In 2018 Gazprom reached historical, record financial and economic results.

The gain of Gazprom grew almost on 26% in relation to an indicator of previous year, the corrected EBITDA — on 77%, the net profit doubled. Despite implementation of large-scale projects, such as Force of Siberia, Nord Stream — 2 and The Turkish stream, the company was succeeded to generate considerable free cash flow.

The net proceeds of Gazprom Group from sales (minus excise, the VAT and customs duties) exceeded last year 8.2 trillion rubles. Major factors of its increase became growth of net proceeds from sales of gas, oil and gas processing products and also crude oil and gas condensate. A considerable part of gain of the Group is nominated in foreign currency — mainly in dollars and euro.

Net proceeds from sales, billions rubles

  2017 2018 2018/2017
Net proceeds from gas sale 3340,6 4303,7 28,8%
Net proceeds from sale of oil processing products 1687,1 2179,8 29,2%
Net proceeds from sale of crude oil and gas condensate 539,9 734,9 36,1%
Net proceeds from sale of electric and thermal energy 503,8 522,1 3,6%
Net proceeds from sale of services in gas transportation 235,1 225,7 -4,0%
Other revenue 239,6 258,0 7,7%
Total 6546,1 8224,2 25,6%

 

Operating expenses

Operating expenses of Group made about 6.2 trillion rubles in 2018, having increased in relation to previous year on 8,5% that is connected with growth of expenses on purchased oil and gas (on 19%) and on taxes, except income tax (on 20%). Growth of tax on mining on 27% became a major factor of increase in taxes.

A share of operating expenses in proceeds from sales reduced last year to 75% (from 87% in 2017).

Structure of operating expenses, billions rubles

  2017 2018 2018/2017
Taxes, except income tax 1246,1 1498,3 20,2%
Purchased gas and oil 1236,2 1468,9 18,8%
Transit of gas, oil and oil and gas processing products 593,3 650,8 9,7%
Depreciation 613,2 648,0 5,7%
Expenses on compensation 682,1 600,8 -11,9%
Other 1326,2 1314,4 -0,9%
Total 5697,1 6181,2 8,5%

Taxes

Let’s remind that Gazprom is one of key taxpayers in Russia. Last year the total amount of the taxes and other similar payments paid by the Group made 3.2 trillion rubles, having increased in relation to 2017 on 28%.

«An imperative condition of maintenance of investment appeal of gas industry is existence of stable, predictable tax regime. First of all it concerns to more significant for us tax on mining. On this matter we constantly are in constructive dialogue with the financial authorities», the Vice Chairman of the Board of PAO Gazprom Famil Sadygov told. According to him, at the St. Petersburg International Economic Forum — 2019 the sign statement of Deputy Minister of Finance Vladimir Kolychev heard that in connection with record-breaking high dividends of Gazprom and development of new dividend policy the government refuses from current year practice of the last years on additional withdrawals of mining tax on gas. «That is this year there will be no additional raising coefficients for mining tax. And in the next years too, Famil Sadygov specified, besides, I will remind that since 2021 the Tax code of the Russian Federation provided decrease to unit of the raising coefficient in mining tax formula on gas for Gazprom. All this will provide decrease in tax burden and its influence on EBITDA of the company».

 

Profit

The profit on sales of Gazprom Group reached 1.93 trillion rubles, having increased in relation to previous year on 121.5%. Growth of the given EBITDA indicator on 77%, almost to 2.6 trillion rubles, is connected with increase in operating profit. The profit of Group relating to shareholders of PAO Gazprom made 1.5 trillion rubles. Its growth on 104% is connected generally with increase in gain and also a share in profit of the associated organizations and joint ventures. Thus such factors as growth of operating expenses, recognition of a loss from depreciation of financial assets and also loss from exchange differences in connection with change of dollar rates and euro in relation to Russian ruble in 2018 had negative impact on dynamics of the indicator.

 

Profit on sales, billions rubles
2017 871,4
2018 1930,0
2018/2017 121,5%
The given indicator of EBITDA, billions rubles
2017 1467,7
2018 2599,3
2018/2017 77,1%
The profit per year relating to shareholders of PAO Gazprom, billions rubles
2017 714,3
2018 1456,3
2018/2017 103,9%

 

Investments

Capital investments of Gazprom Group grew in 2018 more than on 19% and reached nearly 1.796 trillion rubles. The main volume of investment of Group accounted for transportation, gas production and processing segments. A big share of capital investments in gas transportation (640.1 billion rubles) is explained by simultaneous realization of a number of large gas transmission projects. Thus in capital expenditure of Gazprom dependence of its investment activity on external factors helped to reduce prevalence of a ruble component.

Capital investments *, billions rubles

  2017 2018 2018/2017
Transportation 498,6 640,1 28,4%
Processing 225,2 309,4 37,4%
Gas production 216,5 308,0 42,3%
Oil and gas condensate production 330,4 257,9 -21,9%
Production and sale of electric and thermal energy 58,1 72,9 25,5%
Gas supply 51,7 39,1 -24,4%
Gas storage 37,7 19,4 -48,5%
Other segments 86,4 149,1 72,6%
Total 1504,6 1795,9 19,4%

* the capital investments reflected as a part of information on segments in the consolidated financial statements of PAO Gazprom on IFRS are given.

«Our further investment plans are made on a choice of projects which efficiency is accurately verified by means of application of the best practice of corporate and economic examination. All approved investment projects are controlled regarding implementation of the budget of capital expenses and achievement of necessary rate of return», — Famil Sadygov told.

According to him, in recent years Gazprom consistently acquires experience and expands scope of methods of project financing. «We realize rather big construction project of the Amur gas-processing factory. Further we plan to finance based on the principles of project financing. In the long term more and more projects of Gazprom will be implemented based on this principle», he added.

Money

For increase of effective management of liquidity of PAO Gazprom places part of temporarily free money on deposit with fixed period[1]. Thus from the analytical point of view such deposits are equivalent of money on balance of the Group.

For the fullest understanding of dynamics of cash flows of Gazprom and debt loading analysts consider bank deposits as an equivalent of money on balance of Group. So, the operational cash flow and a free cash flow are corrected on the size of change of short-term bank deposits in reporting year.

 

Money from operating activities corrected, billions rubles  
2017 1429,8  
2018 2127,4  
2018/2017 49%  
Monetary capital investments, billions rubles  
2017 1405,8  
2018 1639,5  
2018/2017 16,7%  
The free cash flow, billions rubles  
2017 24  
  2018 487,9

 

In 2018 the corrected indicator of operational cash flow significantly exceeded the size of monetary capital investments. The corrected free cash flow made 487.9 billion rubles.

«When we realize large-scale projects of nation-wide value, such as Force of Siberia, Nord Stream — 2, The Turkish Stream, we succeeded to keep free cash flow at the positive level. And we defined this level as key to ourselves for the next years», Famil Sadygov emphasized.

PAO Gazprom conducts work on development of the centralized control system of cash flows and liquidity of the Group. Expansion of perimeter of system of monetary pools, including creation of a cross-border monetary pool, optimization of system of calculations of Gazprom Group, development of corporate dealing, and also use of the advanced bank technologies in cache management area is planned. For the end of 2018 the system of physical monetary pools of Gazprom Group united 322 participants.

 

Debt management

The total debt of Gazprom Group as of December 31, 2018 made 3.864 trillion rubles. Thus the corrected pure debt of Group made 2.217 trillion rubles. Despite growth of these indicators, an average interest rate decreased from 5.6% (for December 31, 2017) to 5.1%, and the profile of repayment of a debt was extended. So, 43% of debt obligations had a repayment period from 2 to 5 years (inclusive).

Debt obligations, billions rubles

  2017 2018 2018/2017
The pure debt corrected 2068,0 2216,8 7%
Money and their equivalents corrected 1198,5 1647,0 37%
Total 3266,5 3863,8 18,3%

 

At the same time the ratio «a pure debt corrected/the given EBITDA indicator» was at the level, comfortable for Group, — 0.9 in ruble expression and 0.8 in dollar.

Pure debt corrected/the given indicator EBITDA*
2017 1,4
2018 0,9
2018/2017 -40%

* the Indicator is calculated as the relation of the corrected pure debt to the given indicator of EBITDA expressed in rubles.

Credit ratings of PAO Gazprom from the international rating agencies Standard & Poor’s, Fitch Ratings, Moody’s are at the investment level that is authoritative external confirmation of high level of solvency and financial stability. The companies of Gazprom Group are reliable borrowers in the Russian and international debt markets that allows them to attract money on profitable terms.

Cost of attraction of debt financing of Gazprom Group, %

  2017 2018
The average fixed interest rate 6,3 6,0
Average floating interest rate 3,6 2,9
Average interest rate 5,6 5,1

 

Gazprom successfully attracts capital in the international financial markets, deliberately approaching a choice of sources of financing and effectively using borrowed funds. Generally the Group carries out attraction of loans in foreign currency: about 29% of a debt is nominated in dollars, 43% — in euro. It is explained by action of a number of factors; among them are low interest rates abroad and the big market capacity of currency loans in comparison with ruble tools. Thus, taking into account gradual growth of interest rates in dollars and preservation of negative interest rates in euro, recently a share of loans in euro in a debt portfolio increases. Besides, currency structure of a debt of Gazprom Group reflects prevalence of currency component in gain of the Group that creates a natural hedge from the point of view of service of a debt: in case the rate of Russian ruble against dollar/euro decreases, increase in payments in a ruble equivalent for an external debt will be compensated by growth in a ruble equivalent of a currency component of gain.

About 20% of total debt makes the ruble loans prevailing in debt portfolios of the affiliated organizations of Gazprom Group. The debt portfolio of the Group is balanced on terms: loans with a repayment period more than five years make about a quarter of the portfolio.

PAO Gazprom continues the policy directed on strengthening of control of external loans and a debt of the companies of Group and on management of their excess liquidity. For this purpose limit values of debt coefficients are established for the companies of the Group, preliminary coordination of programs of external financial loans and concrete transactions within the set limits and financial performance is carried out.

For decrease in debt loading and optimization of structure of a debt more and more subsidiaries are involved in system of monetary pools, are improved acting and the new regulating documents on debt subject and loans of Group are developed. Besides, the companies of Group constantly conduct work on decrease in rates by refinancing of the operating credits and loans, and also on use of the instruments of financing which do not have impacts on an external debt.

Dividends

By preparation of recommendations to General meeting of shareholders of PAO Gazprom for making decision on distribution of profit, including on payment of dividends, the Board of directors of the company proceeds from the purposes of preservation of high degree of its financial stability, realization of long-term strategy of development, and also observance of the rights and increase of the income of shareholders by both payment of dividends and increase in capitalization of PAO Gazprom.

Following the results of the work of PAO Gazprom in 2018 the decision on payment of record-breaking high dividends for all history of the company – 16.61 rubles on an action was made. Thus, total amount directed on payment of dividends will make 393.2 billion rubles (27% of the profit relating to shareholders of PAO Gazprom on IFRS for 2018) and will exceed the level of payment of dividends following the results of work for 2017 more than twice.

«It will be the maximum sum in absolute expression among all Russian companies. And in general in the history of domestic stock market», Famil Sadygov said. Now the company develops new dividend policy which provides gradual transition to payment of dividends at the level of 50% of net profit on IFRS in the next three years.

Priority purposes and tasks

Among the priority purposes and tasks which are set by PAO Gazprom financial and economic block, — increase of transparency and efficiency of financial and economic activity, investment appeal of Gazprom, growth of the income of shareholders, a sustainable development.

«We consider that stocks and depository receipts of Gazprom — one of the best in the market on a ratio price/quality of an asset and to the potential of growth of cost. And we will aspire that investors will share this confidence with us”, Famil Sadygov told.

[1] According to the rules of IFRS Gazprom» reflects bank deposits with the term more than three months in the reporting as a part of «Other current and non-current assets», but not as a part of «Money and equivalents».