THE SKEPTIC Repsol Confusion No Help To Investors

By Robert S Duncan

30 July 2002

Dow Jones International News

A DOW JONES NEWSWIRES COLUMN

This was a big quarter for Repsol-YPF (REP): as investors were waiting to see how the company was weathering economic troubles in Argentina.

Specifically, the market wanted to know what Repsol booked for second quarter net profit, clean of all extraordinary items.

Seven analysts all told Dow Jones Newswires this was the figure they were looking for, and gave a consensus estimate of EUR268 million for Repsol's second-quarter profit on that basis.

With so much expectation in the air, one would have thought the company would make its earnings, well, a bit more presentable.

Instead, Repsol issued a maelstrom of press releases, each with a different piece of the puzzle. Only after combing through the various items, and various calls to Repsol's press office, could a sketchy picture emerge from the fog.

And the figure the market was looking for? Well, it wasn't so "clean" after all.

Repsol said its first half net profit was EUR1.30 billion, up from EUR1.25 billion for the same period last year.

For the second quarter, the company said, net profit was EUR1.0 billion, up from EUR650 million last year. Before extraordinary gains and goodwill writeoffs, the profit was EUR471 million, down from EUR742 million last year.

Sounds clear enough, right?

Then why are analysts coming up with various "clean" quarterly figures?

Take the case of Dr KW, which says Repsol puts its estimate of its "clean" second quarter net profit at EUR324 million. CSFB, meanwhile, says the clean number is EUR304 million.

And some observers are still reporting the company hasn't released stripped-out second-quarter figures at all.

Here's what investors have to wade through, all from releases sent from Repsol:

- Extraordinary gains from the sale of a 23% stake in Gas Natural SDG SA (E.GSN) for EUR2.23 billion;

- EUR341 million against the P&L related to Argentina;

- Writing off EUR147 million of goodwill, primarily related to its purchase of Argentine oil company YPF;

- EUR251 million in second-quarter Argentine provisions;

- An additional EUR1.25 billion provisions fund to cover the depreciation in value of its interest in YPF ... meaning Repsol has now made total provisions of EUR4.24 billion for the Argentine crisis.

Investors and analysts will eventually pull together a complete picture of Repsol's financial situation from the many pieces. When it's all digested, they'll be able to make an informed investment decision.

But it shouldn't have to take that long.

In the current shaky environment, companies should be making every effort to inform quickly, clearly and concisely about the current status of their balance sheet.

It looks like Repsol has done poorly on that test, this quarter.