Corral Petroleum Holdings AB (publ) Business Update ... - Preem

Operating income. Operating income for the year ended December 31, 2009 was SEK 4,259 million, an increase ofSEK 5,299 million, from a loss of SEK 1,040 million for the year ended December 31, 2008. The operating income of oursupply and refining segment was SEK 4,847 million for the year ended December 31, 2009, an increase of SEK 5,519million, from a loss of SEK 672 million for the year ended December 31, 2008. This increase was primarily a result of pricegains on our inventories in 2009 in combination with the significant fall in market prices for crude oil and refined productsduring the second half of 2008. Excluding price effects on inventory, our operating income amounted to SEK 1,089 millionfor the year ended December 31, 2009, a decrease of SEK 2,394 million from SEK 3,483 million for the year endedDecember 31, 2008. The decrease in our operating income was primarily attributable to lower diesel margins and a narrowerspread between Dated Brent crude oil and heavy crude oil for the year ended December 31, 2009 as compared to the yearended December 31, 2008. Our marketing segment generated an operating income of SEK 213 million for the year endedDecember 31, 2009, an increase of SEK 219 million from an operating loss of SEK 6 million for the year ended December31, 2008. The increase in the marketing segment’s operating income was primarily a result of higher sales margins and salesvolumes in our marketing operations.Financial expense, net. Our financial expense, net, for the year ended December 31, 2009 was SEK 510 million, adecrease of SEK 3,274 million from SEK 3,784 million for the year ended December 31, 2008. This improvement wasmainly attributable to foreign exchange gains on our loans denominated in dollar and euro and, to some extent, lower interestexpense as a result of lower interest rates. For the year ended December 31, 2009, the foreign exchange gains amounted toSEK 838 million compared to a loss of SEK 2,099 million for the year ended December 31, 2008. In 2009, interest expenseamounted to SEK 1,373 million, a decrease of SEK 282 million from SEK 1,655 million in 2008.Income taxes. Income taxes for the year ended December 31, 2009 were SEK 995 million, an increase of SEK2,470 million from SEK a tax benefit of 1,475 million for the year ended December 31, 2008. The increase was mainlyattributable to higher income before taxes for the year ended December 31, 2009 as compared to the year ended December31, 2008.Net income. Net income for the year ended December 31, 2009 was SEK 2,753 million, an increase of SEK 6,102million from a loss of SEK 3,349 million for the year ended December 31, 2008 as a result of the factors discussed above.Liquidity and Capital ResourcesOverviewOur primary cash requirements include purchase of feedstocks, upgrade and maintenance projects, servicingindebtedness, funding construction and general working capital needs. Our primary sources of liquidity are available cashreserves, internal cash generation, long-term debt, short-term working capital financing and short-term use of excise dutiescollected. We operate in an environment in which liquidity and capital resources are impacted by changes in the prices forcrude oil and refined products, and a variety of additional risks, including currency and regulatory risks. Historically, ourcash and short-term credit have been sufficient to finance such purchases. We depend upon a small number of suppliers andexpect to continue to rely on trade credit from our suppliers to provide a significant amount of our working capital. Preembenefits regularly from approximately $500 million to $600 million of trade credits from a small number of suppliers for thepurchase of crude oil. The trade credit lines are uncommitted and therefore there can be no assurances that Preem cancontinue to benefit from such credit lines. Certain of these credit lines have recently been suspended pending completion of arefinancing but Preem has been able to replace a portion of these suspended credit lines and we have made one letter of creditdrawing of $88 million under our uncommitted A3 credit line under the 2008 Credit Facility in June 2011. If the refinancingis not completed in a timely fashion, there is a significant risk of loss of trade credit. If our suppliers fail to provide us withsufficient trade credit in a timely manner, we may have to use our cash on hand or other sources of financing, which may notbe readily available or, if available, may not be on terms acceptable or favorable to us.As of December 31, 2008, 2009 and 2010, we had cash and cash equivalents of SEK 1,075 million (€118 million),SEK 809 million (€88 million), and SEK 603 million (€66 million), respectively. Our net debt (consisting of the 2008 CreditFacility and the Existing Notes after reduction of cash and cash equivalents) was SEK 14,027 million (€1,534 million) as ofDecember 31, 2010. As of June 30, 2010 and 2011, we had cash and cash equivalents of SEK 414 million (€45 million) andSEK 1,847 million (€202 million), respectively. Our net debt (consisting of the 2008 Credit Facility, the Existing Notes andthe Subordinated Notes after reduction of cash and cash equivalents) was SEK 14,943 million (€1,634 million) as of June 30,2011. Our debt service obligations historically consisted primarily of the 2008 Credit Facility, the Existing Notes and theSubordinated Notes. Going forward, we expect our debt service obligations to consist of (i) semi-annual interest payments onany new notes issued in a refinancing in the form of additional notes (unless the Company is able and elects to pay cashinterest) and (ii) payments of interest on amounts drawn under the New Credit Facility. In line with our strategy to makefocused capital expenditures, we expect to commit approximately SEK 1,000 million (€109.3 million) to capital expendituresin 2011 primarily for planned maintenance turnaround costs at Preemraff Gothenburg, the relocation of the central control24