Q1 2015 IFRS results showed Gazprom’s ability to deliver a solid performance in a complex economic environment. Operations of the Group have been affected by the prevailing price of crude oil, both in domestic and international oil markets.
Despite the challenging business environment, the company’s total sales (net of VAT, excise tax and customs duties) increased by RUB 89 516 million, or 6%, to RUB 164 8253 million for the three months ended March 31, 2015 compared to the same period of the prior year. The increase in sales is mainly driven by the increase in gas sales to Europe and other countries and Former Soviet Union (excluding the Russian Federation).
Gazprom’s conservative financial policies ensured the company has been able to increase its Net Income for the period by 71% from RUB 223 007 million for the three months ended March 31, 2014 to RUB 382 112 million for the three months ended March 31, 2015.
Strategic and operational issues: Core European exports provide foundation for diversified growth drivers
The increase in sales for the quarter is mainly driven by the increase in gas sales to Europe. Net sales of gas accounted for 61% of total sales in Q1 2015.
The outlook for European exports in the 2nd half of the year remains positive after a record-setting July, when Gazprom’s monthly gas exports to Europe and Turkey reached 1.5-year record high of 14.3bcm in July, a rise of 23% YoY. This positive gas export trend means that Gazprom is likely to break its all-time export record this year on a large, weather-related rebound in European gas demand. This trend also shows a particularly strong symbiotic relationship between Gazprom and its biggest European customers, as lower oil-indexed prices make gas more attractive to burn than coal when financial and environmental issues are both taken into consideration. Finally European storage is at a significant low – these will have to be refilled to ensure peak demand in the winter.
Later this month, the Western route negotiations (the Altai project) with China will resume. The deal, if signed, is expected to be positive for shareholders relative to what is baked into the current price of the stock.
The Group is looking to support its business growth and further supply routes diversification through construction of the Turkish Stream pipeline, as well as targeting construction of several LNG terminals.
While the first quarter tends to be a cyclically slower period for the company, and the industry operating environment continues to be challenging, Gazprom showed strong performance and solid financial footing in the new pricing environment with its core income drivers strong and with lower global commodity prices driving both demand and the ability to fully commit to the geographical and thematic diversification that will drive growth.
Financial highlights for Q1 2015
Total sales amounted to RUB 1648 253 million, an increase of 6% on Q1 2014. Total gross sales of gas amounted to RUB 702 703 million, an increase of 15% on Q1 2014.
Net income for the period increased by RUB 159 105 million, or 71%, from RUB 223 007 million for the three months ended March 31, 2014 to RUB 382 112 million for the three months ended March 31, 2015.
Net debt decreased by RUB 202 367 million, or 12 %, from RUB 1650 633 million as of December 31, 2014 to RUB 1448 266 million as of March 31, 2015. This decrease resulted from an increase in cash and cash equivalents.
Adapted from a press release by Louise Mulhall