that at the moment? And secondly, just from the balance sheet, you like to have cash, but you're carrying $16 billion of cash at the moment, can you comment on why you [chose to look like that]?

Okay. Turning to [inaudible] maybe just before, saying one word [inaudible] or accretion I would like to remind you that we don't need the acquisition to go. We utilize to our goal at a competitive cost, say to high quality portfolio and [fixed tool] operations, pertaining [inaudible] In recent quarters, first we usually do not comment on June. It is tool early too do that we are interested in [Russia] due to the huge recess of oil and gas that are in this country, then if you have to accretive, as it is okay, it's the way, we wished to be any of both would you like. So, that's what I can say about in there.

Overall growth, I mean, can you just tell us in long term, what is your criteria, bench mark for acquisition, considering acquisitions to-date, if you are looking at something like that?

Of course, selling criteria, you know, that's you will be relatively [concerned]. You know, if that concern is the criteria, [inaudible] assumption to make acquisitions. Two assumptions; one assumption I am telling is the evolution of the oil price, and other assumption comes [inaudible] Continuous evolution of the oil price, so acquisition I think, we have to seek, with our long-term assumption for oil price. And in some case this maybe, we can take into account as the oil prices that is given, but the future, if it is an acquisition, we will report it to you. And upcoming June, the criteria of profitability this will depend on [inaudible] where the set position will be and of course, we will have two things into account risk factors attached to [inaudible]. Two I think, that acquisition [inaudible] is a criteria that we always adopted.

Okay Thank you.

I think there was, there was an equation continued discussion we were opting to [inaudible]. It's true that we are very long [short imposition] of gas [inaudible]. You can also see that we have a -- kind of, a little short financial [inaudible] wells, if into the 4 billion [inaudible]. And which [inaudible] now we have been finding this bigger launch, and you can see that your one time dividend will be 3, four minus three and into it remain one. Now why do we have these amounts of cost adjust because from time to time, when we make certain up cost in order to be on market, the [inaudible] the big growth, [inaudible] high level of CapEx we have in over [inaudible].

Thanks very much.

Thank you. Our next question is coming from Catherine Arnfield (ph.) of Credit Suisse First Boston, London. Please go ahead, madam.

Thanks. Hi, Robert. I just like to

Good afternoon [inaudible].

[inaudible] your tax rate, which did quite high. And I just wanted to check that up, is there any due to the higher level of upstreet business. There was nothing else [inaudible] going on the taxes. I mean, other question was what your guidance will be for the tax rate for the year for the [inaudible].

In fact, the tax rate looks a little higher than it was in the first half of 2003. Just because we have last year tax credit attached to the disposals of the oil and [gas] segment [inaudible] euros. That is something that we don't have this year. And I think this explains [inaudible] tax rate between the first quarter 2003 and 04. Concerning the full year 2004, I think we should have the tax rate more or less in line with what we have added for [inaudible] depends [inaudible] we enjoyed a great deal [inaudible] more or less [inaudible]

Thanks very much.

Thank you. Our next question is from David Klein (ph.), Exxon Bendipa (ph.). Please go ahead sir with your question.

Yeah good afternoon. I have two questions. You didn't have a target for full year 2004 oil and gas production. But I wondered what you can give us some guidance for example as to whether you expect 2004 growth to be below expected trend rating 2004-2008 [inaudible]. Second, can you just talk a little bit, it's about the contribution to the downstream results of activity like trading and shipping and how they [inaudible] year-on-year?

[Outstanding] target for 2004, we [inaudible] 2004 just to take for different, [inaudible] due to the fact that last year, our position in [inaudible] was I think [inaudible]. It's clear that [inaudible] we couldn't have [inaudible] and may be this can similar [inaudible] expect from somewhere [inaudible] we had some technical difficulties, and things are going still much better. So I think, that's all I got to say. But again, we are confident with the evolution of [inaudible] yet to come. [Inaudible] trading activities and the operating profit, I think we do not comment on the results of trading and shipping. What I can see is that shipping was [inaudible] shipping activities. It was a little higher something like 20 million euros that's where we were last year. [inaudible] I think I don't see any significant changes between 2003 2004 or the results will [inaudible].

Thank you.

Thank you. Our next question from Tim Woodakert (ph.) Lehman Brothers, London. Please go ahead with your question.

Yes hello.

Hello.

Three questions please. First of all, the refining markets in the US were what [inaudible] Europe in the first quarter. Can you discuss, what proportion of the product, you sent to the US, may be give us indication of the relative economic of those two. And secondly you continue to buyback shares in April quite aggressively. Could you explain that the [inaudible] restrictions on the purchase of the shares?

Okay. [inaudible] two weeks before, we announced the results in November [inaudible]. This is the [inaudible] we are which relate to share buybacks. Its clear that you know, that the evolution of [inaudible] we did share buyback. And [inaudible] as we mentioned in our remarks, refining margins were higher in the States, with respect to [inaudible] of oil [inaudible] capacities of 100 million tons, we should produce some sink like 25 million ton of gasoline more or less which we means that we expect to the US [inaudible] winning position. Yes you were right to mention that [inaudible] Europe to the US, usually one finding source of the deciding margin in the US, we have and something we haven't known for over two weeks. Just because of the level of [inaudible] gasoline now will be high.

Has your level of exports changed as the refining margins have changed in the US with Europe?

I must admit that [inaudible] on day-to-day basis, but a little higher note, but not significant.

Okay. Thank you.

Next question.

Thank you. Our next question is from Neil McKinnon (ph.) Sanford Bernstein in London. Please go ahead.

Good afternoon.

Good afternoon. Neil.

Three questions. The first one just looking at the your European gas volumes [inaudible] 6% when it likes weather conditions in Europe were roughly similar to what they were like at the first quarter '03. Just wondering if the production problems that you mentioned so far were a result of that. And secondly, just looking at the deepwater condition, the deepwater discoveries in West Africa, could you may be comment on the new discoveries that they are big enough to be developed on a standalone basis or they are more in sort of 200-300 million barrels discovery market, may have to be tighten together to form and development?

I need to quicken, you mentioned three I think.

Obviously the third one was just one back to Russia. Just wondering on thoughts were on [inaudible] and nothing much on the company, but in terms of the controlled FUN [inaudible] Russian Oil Company, if you have any thoughts on a 50% controlling out stake versus the 25% stake.

[inaudible] I am not sure to this question to the level of confidence [inaudible] first quarter 2003 and 2004 [inaudible] as far as I know, we are replacing Indonesia and [inaudible] you I mentioned to [inaudible] but as I understood, that this has been now solved and we certainly will be back to the expected level of the [inaudible] to the [inaudible] as to the US [inaudible] the discovery that we made on 52 in [Ongola] what we could expect about this discovery and I think that it is a little bit early to be very probation about the magnitude of the discovery, we have a feeling that it is really and by the way to wait this is not very fast forward in [inaudible] although the discovery that should have let say about the magnitude and not very powerful from [inaudible] a even the passage to be they have got the lines of an independent, but its too early to say that but what we consider is that we have confident that this there should be some recovery.

Thanks a lot just a follow-up on all [inaudible] the European [inaudible] any guidance on how much volumes and in terms of gases lost in the first quarter from the Holland technical difficulties.

920,000 barrel of liquid [inaudible] what I have mind I was asking that [inaudible] from my colleagues 22-20,000 barrel for the fuel I am sorry.

Okay. Great. Thank you very much.

Okay. next question.

We have got a next question from Domino Betis (ph.) [inaudible]. Please go ahead with the question.

Yeah good afternoon.

Good afternoon Domino.

I had a question regarding the critical EPS of the external division due the fact that despite to a slightly stronger than expected position growth exceeded expectation according to this [inaudible] division, so I was wondering mainly you could quantify in euros, it sounds like [inaudible] which could have impacted profitability of the production division in the first quarter.

Having the impact of the [inaudible] the impact and profitability of [inaudible] that we lost either win.

Yes [inaudible] additional [inaudible] that could add [inaudible] business quarter [inaudible]

No there has been no impact.

Okay.

May be just once again something that we [inaudible] the profitability for the first quarter should be 50% -- 50%-52% is what I have to tell. Okay.

Okay. And I have another question on your equity affiliates here. You have had a nice specimen in the first quarter. It was [inaudible] related, could you drive us what if you could come on that please?

Its [inaudible] two things. First thing, [inaudible] in Nigeria and J Company [inaudible] and I think its Nigeria instead of the [inaudible], okay.

Okay. thank you.

[inaudible]

Thank you. Our next comes from Andrew Archer (ph.) from Commerzbank in London. Please go ahead with your question.

Hi good afternoon.

Hi.

Hello. A question on tax rate you answered a couple earlier. Just wanted to confirm what your thoughts were about normalized tax rate for the group. At your plannin assumptions and secondly you talked about improved environments chemicals in the first quarter but didn't expectedly included that in the outlook. Could you just say what kind of conditions you are seeing with that improved demand picture is [inaudible] volumes and margins now?

Bob, it's a nominal tax rate I would say, you can take 60% of the upstream and 50% for downstream and chemical because of whose is a combined tax rate, would depend on [inaudible] I think are probably productivity and second question can tell chemically environment just has been in move according to the results and more than [inaudible] that we are receiving out of some indicative that situation should improve I can see both in your in industry.

That's all right. Thank you so much.

Thank you.

Thank you our next question from Neil Morton (ph.) DrKW in London. Please go ahead with your question.

Thank you good afternoon; I have a couple of financial questions please. I noticed in your cash flow statement that you had a large reduction in working capital in the first quarter, which repairs a sizeable bill in Q4, I wondered if there are any sort of yearend effects there?

There is one just because [inaudible] from this question because there are some countries for example, like Germany, where we have to pay consumer [inaudible] on gasoline and diesel oil before 31st of December and there are also some other country like Belgium or Italy where we have to pay some taxes over the last quarter, we have to pay takes before the 31st of December just for [inaudible] reasons linked to situation of Germany [inaudible]we have an increase in working capital of last quarter and a decrease in the first quarter. [inaudible] as you may have seen, we have [inaudible] working capital during the first quarter of 2004 and the fourth quarter of 2003 [inaudible] the issues that you have mentioned.

Okay that's fine. Thank you. Just a quick follow-up question on this issue of playing the money market. Can you make use of make money under all conditions that actually depend on the shape of yield curve and typically how much money do you make in a quarter?

[inaudible]

And could you quantify that [inaudible]

Yes we are getting efficient. For example. We [inaudible] 1 billion euros and to [inaudible] and to invest this 1 billion euros with [inaudible] with the gain of plus [inaudible] the year. Okay.

Okay.

Sure. And then I believe [inaudible] represent on the market, on the financial [inaudible]. This is what I am trying to say -- we are [inaudible] clear, it is not a not a bulk of our financial activity, but some time, Doug, [inaudible] result.

Okay. Thank you.

Okay, but we have very [inaudible].

Sure.

Next question.

Thank you, sir. Next question comes from Iva Humana (ph.) Morgan Stanley, please go ahead with your question.

Good afternoon [Humana].

Good afternoon Robert. Firstly, a question on chemicals, can you help to quantify for us the contribution made in the quarter by Samsung and remind us when you started consolidating? And my second question concerns some of -- in the context of the comment you made on some of the -- you have stated in the past that you need about $17 [inaudible] your cash goes to [balance]. Just trying to understand how the Board looks at some of the -- could you [inaudible] for us where that breakeven price includes? I am assuming some of your disposal in [inaudible] the organic?

That's all. [Regarding] the chemicals, you know that Samsung -- and we consolidate 50% of Samsung. It's a [inaudible] consolidation and [inaudible] of Samsung for the first quarter was [inaudible] is under 40 million euros in terms of operating profit. Then [inaudible] yes, I told you that we have -- I mentioned $17 [inaudible] I think for 2004, it should be either higher, but it seems like in the [inaudible] plus or minus something. It was [inaudible] it was after payment of dividend and after CapEx, but you have be consider [inaudible] dividend, we take something like 50% of the dividend [inaudible] that we would have within a price of $18 or $19 [inaudible] increase --

After the [inaudible].

Okay, because of [inaudible] when I see that we are [inaudible] that the dividend in line with the result that we would have had with this old price of [inaudible].

Sure, [inaudible] just a supplementary on [inaudible] was there any contribution in Q1 last year [inaudible].

No, no, Samsung we require a [inaudible] discussion for this 2003.

Okay, thank you,

Next question.

Thank you. Next question from [inaudible], please go ahead with your question.

Hi, [inaudible] Jason from [inaudible].

Good afternoon Jason.

I was wondering if there had been any progress with the arbitration of the sector and I [inaudible] before November this year, I think [inaudible] quite easily.

No. You know that the first part of the arbitration [inaudible] and we are now, I would say, feeling the [insertion] of the arbitration on the ground and the residual is expected [inaudible] for 2005, let's say, in the middle of 2005 and what I can say is it's a lot of [inaudible]

Are you having to provide for anything there or is it --

No

So, you have to wait and see?

No, we have to wait see, yes, absolutely.

Okay, thanks.

Thank you.

Thank you. Your next question from Mark Lacey of J.P. Morgan in London, please go ahead with your question.

Yeah hi. I have a very very simple question actually. [inaudible] acquisitions [inaudible] about direct acquisitions, but given current oil price environment, [inaudible] that your flexibility of purchases had changed at all or you still got any strict disciplined criteria in place over the last few year? And a follow-up question [inaudible] if you don't down [inaudible] given a little bit of pricing, it's been high for majority of companies, will you see discipline [inaudible] in time, which just mean that you would look to increase your organic expenditures [inaudible] CapEx?

I would say considering the second part of your question, very finally no obvious link between [inaudible] as it is today and the level of [inaudible] because in -- if you are in the [inaudible] long time and it's very important to be sure to have a profitability if we assume whether we will see a long-term [inaudible]. Let's see it's continued after [inaudible] with strong resilience with $17 [inaudible] and I think we cannot speculate on long-term [inaudible] what it is now. And [inaudible] the acquisition, I think I told a few minutes ago that we could the [accept the effects] of any acquisition if there is an acquisition [inaudible] it's clear that we could accept to take in to account the level of the [inaudible] price which is given by future for the next, I would say, 2 or 3 years, but we have to be very, very [inaudible] then I repeat, [inaudible] all party's once it is [inaudible] timing to make acquisition because it's clear that still we try to take a [inaudible] will not be ready due to [inaudible] situation.

Okay. [inaudible] you really have to write [inaudible] risk to like that [inaudible]

[inaudible] yes.

Okay. Thank you very much. there

Thank you. Your next comes come [inaudible] from Deutsche Bank, please go ahead with your question.

I wonder if -- [inaudible] from Deutsche Bank. I wonder if I could go back to Russia for a second. [inaudible] well, let me try this one. A year ago, I think, you [inaudible] in Russia was very much based on Greenfield [effects] and [inaudible] about the quality and [what], I call the Soviet vintage companies, whereas I think today you are [slipping] pretty heavily with one of those companies. Could you talk about what's happening with your [inaudible] strategy there and what made you change your view on the older asset base?

Oh, we have not changed our view, but I must admit that what you called our infill strategy, if it has not changed, we still have some idea to project, but it's clear that the situation has not really changed, whether it is for [inaudible] where we are still negotiating with [companies]. [inaudible] I think is not, really no, [inaudible] forward talking and we feel that [inaudible] referred to that as some project of exploration. But I don't admit that there have been -- there not have been a lot of changes since last year. But it's right. So --

And with respect to the [Sidnex FX], if you were to take a position there, that's a very different style of activity --

I would be --

I am trying to ask -- I mean why do you now think that's a reasonable thing to whereas previously you didn't?

By the way, I am not seeing, is that -- we are particularly into [inaudible] I think it was your point [inaudible] again, we are -- recent years, but I shouldn't [inaudible] we see [inaudible] so that we labor with the some of the oil companies and if the reason of probability will, if we look at it as we look at all the possibilities so if the reason to make a specific distinction [inaudible] of [inaudible] oil and gas company.

Okay and then just keeping going with that fee I mean would be comfortable with a Russian operator up on your [inaudible] employees.

Comfortable I think it would depend on many things, on the order of magnitude on what we could guess [inaudible] or I don't know what issues [inaudible] management I think it's very difficult to give and [inaudible] that [inaudible] this could have to be [inaudible] figure it's a type of figure that we should take into account.

Alright, okay.

That's [inaudible] most difficult. Okay? Hello.

Thank you very much.

Thank you. The next question from Catherine Arnfield (ph.) from the Credit Suisse First Boston in London. Please go ahead.

Yes I just [inaudible] a follow up question.

Yes.

[Inaudible] I think on the question from elaboration I think on a question that [inaudible] from [inaudible] about energy I was wondering if you can give us any guidance on where technical costs were in the first quarter?

Oh I think it's very difficult to speak technical question on a quarterly basis, something's that we do want to hear it specially because this week [inaudible] because [inaudible] imagination which is only linked with the evolution of the result and what I can see that there is no one [inaudible]. We do not say no in the increases but I think it we don't think that we can raise any new ones a year.

Okay. Thank you.

Okay.

Thank you. The next comes from Mark Gilmen (ph.), Benchmark (ph.) in New York. Please go ahead with your question?

Robert, good afternoon. I have two questions. First, in your comments you indicated that relaxation of OPEC quarter including 1% to your production growth. I wonder if you discuss the decline in your Middle East in liquid production year-over-year of 8% in the context of that remark? Secondly, by my calculation, the unit depreciation and depletions on the upstream side of the business year-over-year continues be go out at a fairly significant pace. Could you comment on the extent to which that is driven by dollar euro relationships or other factors that you may recall?

Driven by the euro the dollar relationships, you are right. Containing the decreasing position in the neither of the size is increase you know big [quota]. This is due to the subject we are now at the end of the contract of CV in [inaudible] and also at the end of cost recovery period [inaudible] Phase I and this out of the two elements that explain the degrees in pollution in Middle East. Having said that, those had to -- it sounds like [inaudible] is expected to start up in recovering loans and could help do a recovery of pollution intermediately.

Thank you, Robert.

Okay.

Thank you, once again. Ladies and gentlemen, if you would like to register for a question, please press the number "1" on your telephone keypad and then just number "1" if you would like to register. For "#" or the pound key to cancel. Our next question comes from Pete Buckley (ph.) from HSBC. Please go ahead. Mr. Buckley, your line is now open.

Hello.

Yeah. Questions [inaudible].

That question has [inaudible]. Mr. Castaigne you currently have no further questions at this time, so I'll hand the conference back to you for any further final remarks.

No, just to thank very much all our people that have participated to this conference call, for their attention and I wish them a good weekend. Thank you.

Thank you, ladies and gentlemen for participating in the Total third quarter 2004 results. This concludes our conference; you may now all disconnect your lines. Thank you.

Thank you.