Interim Results - Part 1
BP PLC
7 August 2001
PART 1
BP p.l.c.
Group Results
Second Quarter and Half Year 2001
London 7 August 2001
FOR IMMEDIATE RELEASE
RECORD SECOND QUARTER AND FIRST HALF
PRODUCTION UP - DIVIDEND INCREASED
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Second First Second
Quarter Quarter Quarter First Half
2000 2001 2001 $ million 2001 2000 %
======================= ====================
Replacement cost profit
2,791 3,437 3,032 before exceptional items 6,469 5,468
442 45 114 Special items(a) 159 472
377 644 653 Acquisition amortization(b) 1,297 377
----------------------- --------------------
Pro forma result adjusted
3,610 4,126 3,799 for special items 7,925 6,317
======================= ====================
10.80 12.58 11.92 - per ordinary share (pence) 24.50 19.41 26%
16.54 18.36 16.92 - per ordinary share (cents) 35.28 30.47 16%
0.99 1.10 1.02 - per ADS (dollars) 2.12 1.83
======================= ====================
o BP's pro forma result, adjusted for special items, was a second quarter
record at $3,799 million compared to $3,610 million a year ago. For the
half year, the result was a record $7,925 million, compared to
$6,317 million. The result per share was up by 16%. In sterling terms the
increase was 26%. Replacement cost profit, before exceptional items, for
the second quarter and half year was $3,032 million and $6,469 million
respectively, compared to $2,791 million and $5,468 million a year ago.
o Return on average capital employed, on a pro forma basis and adjusted for
special items, was 23% in the second quarter compared to 21% a year ago.
o The first half results reflect the generally favourable trading
environment, portfolio changes and performance improvements. Compared to
a year ago, strength in refining margins and gas prices largely offset
weakness in the chemicals environment.
o First half year and second quarter oil and gas production were up 9% and
4% respectively. Even on a consistent current portfolio basis the increases
were 1% and 2%. We are on track to deliver the growth target for the
year, continuing the rapid turnaround in production growth from the low
point last year.
o In July, BP announced a deal with E.ON which, subject to regulatory
approval, will enhance our position in the European downstream market.
o The company purchased for cancellation 32 million of its own shares
during the quarter, at a cost of $283 million.
o Quarterly dividend up 4.8% at 5.5 cents per share ($0.33 per ADS). First
half dividend was 10.75 cents per share, compared with 10.0 cents per
share a year ago.
BP Group Chief Executive, Lord Browne, commented:
' Performance improvements in the first half year continue on track to
deliver our targets. Our disciplined approach to cost management and
investment selection is delivering profitable growth. I am especially
delighted with the growth in oil and gas production and the quality of
the downstream performance. All of this has given us the ability to
increase the dividend.'
The pro forma result, adjusted for special items, has been derived from the
company's reported UK GAAP accounting information but is not in itself a
recognized UK or US GAAP measure. This financial performance information and
measures derived therefrom, shown above and elsewhere in the document, is
provided in order to enable investors to evaluate better both the company's
current performance, in the context of past performance, and its performance
against that of its competitors.
(a) The special items refer to non-recurring charges and credits. The special
items for the quarter and half year comprise, in Refining and Marketing,
Burmah Castrol integration costs and rationalization costs in the
European commercial business, and bond redemption charges.
(b) Depreciation and amortization relating to the fixed asset revaluation
adjustment and goodwill consequent upon the ARCO and Burmah Castrol
acquisitions.
Summary Quarterly Results
Exploration and Production's second quarter result was up by 8% on a year ago,
reflecting an 11% increase in gas production, higher North American gas prices
and lower exploration expense. ARCO synergies have been fully achieved. There
were discoveries offshore Trinidad, Egypt and the Gulf of Mexico. Developments
have been approved in Angola, Egypt, Alaska, Norway, Azerbaijan and Trinidad
and in July a further 9.7% stake has been acquired in the Tangguh gas project
in Indonesia.
In Gas and Power, the quarter's result reflected further improvement in
marketing and trading.
The record Refining and Marketing result reflected higher refining margins,
the Burmah Castrol acquisition, the consolidation of the fuels business in
Europe and continued unit cost improvements. ARCO synergies have been fully
achieved and Burmah Castrol synergies are on track.
The Chemicals' result was down from the first quarter as margins and costs
remained under pressure from high feedstock and energy prices in a period of
demand weakness, and some plants suffered operational problems.
Interest expense for the quarter and half year reflected lower interest rates,
after adjusting for bond redemption charges.
The pro forma effective tax rate on replacement cost profit, before
exceptional items, was 28% for the half year.
Capital expenditure, excluding acquisitions, for the quarter was $3.3 billion,
and $5.8 billion for the half year. This is consistent with a 2001 outcome of
around $13 billion. Total capital expenditure for the two periods was $3.8
billion and $6.3 billion.
Net debt at the end of the quarter was $18.8 billion. The pro forma ratio of
net debt to net debt plus equity was 25%.
Net cash outflow for the quarter was $2,136 million, reflecting continuing
strong operating cash flow, offset by higher tax payments and capital
expenditure. For the half year there was a net cash inflow of $1,080 million.
---------
The commentaries above and following are based on the pro forma replacement
cost operating results for the quarter and half year, before exceptional
items, adjusted for special items. The results of ARCO and Burmah Castrol have
been included with effect from 14 April and 7 July 2000 respectively. The
European fuels business has been consolidated with effect from 1 August 2000.
Reconciliation of Reported Results to
Pro Forma Results Adjusted for Special Items
Pro Forma Result Pro Forma Result
adjusted for ----- 2Q 2001 --------------- adjusted for
special items special items
-------------------
2Q 1Q 2Q Special Acq. Reported First Half
2000 2001 2001 Items* Amort+ Earnings $ million 2001 2000
=========================================== ==============
Exploration and
3,627 5,136 3,918 - 477 3,441 Production 9,054 6,854
114 112 173 - - 173 Gas and Power 285 256
Refining and
1,394 994 1,762 109 176 1,477 Marketing 2,756 1,978
370 81 9 - - 9 Chemicals 90 629
Other businesses
(149) (127) (128) - - (128) and corporate (255) (360)
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RC operating
5,356 6,196 5,734 109 653 4,972 profit 11,930 9,357
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(403) (436) (391) 50 - (441)Interest expense (827) (699)
(1,306)(1,623)(1,523) (45) - (1,478)Taxation (3,146) (2,236)
(37) (11) (21) - - (21)MSI (32) (105)
------------------------------------------- --------------
RC profit before
3,610 4,126 3,799 114 653 3,032 exceptional items 7,925 6,317
------------------------------------------- --------------
171 Exceptional items before tax
(72)Taxation on exceptional items
-----
3,131 RC profit after exceptional items
40 Stock holding gains (losses)
-----
3,171 HC profit
=====
* The special items refer to non-recurring charges and credits. The special
items for the quarter and half year comprise, in Refining and Marketing,
Burmah Castrol integration costs and rationalization costs in the European
commercial business, and bond redemption charges.
+ Acquisition amortization is depreciation and amortization relating to the
fixed asset revaluation adjustment and goodwill consequent upon the ARCO and
Burmah Castrol acquisitions.
Net special and exceptional items before tax were $12 million credit and $167
million credit for the second quarter and half year respectively.
Operating Results
Second First Second
Quarter Quarter Quarter First Half
2000 2001 2001 2001 2000
======================= ==============
Replacement cost
4,337 5,499 4,972 operating profit ($m) 10,471 8,298
----------------------- --------------
Replacement cost profit
2,791 3,437 3,032 before exceptional items ($m) 6,469 5,468
----------------------- --------------
Profit after exceptional items ($m)
2,811 3,542 3,131 Replacement cost 6,673 5,364
3,024 3,304 3,171 Historical cost 6,475 6,109
----------------------- --------------
Per ordinary share (cents)
Pro forma result
16.54 18.36 16.92 adjusted for special items 35.28 30.47
RC profit before
12.60 15.29 13.51 exceptional items 28.80 26.38
HC profit after
13.59 14.70 14.12 exceptional items 28.82 29.47
Per ADS (cents)
Pro forma result
99.24 110.16 101.52 adjusted for special items 211.68 182.82
RC profit before
75.60 91.74 81.06 exceptional items 172.80 158.28
HC profit after
81.54 88.20 84.72 exceptional items 172.92 176.82
----------------------- --------------
Dividends per ordinary share
5.00 5.25 5.50 cents 10.75 10.0
3.352 3.665 3.911 pence 7.576 6.572
30.0 31.5 33.0 Dividends per ADS (cents) 64.5 60.0
----------------------- --------------
EBITDA(a) (cents)
30.27 33.90 32.46 per ordinary share 66.36 58.74
181.62 203.40 194.76 per ADS 398.16 352.44
----------------------- --------------
Adjusted EBITDA(b) (cents)
31.46 34.22 32.00 per ordinary share 66.22 58.21
188.76 205.32 192.00 per ADS 397.32 349.26
======================= ==============
(a) Profit for the period before interest, tax, depreciation and
amortization.
(b) Replacement cost profit before exceptional items, adjusted for special
items, and before interest, tax, depreciation and amortization.
Operating Statistics
Second First Second
Quarter Quarter Quarter First Half
2000 2001 2001 2001 2000
======================= =============
Crude oil and natural gas
liquids production (mb/d)
(Net of Royalties)
519 511 471 UK 491 550
88 97 92 Rest of Europe 95 90
705 722 742 USA 732 749
585 607 580 Rest of World 593 550
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Total crude oil and
1,897 1,937 1,885 liquids production 1,911 1,939
======================= =============
Natural gas production (mmcf/d)
(Net of Royalties)
1,630 2,152 1,690 UK 1,920 1,688
99 169 121 Rest of Europe 144 142
3,188 3,467 3,550 USA 3,509 2,760
2,777 3,107 3,193 Rest of World 3,150 2,412
----------------------- -------------
7,694 8,895 8,554 Total natural gas production 8,723 7,002
======================= =============
Gas sales volumes (mmcf/d)
2,424 3,395 2,481 UK 2,938 2,396
148 251 201 Rest of Europe 226 168
6,239 8,001 8,516 USA 8,259 5,512
5,006 7,403 6,839 Rest of World 7,121 4,709
----------------------- --------------
13,817 19,050 18,037 Total gas sales volumes 18,544 12,785
======================= ==============
NGL sales volumes (mb/d)
- - - UK - -
- - - Rest of Europe - -
129 221 206 USA 214 125
138 207 171 Rest of World 189 184
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267 428 377 Total NGL sales volumes 403 309
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Operating Statistics (continued)
Second First Second
Quarter Quarter Quarter First Half
2000 2001 2001 2001 2000
======================= =============
Oil sales volumes (mb/d)
Refined products
227 259 270 UK 265 225
781 1,082 1,031 Rest of Europe 1,057 774
1,898 1,874 1,954 USA 1,914 1,624
459 579 601 Rest of World 590 446
----------------------- --------------
3,365 3,794 3,856 Total marketing sales 3,826 3,069
2,071 2,159 2,022 Trading/supply sales 2,090 1,846
----------------------- --------------
5,436 5,953 5,878 Total refined product sales 5,916 4,915
6,271 4,482 4,131 Crude oil 4,307 6,383
----------------------- --------------
11,707 10,435 10,009 Total oil sales 10,223 11,298
======================= ==============
Chemicals production (kte)
658 730 799 UK 1,529 1,525
1,692 1,688 1,796 Rest of Europe 3,484 3,332
2,562 2,257 2,108 USA 4,365 5,181
577 702 618 Rest of World 1,320 1,154
----------------------- --------------
5,489 5,377 5,321 Total production 10,698 11,192
======================= ==============
Exploration and Production
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
================= ==============
3,019 4,680 3,441 Replacement cost operating profit 8,121 6,222
259 - - Special items - 283
349 456 477 Acquisition amortization 933 349
----------------- --------------
Pro forma operating result
3,627 5,136 3,918 adjusted for special items 9,054 6,854
================= ==============
Results include:
168 169 81 Exploration expense 250 299
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24.98 24.80 24.74 BP average oil realizations(a) ($/bbl) 24.77 25.30
26.88 25.75 27.39 Brent Oil Price ($/bbl) 26.57 26.89
28.96 28.71 27.88 West Texas Intermediate oil price ($/bbl) 28.30 28.91
================= ==============
BP average
2.51 4.96 3.43 natural gas realizations ($/mcf) 4.21 2.33
3.44 7.08 4.66 Henry Hub gas price(b) ($/mmBtu) 5.86 2.98
================= ==============
(a) Crude oil and natural gas liquids.
(b) Henry Hub First of the Month Index.
The record second quarter pro forma result, adjusted for special items,
increased by 8% on a year ago. The improved result reflected an 11% increase
in gas production, higher North American gas prices and lower exploration
expense. ARCO synergies have been fully achieved. For the half year the result
also reflected portfolio changes.
Total hydrocarbon production for the quarter was up 4% on the second quarter
of 2000, with natural gas volumes up by 11% and oil production stable. Even on
a consistent current portfolio basis, the increase was 2%. This continues the
recent quarterly achievement of a continuously improving growth rate. For the
half year, the total production was up 9% and on a consistent current
portfolio basis the increase was 1%. During the quarter, production started up
at the Nile and Mica fields in the Gulf of Mexico. In July the Tambar field in
Norway started production.
In support of growth, capital expenditure during the quarter was $2.4 billion
and $4.3 billion for the half year, up 78% on a year ago. The Kizomba
development in Angola was approved along with developments for an NGL plant in
Egypt and the Milne Point extension project in Alaska. In July, the Valhal
flank development offshore Norway, the Azeri Chirag Gunashli phase one
development in Azerbaijan and the Atlas Methanol Plant in Trinidad were
approved.
Exploration and Production (continued)
During the quarter, there was a discovery at Cashima (BP 100% and operator)
offshore Trinidad. The Cashima 1 well, which is the first of four exploratory
wells planned for 2001, discovered an estimated one trillion cubic feet of
gas. There were also discoveries in Egypt and in the Gulf of Mexico. In the
quarter, BP (67% and operator) successfully bid for one block in the UKCS 19th
round, adjacent to the block won in the Faeroes in 2000. In addition, BP
signed an agreement to take a 25% interest in Saudi Arabia's largest gas
development, the Core Venture 1 project.
In June, BP announced the sale of its 9.5% stake in the Kashagan discovery
offshore Kazakhstan. Shortly after the quarter end, BP acquired a further 9.7%
stake in the Tangguh LNG project in Indonesia. This increases BP's share of
the project to around 50%.
Gas and Power
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
=================== ==============
114 112 173 Replacement cost operating profit 285 256
- - - Special items - -
- - - Acquisition amortization - -
------------------- --------------
Pro forma operating result
114 112 173 adjusted for special items 285 256
=================== ==============
The pro forma result for the second quarter was $173 million compared with
$114 million a year ago, reflecting an improved marketing and trading
performance. The half year's result similarly reflected stronger marketing and
trading, partly offset by pressure on NGL margins.
During the quarter, Heads of Agreement have been signed for the development of
China's first liquefied natural gas (LNG) import terminal at Guangdong. BP
also submitted an initial investment proposal on behalf of a consortium to
develop a 4,200 kilometre west-east pipeline.
Agreement has been reached with Statoil to purchase 1.6 billion cubic metres
of gas per annum for 15 years with effect from 1 October. This is the first
significant contract for gas supplies to the UK from the Norwegian continental
shelf since the Frigg contract in 1977. In North America BP announced an
agreement in principle for a strategic alliance with the Energy East
Corporation, enabling the two parties to pool their combined expertise in
natural gas acquisition and supply management.
In the USA, BP increased its stake in Green Mountain Energy Company, a leading
marketer of cleaner and renewable energy, from 18.5% to 22.9%. The original
equity stake was acquired during 2000.
Refining and Marketing
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
================= =============
1,183 753 1,477 Replacement cost operating profit 2,230 1,767
141 53 109 Special items 162 141
70 188 176 Acquisition amortization 364 70
----------------- -------------
Pro forma operating result
1,394 994 1,762 adjusted for special items 2,756 1,978
================= =============
4.69 4.25 5.78 Global Indicator Refining Margin(a)($/bbl) 5.02 3.56
----------------- -------------
Refinery throughputs (mb/d)
265 310 315 UK 313 273
535 693 623 Rest of Europe 658 528
1,853 1,522 1,642 USA 1,582 1,573
368 386 375 Rest of World 380 360
----------------- -------------
3,021 2,911 2,955 Total throughput 2,933 2,734
================= =============
(a) The Global Indicator Refining Margin (GIM) is the average of seven
regional indicator margins weighted for BP's crude refining capacity in each
region.
Each regional indicator margin is based on a single representative crude
with product yields characteristic of the typical level of upgrading
complexity.
The pro forma result, after adjusting for special items, for the second
quarter was $1,762 million, a quarterly record, and up by $368 million or 26%
on the same period last year. The special items comprised Burmah Castrol
integration costs and restructuring costs for the commercial business in
Europe. The half year result, also a record, was up 39% on a year ago. The
main drivers of the improvement in both periods were higher refining margins,
the impact of consolidation of the fuels joint venture in Europe, the Burmah
Castrol acquisition and unit cost reductions. ARCO synergies have been fully
achieved and Burmah Castrol synergies are on track. US refining margins were
particularly strong for some of the quarter due to tight supply in the US
Midwest and on the West Coast.
Marketing sales in the second quarter increased by 15% versus a year ago
reflecting consolidation of the European fuels business; this factor, together
with the roll-out of BP Connect stores, led to an increase in store sales of
17%. The roll-out of BP Connect continued during the quarter with over 155 BP
Connect stores now open in the UK, USA, Australia and New Zealand. BP's
leadership position in clean fuels continues to grow with BP now providing
clean fuels to 72 cities.
In July BP announced that, subject to regulatory approval, it is to acquire a
majority stake in Veba Oil which owns Aral, Germany's biggest fuels retailer.
Also in July BP announced that it had reached an agreement with Tesoro
Petroleum Corporation to sell the Mandan, North Dakota and Salt Lake City,
Utah refineries in the USA, with associated storage, pipeline, distribution
and gasoline marketing operations, for $677 million, excluding working
capital. The agreement is subject to regulatory approval.
Chemicals
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
================= =============
320 81 9 Replacement cost operating profit 90 579
50 - - Special items - 50
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
370 81 9 adjusted for special items 90 629
================= =============
132 106 103(b)Chemicals Indicator Margin(a) ($/te) 104(b) 123
================= =============
(a) The Chemicals Indicator Margin (CIM) is a weighted average of
externally-based product margins. It is based on market data collected by Chem
Systems in their quarterly market analyses, then weighted based on BP's
product portfolio. While it does not cover our entire portfolio, it includes a
broader range of products than our previous indicator. Among the products and
businesses covered in the CIM are olefins and derivatives, aromatics and
derivatives, linear alpha olefins, acetic acid, vinyl acetate monomer and
nitriles. Not included are fabrics and fibres, plastic fabrications, poly
alpha olefins, anhydrides, engineering polymers and carbon fibres, speciality
intermediates, and the remaining parts of the solvents and acetyls businesses.
(b) Provisional. The data for the second quarter is based on two months'
actuals and one month of provisional data.
Chemicals' pro forma result for the second quarter was $9 million, down from
$81 million in the first quarter. The second quarter and first half 2001
results were sharply down on a year ago, reflecting the severe deterioration
in the trading environment. The results for the second quarter and half year
include $19 million and $40 million respectively for restructuring costs.
In the second quarter, polymer margins and costs remained under pressure from
high feedstock and energy prices in a period of demand weakness. This was
exacerbated by operational problems at three crackers which have since been
resolved.
Production in the second quarter benefited from full ownership of Erdolchemie
from 1 May 2001, but was adversely impacted by the cracker problems at
Grangemouth in Scotland, Lavera in France and Chocolate Bayou in Texas, USA.
In aggregate, second quarter production of 5,321 ktes was similar to the
previous quarter and 3% below the same quarter in 2000. First half 2001
volumes were 4% down on the first half of 2000.
In response to the trading environment, actions are underway to improve
returns by focusing the portfolio, reducing capital expenditure and
implementing additional cost reductions.
Other Businesses and Corporate
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
================= =============
(299) (127) (128) Replacement cost operating loss (255) (526)
150 - - Special items - 166
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
(149) (127) (128) adjusted for special items (255) (360)
================= =============
Other Businesses and Corporate comprises Finance, BP Solar, the group's coal
asset and aluminium asset, its investments in PetroChina and Sinopec, interest
income and costs relating to corporate activities. BP Solar production for the
half year was 26% higher than a year ago.
Exceptional Items
2Q 1Q 2Q First Half
2000 2001 2001 $ million 2001 2000
================= =============
Profit (loss) on sale of fixed assets and
161 218 171 businesses and termination of operations 389 4
(141) (113) (72) Taxation charge (185) (108)
----------------- -------------
20 105 99 Exceptional items after taxation 204 (104)
================= =============
Exceptional items for the second quarter include the profit on sale of the
Kashagan discovery in Kazakhstan and loss on the sale of the Carbon Fibers
business in the USA.
2001 Dividends
BP today announced a second quarterly dividend for 2001 of 5.5 cents per
ordinary share. Holders of ordinary shares will receive 3.911 pence per share
and holders of American Depository Receipts (ADRs) $0.33 per ADS share. The
dividend is payable on 10 September 2001 to shareholders on the register on 17
August 2001. Participants in the Dividend Reinvestment Plan (DRIP) or the DRIP
facility in the US Direct Access Plan will receive the dividend in the form of
shares, also on 10 September 2001. The third quarter 2001 results and dividend
will be announced on 6 November 2001.
Half Year Review
The Half Year Review will be published in the Financial Times and Wall Street
Journal (Europe) on Friday, 10 August 2001.
Outlook
BP Group Chief Executive, Lord Browne, concluded:
'The oil market remains essentially balanced. Oil prices have fallen from
their peaks, but OPEC production cuts earlier in the year have prevented
oversupply. Oil consumption is expected to recover seasonally in the coming
months. OPEC's actions in regard to supply may support prices within its
current target price range. US natural gas prices have fallen sharply in
the face of seasonally lower demand and increasing supply, with rapid stock
to building. Prices have returned to levels close parity with fuel oil.
Refining margins have experienced volatility as product inventories have
recovered and margins are likely to settle at levels somewhat lower than
recent historic highs. Retail margins have recently risen but are likely to
soften owing to competitive pressure. Chemicals margins remain depressed as a
result of weak demand and excess capacity.
'BP's focus is now on delivering profitable organic growth, while taking
advantage of any structural opportunities which the market presents. We
will continue our particular focus on cost and investment discipline to
enable these plans to be realized within our financial framework. In the
chemicals business, we are responding to the current trading environment by
reducing investment in petrochemicals and implementing additional cost
reductions.'
----------------------------------------------------------------------
The foregoing discussion, in particular the statements under 'Outlook',
focuses on certain trends and general market and economic conditions
and outlook on production levels or rates, prices, margins and currency
exchange rates and, as such, are forward-looking statements that
involve risk and uncertainty that could cause actual results and
developments to differ materially from those expressed or implied by
this discussion. By their nature, trends and outlook on production,
price, margin and currency exchange rates are difficult to forecast
with any precision, and there are a number of factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements, including
future levels of industry product supply, demand and pricing; currency
exchange rates; political stability and economic growth in relevant
areas of the world; development and use of new technology and
successful partnering; the actions of competitors, natural disasters
and other changes to business conditions. Additional information,
including information on factors which may affect BP's business, is
contained in BP's Annual Report and Accounts for 2000 and in the Annual
Report on Form 20-F filed with the US Securities and Exchange
Commission.
----------------------------------------------------------------------