Gazprom slashes investment for second year in a row

Gazprom slashes investment for second year in a row
Gazprom's 2020 capital expenditure plan is set at RUB1.1 trillion ($18bn), down from a projected spend of RUB1.32 trillion for this year and a record RUB1.8 trillion in 2018.
By bne IntelliNews December 16, 2019

The management committee of Russia's Gazprom has approved a 16.5% cut in investments next year, marking the second annual reduction in a row, the state gas exporter reported on December 12.

Gazprom's 2020 capital expenditure plan is set at RUB1.1 trillion ($18bn), pending approval by the company’s board of directors, down from a projected spend of RUB1.32 trillion for this year and a record RUB1.8 trillion in 2018.

Gazprom has gained notoriety for its high levels of spending in recent years, with the bulk of investment going towards the development of its three major export projects: Power of Siberia, Turkish Stream (aka TurkStream) and Nord Stream 2. Work on these projects is now winding down, freeing up some capital.

The $55bn Power of Siberia pipeline began pumping gas to China earlier this month, while the $8bn TurkStream to Turkey is targeted for launch in January. However, there may be some delays to Turkish Stream as Russian President Vladimir Putin claimed at the start of December Bulgaria is under "international pressure" to delay pipeline project, while section via neighbouring Serbia is nearly finished.

The $11bn Nord Stream 2 is also nearing completion, but is not expected to start up until mid-2020 because of earlier permitting delays in Denmark.

Signalling its greater focus on capital discipline, Gazprom’s management earlier this year pledged to increase dividends to 50% of net profits by 2021, triggering a rally in the company's share price. They endorsed a plan on December 12 to increase dividends to 30% of income in 2019, following by 40% in 2020 and 50% in 2021 and beyond.

Shareholders still risk seeing their returns shrink, however, as Gazprom struggles to defend its market share in Europe from soaring LNG imports.

The company saw net profits slump 45% y/y in the quarter ending September 30 to RUB212bn ($3.3bn), after European gas prices fell to their lowest level in 15 years. Gazprom’s shipments to Europe fell to 171.4 bcm in the first nine months of 2019, from 185.4 bcm a year earlier, while average prices dipped to $222 per 1,000 cubic metres, from $233.

The company’s 2020 investment programme comprises RUB933bn in capital investments, RUB90bn in acquisition spending and RUB81.3bn on long-term financial investments. It plans to borrow RUB558bn during the year.

 

Gazprom 3Q19 IFRS Review

 

3Q18

4Q18

1Q19

2Q19

3Q19

Q/Q

Y/Y

Revenue, $ mn

29,444

35,082

34,751

27,601

25,106

0

0

Adj. EBITDA, $ mn

10,118

10,778

9,574

7,690

5,712

0

0

Adj. net income, $ mn

5,895

6,600

8,126

4,648

3,279

0

0

Adj. EBITDA margin

34%

31%

28%

28%

23%

-5.1 ppt

-11.6 ppt

Adj. net margin

20%

19%

23%

17%

13%

-3.8 ppt

-7.0 ppt

Operating cash flow, $ mn

7,305

1,357

10,385

8,841

5,665

0

0

Investing cash flow, $ mn

-6,079

-6,514

-10,122

-4,500

-6,532

n/m

n/m

FCF for dividends, $ mn

1226

-5156

263

4341

0

n/m

n/m

Financing cash flow, $ mn

-1,856

5,432

7,742

-5,327

-2,128

n/m

n/m

Total Free cash flow, $ mn

-630

275

8,005

-986

-2,128

n/m

n/m

Net debt (eop), $ mn

39,091

43,005

43,179

39,713

43,586

0

0

Source: Company, BCS GM

 

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