Gas for everyone: we analyze the report for the first half of the year "Gazprom"

Газ для всех: разбираем отчет за первое полугодие «газпрома»

Gazprom (MCX: GAZP) - the world's largest gas production holding. Exports products to more than 100 countries of the near and far abroad, and also holds a monopoly position in the pipeline gas market in Russia, controlling the world's longest gas transmission system.

30 August, the company published IFRS financial statements for the first half of 2021, which reflected an increase in net profit of almost 29 times compared to the same period last year amid rising prices and volumes of natural gas exports.

Before proceeding to the overview of financial indicators for the reporting period, I propose to evaluate the production results of Gazprom, as well as the situation on the European gas market, to better understand the context.

Disclaimer: if we write, that something has risen or fallen by X%, then by default we mean comparison with the report data for the same period last year, unless otherwise stated.

Market position and operating performance

By the beginning of September, natural gas prices in Europe had increased by more than 20 time. On 14 September, the value of the October contract for the supply of natural gas to European consumers reached a record 810 $ for 1000 m2.

The main reason for the rise in prices was the cold winter of 2020-2021 and the hot summer of 2021, as well as partial filling of gas storage facilities in Europe in anticipation of cold weather and the start of a new heating season.

According to Gas Infrastructure Europe, gas reserves in European underground storage facilities 30 August minimum for the last 10 years. By the beginning of September, the storage facilities were filled only for 66,3% vs 90% In the past year. Traditionally, the heating season in Europe starts in October, means, there is very little time to replenish stocks.

Газ для всех: разбираем отчет за первое полугодие «газпрома»

Газ для всех: разбираем отчет за первое полугодие «газпрома»

If the 2021-2022 winter season turns out to be cold, Europe may face a shortage of natural gas. Prices rise on these fears., and this plays into the hands of Gazprom. The holding's management in a press release predicts, that the underfilling of European natural gas storage facilities will reach 25%, and Ukrainian - 30%.

I will note, that the need to pump additional volumes of natural gas to Europe is another argument in favor of launching Nord Stream 2, the laying of the second thread of which has already been completed.

Rates. Gazprom exports gas to Europe mainly under long-term contracts, therefore consumer prices are not so volatile, as in large gas hubs, and depend not only on the current supply and demand in the market, but also from a number of other factors, including the volume of production and the cost of alternative energy sources.

At the same time, the cost of supplies for Russian consumers is formed according to a different principle and is regulated by the state.. Prices in the domestic market differ for the population and industrial consumers, and also depend on the price zone due to the cost of transportation. So, in the first half of this year, the average prices for Russian consumers were in 3,6 times lower, than for European.

For Gazprom, following the results of the first half of the year, the average price of natural gas sales in Russia increased by 4%, to 4304,9 R for 1000 mW; to the countries of the former Soviet Union - to 13%, to 11 051,9 Р; to Europe and other countries - to 63%, to 15 469,1 Р.

Average price of natural gas for the first half of the year, rubles per 1000 m³

RussiaCountries of the former USSREurope and the rest
20173760,79107,411 117,2
20183925,88935,213 858,9
20194100,810 637,115 331,0
20204156,89803,59475,4
20214304,911 051,915 469,1

Volumes. Let me remind you, that the volume of natural gas pumped in the first half of last year fell to a multi-year low amid the crisis in the hydrocarbon industry and the high occupancy of European gas storage facilities. This year the situation is reversed.

The volume of natural gas supplies in the domestic market increased by 13%, up to a record 133.4 billion m³. Export deliveries increased by 23%, up to 138.9 billion m³. Of these, the countries of the former Soviet Union accounted for 18.3 billion m3, and to Europe and other countries - 120.6 billion m³.

Natural gas supply volumes in the first half of the year, billion m³

RussiaCountries of the former USSREurope and the rest
2017124,118,4119,1
2018129,620,6128,5
2019126,419,1117,9
2020117,614,998,2
2021133,418,3120,6

Revenue and profit

Gazprom's sales revenue increased by 50% and reached a record 4,352 billion rubles. The main reason is the low base of the last year, as well as an increase in prices and sales of oil and gas products.

Natural gas sales account for just over half of the holding's total revenue. The rest of Gazprom's income comes from the sale of oil and gas condensate, oil and gas processing products, electric and heat energy, as well as from the provision of our own gas transmission system.

Operating expenses of Gazprom increased by 24%, up to 3,328.2 billion rubles. This was influenced by the increase in taxes on the extraction of minerals in 60%, increase in expenses for the purchase of oil and gas by 54% and receiving a foreign exchange loss due to the revaluation of receivables from foreign buyers and loans issued. Moreover, the company recorded an impairment loss on financial assets in the amount of RUB 41.5 billion.

As a result, operating profit increased more than five times compared to the low base of the previous year and reached a record 986.6 billion rubles..

Finance income decreased from RUB 459.4 billion to RUB 328 billion amid a decline in foreign exchange profit and interest income. Financial expenses decreased by more than three times, up to 217.7 billion rubles, due to a decrease in the loss on exchange rate differences from 706.9 billion to 183.1 billion rubles.

The final net profit of the holding reached a record 968.5 billion rubles, what in 29 times exceeded the results of the same period last year.

Sales revenue structure

Gas51%
Oil and gas processing products27,4%
Crude oil and gas condensate9%
Electrical and thermal energy6,9%
Gas transportation services2,6%
Other3,1%

51%

Financial performance of the company for the first half of the year, billion rubles

RevenueOperating profitNet profit
20173209,9484,4381,3
20183971,6879,3630,8
20194076,8780,9836,5
20202903,119032,9
20214352986,6968,5

Debts and dividends

Debts. The company reduced its debt by 12%, up to 3,396 billion rubles, due to the growth of cash and cash equivalents by 36% and a decrease in long-term and short-term loans and borrowings by 2%.

At the same time, EBITDA increased by 134%, which made it possible to reduce the level of debt burden according to the ratio “net debt / 12m EBITDA "with 2,64 to 1,49. This indicates low debt load and good financial stability of the company..

Dividends. This year, for the first time, the company switched to payment 50% of the adjusted net profit under IFRS and paid at the end of 2020 12,55 P per share. According to management, the holding's dividend base for the first half of 2021, taking into account all adjustments for one-time and non-monetary items, is a record 845 billion rubles. In this way, payments for the first half of 2021 may amount to 18 P per share.

I will note, that in the next half of the year, the financial results of "Gazprom", probably, will be no worse, than in the current, taking into account the favorable situation on the gas market for business on the eve of the next heating season. That is, by the end of the current year, the company can pay shareholders at least 36 P per share, which will more than double the record payments of 2018.

Debt dynamics, billion rubles

Net debt"Net debt / 12B EBITDA »
201619331,46×
201723981,63×
201830141,16×
201931681,7×
202038732,64×
1п202133961,49×

What is the bottom line

Against the background of the recovery of the energy market after the crisis, Gazprom's revenue and net profit figures have renewed a new record and demonstrated strong dynamics from the low base of the same period last year.

Sales of natural gas showed impressive dynamics thanks to record prices and strong demand in Europe, which remains the key region of consumption in the foreign market. The low occupancy of European gas storage facilities ahead of the winter season makes it possible to calculate, that in the second half of the year Gazprom will be able to make good money. AND, perhaps, it is difficult to think of the best moment to launch Nord Stream 2, which will increase and diversify supplies to Europe, when the region is in dire need of stable supplies of blue fuel.

Taking into account all factors, shareholders can count on record dividends at the end of 2021, which can more than double the previous record, given that, that management will continue to pay at least 50% from adjusted net profit.

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