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2018-05-10 13:00:00

PETROBRAS NET INCOME $2.145 BLN

PETROBRAS NET INCOME $2.145 BLN

PETROBRASFINANCIAL REPORT 1Q-2018 Results

Gross Profit

Gross profit was US$ 8,254 million in 1Q-2018, a 9% increase compared to US$ 7,563 million in 1Q-2017, mainly due to the increase in Brent prices, which resulted in higher margins of oil exports. In addition, the pricing policy contributed to an increase in oil products margins. There were also higher volumes and margins of natural gas sales. On the other hand, exports and domestic sales volumes of oil products dropped, led by the reduction of oil production and of the domestic demand, and the improvement of Brent prices resulted in higher production taxes. Gross Margin was 36% in 1Q-2018, in line with 1Q-2017.

Operating income and expenses

Operating income was US$ 5,492 million in 1Q-2018, a 21% increase from US$ 4,538 million in 1Q-2017, mainly due to the gains with sale of Exploration & Production assets (Lapa, Iara and Carcará). Further, 1Q-2018 result was impacted by the increase in sale expenses, derived from the payment of tariffs to the third-party gas pipeline company Nova Transportadora do Sudeste S.A. (NTS), which used to be a subsidiary before the sale in 2Q-2017, and by the losses with the fair value adjustment of the put option acquired to hedge part of oil production.

Net Finance Income (Expense)

The net finance expense was US$ 2,235 million in 1Q-2018 million, a 9% decrease compared to US$ 2,465 million in 1Q-2017 as a result of lower financing expenses, due to prepayment of debt, of foreign exchange gains driven by depreciation of the Brazilian Real against the U.S. dollar over the average positive exposure in U.S. dollar and of foreign exchange gains driven by the depreciation of U.S. dollar against the Pound Sterling over the net positive exposure in Pound Sterling in 1Q-2018.

Net income (loss) attributable to the shareholders of Petrobras

Net income attributable to the shareholders of Petrobras was US$ 2,145 million in 1Q-2018, a 51% increase compared to US$ 1,417 million in 1Q-2017. The result improved mainly due to increase in Brent prices and gains with divestments.

Adjusted EBITDA

Adjusted EBITDA was flat at US$ 7,914 million in 1Q-2018, from US$ 8,030 million in 1Q-2017, mainly as a result of foreign translation effects. The Adjusted EBITDA Margin** reached 34% in 1Q-2018, compared to 37% in 1Q-2017.

Net cash provided by operating activities and Free Cash Flow 

Free cash flow was US$ 4,005 million in 1Q-2018, a reduction of 6% when compared to US$ 4,250 million in 1Q-2017, due to the decrease of the net cash provided by operating activities, mainly as a consequence of the payment of the first installment of the class action settlement and of the premium for contracting put options to protect the price of part of the oil production.

ADDITIONAL INFORMATION

II. Results of Operations of 1Q-2018 compared to 1Q-2017

The main functional currency of the Petrobras Group is the Brazilian real, which is the functional currency of the parent company and its Brazilian subsidiaries. As the presentation currency of the Petrobras Group is the U.S. dollar, the results of operations in Brazilian reais are translated into U.S. dollars using the average exchange rates prevailing during the period, as set out in IAS 21 – "The effects of foreign exchanges rates". For detailed information about foreign exchange translation effects on the Company's income statement, see item VII "Foreign exchange translation effects on results of operations of 1Q-2018".

Sales revenues were US$ 22,958 million in 1Q-2018, a 6% increase (US$ 1,221 million) when compared to US$ 21,737 million in 1Q-2017, mainly due to:

 Higher export revenues (US$ 490 million), driven by higher international prices of crude oil and oil products, partially offset by the decrease in crude oil volume exported;

 Higher domestic revenues (US$ 243 million), mainly as a result of:

 Higher revenues of natural gas (US$ 280 million), due to higher sales and prices.

 Higher oil products revenues (US$ 227 million), mainly reflecting an increase in average realization prices of diesel, gasoline and liquefied petroleum gas in accordance with their price policies, as well as higher prices of other oil products following the increase in international prices. These effects were partially offset by the decrease in oil products sales volume due to drop in market share, mainly for diesel and gasoline, as well as lower sales of naphtha to Braskem.

 Higher revenues from operations abroad (US$ 488 million) following higher international prices.

Cost of sales was US$ 14,704 million in 1Q-2018, a 4% increase (US$ 530 million) compared to US$ 14,174 million in 1Q-2017, mainly due to:

 Higher production taxes expenses due to the increase in international prices;

 Higher crude oil import costs, as a result of increased share of imports on processed feedstock,despite the lower sales volumes;

 Increased costs from operations abroad, following higher international prices; and

 Lower oil products import costs, mainly for naphtha and gasoline, as a result of lower sales in the domestic market.

Selling expenses were US$ 1,273 million in 1Q-2018, a 68% increase (US$ 513 million) compared to US$ 760 million in 1Q-2017, mainly due to:

 Higher transportation charges, due to the payment of tariffs by the use of third parties gas pipelines, following the sale of Nova Transportadora do Sudeste (NTS) in 2Q-2017; and

 The increased impairment of trade and other receivables, primarily relating to companies from the electricity sector.

General and administrative expenses were US$ 660 million in 1Q-2018, a 10% decrease (US$ 73 million) compared to US$ 733 million in 1Q-2017, mainly due to lower expenses with outsourced administrative services.

Exploration costs were US$ 136 million in 1Q-2018, a 45% increase (US$ 42 million) compared to US$ 94 million in 1Q-2017, mainly due to provisions related to contractual penalties of local content requirements.

Other taxes were US$ 148 million in 1Q-2018, a US$ 56 million increase compared to US$ 92 million in 1Q-2017, mainly as a result of the Company's decision to join VAT (ICMS) State Tax Amnesty Programs.

Other income and expenses totaled US$ 392 million in expenses in 1Q-2018, a 68% decrease (US$ 847 million) compared to the US$ 1,239 million in expenses in 1Q-2017, mainly due to:

 Gain on sale and write-off of assets, mainly driven by the sale of Lapa and Iara fields (US$ 689 million) and by the contingent payment received by the sale of Carcará (US$ 300 million);

 Compensation for dismissal of Liquigas disposal (US$ 88 million) according to the termination clause within the sale and purchase agreement of this transaction; and

 Negative variation of the market value of commodities put options related to the hedge of part of crude oil production (US$ 217 million).

Net finance expense (income) was US$ 2,235 million in 1Q-2018, a 9% decrease (US$ 230 million) when compared to US$ 2,465 million in 1Q-2017, mainly due to:

 Lower finance expenses (US$ 86 million), mainly due to:

(i) Lower financing expenses in Brazil, due to pre-payment of debts (US$ 96 million).

 Lower foreign exchange and inflation indexation charges (US$ 102 million) generated by:

(i) Foreign exchange gains of US$ 54 million driven by the impact of a 0.5% depreciation of the Brazilian Real against the U.S. dollar over the average positive exposure in U.S. dollar in 1Q-2018, compared to the foreign exchange losses of US$ 63 million due to the 2.8% appreciation of the Brazilian Real against the U.S. dollar over the average negative exposure in U.S. dollar in 1Q-2017 (US$ 117 million);

(ii) Foreign exchange gains of US$ 48 million driven by the impact of a 3.7% depreciation of the U.S. dollar against the Pound Sterling over the net positive exposure in Pound Sterling in 1Q-2018, compared to the foreign exchange losses of US$ 20 million due to the 1.2% depreciation on the net debt in 1Q-2017 (US$ 68 million);

(iii) Foreign exchange losses of US$ 110 million driven by the impact of a 2.4% depreciation of the U.S. dollar against the Euro on the Company's net debt in 1Q-2018, compared to the foreign exchange losses of US$ 94 million driven by the impact of a 1.4% depreciation on the Company's net debt in Euro in 1Q-2017 (US$ 16 million); and

(iv) Higher reclassification of cumulative foreign exchange variation expense from Shareholders' Equity to Net Income due to occurred exports designated for cash flow hedge accounting (US$ 46 million).

Positive results in equity-accounted investments of US$ 158 million in 1Q-2018, a 19% decrease (US$ 37 million) compared to US$ 195 million in 1Q-2017, mainly due to the result in associates of the petrochemical sector.

Income taxes expenses were US$ 1,219 million in 1Q-2018, a 65% increase compared to US$ 737 million in 1Q-2017, as a result of higher taxable income of the period. For more information about income taxes expenses. See Note 19.6 to the unaudited Company´s interim consolidated financial statements.

Loss related to non-controlling interests were US$ 51 million in 1Q-2018, a decrease of 55% in comparison with US$ 114 million in 1Q-2017, mainly reflecting the impact of the foreign exchange depreciation of the Brazilian Real on debt of structured entities in U.S. dollars, partially offset by the positive result of BR Distribuidora.

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Tags: PETROBRAS, BRAZIL