Naftogaz Group 2019 results: net profit of UAH 63.3 billion

Naftogaz Group reports consolidated net profit of UAH 63.3 billion after tax for the year ended 31 December 2019. The 2019 was characterised by: 16.1 bcm gas production, 78% share of Ukraine’s total, and 89.6 bcm of gas transit...

Naftogaz Group reports consolidated net profit of UAH 63.3 billion after tax for the year ended 31 December 2019.

The 2019 was characterised by:

· 16.1 bcm gas production, 78% share of Ukraine’s total, and 89.6 bcm of gas transit;

· Cash flows generated by operating activities amount to UAH 110 billion, of which UAH 55.7 billion post-tax relates to the Gas Transit Award (gross $2.9 billion);

· State budget benefits from the award in 2020 with a dividend payable of UAH 48 billion and already paid income tax of UAH 12 billion;

· Unbundling of gas transmission infrastructure completed;

· New 5-year gas transit deal signed with guaranteed revenues and foreign currency inflows;

· Naftogaz issued Eurobonds for an amount of USD 835 million and EUR 600 million;

· Total dividends paid to the State Budget in 2019 exceeded UAH 20 billion, including 90% of net profit for 2018 and interim dividends for 2019.

SUMMARY OF RESULTS

in UAH billion 2018 2019 %
Net profit 11.6 63.3 447
Segment result – Adjusted EBITDA 90.9 65.0 (28)
Cash flows generated by operating activities 71.6 110.0 54
Free cash flows 45.7 85.0 86
Capital expenditures 24.9 27.7 11
Net debt 43.2 42.6 (2)
Gearing, % 10.45 10.84 4
Naftogaz Chief Financial Officer Peter van Driel commented: “We have delivered a strong cash flow performance in 2019. We generated UAH 110 billion in cash flow from operating activities, including UAH 55.7 billion from the Gas Transit Arbitration (net of income tax), and distributed over UAH 20 billion in dividends to our shareholder the State of Ukraine.

We have seen lower volumes and gas prices in the fourth quarter of 2019, and we expect the macroeconomic environment to continue to be challenging in 2020. We have identified cost reductions and remain committed to capital discipline. Our balance sheet is robust with a relatively low leverage and we are well positioned for a prolonged downturn.”

PERFORMANCE BY SEGMENT

The above excludes UAH 55.7 billion post-tax relates to the Gas Transit Award.

Segment result – Adjusted EBITDA by segment was as follows:

in UAH billion 2018 2019 variance
Integrated gas 43.3 37.0 (6.3)
Oil midstream and downstream 2.2 1.1 (1.1)
Gas transit 36.6 34.3 (2.3)
Gas domestic transmission (1.8) (9.8) (8.0)
Gas storage (0.0) 2.0 +2.0
Ukrnafta 13.1 2.3 (10.8)
Other (2.5) (1.9) +0.6
Integrated gas result reflected lower volumes of gas sales to the different groups of customers due to a warmer winter season and lower gas prices as compared to 2018.

Oil midstream and downstream results were negatively impacted by lower average selling prices for petroleum products and hryvnia appreciation affecting oil transit revenues.

Higher transit volumes in the Gas transit segment did not offset the hryvnia appreciation affecting gas transit revenues.

Gas transmission segment reflected higher cost of gas purchased for balancing services, and an increase in provisions for doubtful debts for such services due to lower collection rates.

Gas storage benefited from higher gas storage tariffs effective from 01 August 2018 and switching to booking capacity instead of paying for exact volume of gas stored.

Ukrnafta’s result were negatively impacted by lower volumes of crude oil and petroleum products sold as compared to 2018.

Other activities relate to impairment losses recognised in respect of accounts receivable in the product sharing agreement with the Arab Republic of Egypt and Egyptian General Petroleum Corporation.

ADDITIONAL INFORMATION

In accordance with European commitments of Ukraine, gas transmission activities were unbundled from the Group’s activities of natural gas production and supply. “Gas Transmission System Operator of Ukraine” LLC, previously owned by Naftogaz Group, became the independent operator for Ukraine starting from 1 January 2020.

Gas transit through the territory of Ukraine was prolonged until 2024, as per the agreements signed by Naftogaz, “Gas Transmission System Operator of Ukraine” LLC and Gazprom at the end of 2019.

In July 2019, the Company issued Eurobonds via Kondor Finance plc (a public company with limited liability incorporated in England and Wales) using the loan participation notes structure. The issue comprises of two tranches: tranche A of EUR 600 million maturing in July 2024 and tranche B of USD 335 million maturing in July 2022.

In November 2019 the Company issued Eurobonds for an amount of USD 500 million maturing in November 2026, again with Kondor Finance plc and the loan participation notes structure.

Contributions to the State Budget. In 2019, the Group transferred to the State Budget UAH 100.6 billion of taxes, including UAH 22.3 billion of corporate income tax.

Additionally, the Group paid dividends of UAH 12.3 billion, or 90% of the 2018 net profit, and UAH 8.5 billion of interim dividends for 2019.

The Group remains the largest net contributors to the State Budget of Ukraine.

Compensation for performing public service obligations. In accordance with the Law of Ukraine “On Natural Gas Market”, Naftogaz as a gas market player with public service obligations is eligible for compensation of economically justified expenditures incurred by such player, less any income obtained in the course of fulfilling its obligations plus an adequate profit margin. Naftogaz estimates the amount of compensation for performing public service obligations up to 31 December 2019 at the level of UAH 39.2 billion.

The Group Consolidated Financial Statements as at and for the year ended 31 December 2019 is available here.

For your reference, we also publish the Naftogaz Standalone Financial Statements for the year ended 31 December 2019, click here. The standalone financial statements determine Naftogaz’ ability to remit dividends. The main difference between the net profit as per consolidated financial statements and standalone financial statements is attributable to a provision recognised in respect of a court case initiated by “Ukrnafta” PJSC against “Ukrtransgaz” JSC and Naftogaz in 2010, as described in Note 22 to the Standalone Financial Statements.



Communications Department
NJSC Naftogaz of Ukraine




Other news