Rosneft profit down but ahead of expectations

By bne IntelliNews March 5, 2015

bne IntelliNews -


Net profit at Russia’s largest oil company, state-controlled Rosneft, fell to RUB350bn in 2014, slightly better than the average expectations of RUB331bn profit by analysts surveyed by Interfax.

Profit was down 10% on the year before, according to IFRS standards, once the 2013 profit of RUB555bn was revised down by RUB167bn to RUB350bn to reflect the much lower current valuation of TNK-BP, which Rosneft acquired in 2013.

The company's revenues gained 17.2% y/y to RUB5.5trn, while ebitda gained 12% to RUB1.06trn. The revenues growth (in ruble terms) was attributed to efficiency gains on long-term supplies and ruble devaluation, which partly compensated for the oil price decline.

In US dollar terms, Rosneft's net profit declined by 28.5% y/y to $9.3bn, revenues remained almost flat, slipping by 0.1% y/y to $146.7bn, and ebitda lost 1.7% y/y to $29bn.

The company's free cash flow in ruble terms soared by 92% to RUB596bn in 2014, because of a 5% cut in capex to RUB533bn, while operational cash flow increased by 33% y/y to RUB1.6 trillion.

The volume of dollar-denominated net debt declined by $13.6bn to $43.8bn as of end of Q4, the company said in a press release. The net debt to ebitda ratio in dollar terms declined to 1.53 from 1.767 as of the end of 2014. Meanwhile, ruble-denominated debt rose by 31% y/y and 39% q/q to RUB2.47trn ($40bn) as of the end of Q4, which was attributed to ruble devaluation, but this did not include the RUB625bn ruble bonds issued in December.

In December 2014, the company had to refinance $7bn out of $31bn debt raised for the TNK-BP acquisition. Unable to refinance on international markets because of sanctions, Rosneft borrowed in rubles, issuing RUB625bn worth of domestic bonds, which were not reflected in the consolidated reports. Commenting on the deal, the head of the company's debt department Denis Nechaev told the press on March 4 that most of the bonds were bought by Rosneft's own subsidiaries and used in repo currency transactions with Russian banks.

These opaque deals were regarded as indirect support to Rosneft from state-controlled banks and the central bank, and increased pressure on the liquidity of the ruble amid the extreme currency rate fluctuation at the end of last year.

Debt analysts noted that it worsens Rosneft's debt profile, replacing cheaper long-term foreign debt with expensive short-term domestic issues. In January, the company again placed RUB400bn domestic bonds ($6bn at the current rate) ahead of a $6.9bn foreign debt repayment due in February.

Rosneft commented in its release that liquidity levels will be sufficient to maintain debt servicing needs and production plans in 2015. The company plans to maintain high free cash flow in 2015, budgeting the oil price in the $40-$60/barrel range. Dividends will be maintained at 25% of net IFRS net profit, but the nominal amount to be paid out is recommended to be decreased by 36% to RUB8.2/share or a total of RUB87bn.  


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