Novatek (MCX: NVTK) - the second company in Russia in terms of production and sales of natural gas and one of the world leaders in terms of proven reserves. The main part of the company's natural gas is sold through the Unified Gas Supply System in the Russian market, and a smaller part is processed at own and joint plants and sold abroad in the form of liquefied natural gas - LNG.
16 February, the company published its consolidated financial statements for 2021. Against the background of high prices for hydrocarbons, the annual sales revenue for the first time in the history of the holding exceeded 1 trillion rubles, and net income is up more than six times from a low 2020 base, when the oil and gas market was in crisis.
Previously, we published a review of production results for the past year, which talked about reducing direct LNG supplies to a three-year low, despite record natural gas production. In this review, I propose to consider the annual financial statements, to understand, how high hydrocarbon prices affected the key financial indicators of the company.
Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Revenue and profit
Total sales revenue increased by almost 63%, to a record 1156.72 billion rubles, due to the growth of world prices for hydrocarbons against the backdrop of stable operating results of the business. Revenue growth occurred in all sales segments, including:
- natural gas (+46%) — up to 524.07 billion rubles;
- oil (+85%) — up to 208.71 billion rubles;
- oil (+57%) — up to 123.18 billion rubles.
The main income of the company still comes from the sale of natural gas, however, the segment's share of total sales revenue fell below 50%.
The structure of revenue from the sale of oil and gas in 2021
| Natural gas | 46,2% |
| Naphtha | 18,4% |
| Oil | 10,9% |
| Liquefied petroleum gas | 8,7% |
| Stable gas condensate | 7% |
| Other products of gas and gas condensate processing | 8,8% |
46,2%
Along with Novatek's income, operating expenses also increased - by 59%, up to 875.16 billion rubles, due to double, up to 497.28 billion rubles, growth in spending on the purchase of natural gas and liquid hydrocarbons. The reason for the growth is higher prices for the purchase of products from the joint ventures of the holding for subsequent processing and resale to external buyers. Besides, the company increased the amount of payments for mining operations by 66%, up to 83.3 billion rubles, due to the increase in the NDPI tax rate.
As a result, operating profit increased by almost 2,5 Times, up to 279.05 billion rubles.
Novatek received a loss from financial activities in the amount of 10.1 billion rubles compared to 160.6 billion rubles of profit in 2020. This is due to non-monetary currency revaluation, which has no effect on cash flows. The company also recorded a foreign exchange loss of 37.3 million rubles compared to a net profit of 147.5 billion rubles last year due to foreign exchange revaluation of received and issued loans., cash balances in foreign currency accounts, accounts receivable, as well as revaluation of the results of the transaction for the sale of shares in the Arctic LNG 2 project.
In 2020, joint ventures brought a loss to Novatek in the amount of 144 billion rubles against the background of the crisis in the oil and gas market. In 2021, thanks to high hydrocarbon prices, the company received a profit from participation in joint ventures in the amount of 232.3 billion rubles, and the main contribution was made by the Yamal LNG project due to high prices for liquefied natural gas in Europe.
As a result, Novatek's net profit increased by more than six times, up to 432.93 billion rubles. Normalized Net Income, adjusted for non-recurring and non-cash items, grew up in 2,5 times and reached a historical maximum of 421.3 billion rubles.
Financial performance of Novatek, billion rubles
| Revenue | Operating profit | Net income before adjustments | Net income after adjustments | |
|---|---|---|---|---|
| 2017 | 583,2 | 163,8 | 156,4 | 156,2 |
| 2018 | 831,8 | 227,2 | 163,7 | 232,9 |
| 2019 | 862,8 | 869,59 | 865,48 | 245 |
| 2020 | 711,81 | 113,01 | 67,83 | 169,02 |
| 2021 | 1156,72 | 279,05 | 432,93 | 421,3 |
Investments
In recent years, Novatek has been carrying out a large-scale investment program, which peaked in 2020, when capital expenditures exceeded 200 billion rubles. In 2021, the company slightly reduced the amount of capital investments to 191.25 billion rubles. A significant part of the investment went to the construction of infrastructure for LNG projects and the development of oil and gas fields.
Dynamics of capital investments, billion rubles
| 2017 | 29,9 |
| 2018 | 94 |
| 2019 | 162,5 |
| 2020 | 204,58 |
| 2021 | 191,25 |
29,9
Debts
The company's net debt increased from 39.56 billion to 73.95 billion rubles. This was facilitated by the growth of short-term loans and the reduction of cash on the background of the investment program and the payment of interim dividends. But, despite almost doubling net debt, total debt burden by the ratio "net debt / EBITDA” practically did not change over the year and remained at the level 0,1. This indicates a good financial stability of the company..
Dynamics of Novatek's debt load at the end of the period, billion rubles
| net debt | 12mEBITDA | net debt / 12mEBITDA | |
|---|---|---|---|
| 2017 | 89,8 | 256,464 | 0,35 |
| 2018 | 102,9 | 415,296 | 0,25 |
| 2019 | 15,106 | 461,157 | 0,03 |
| 2020 | 39,557 | 392,008 | 0,1 |
| 2021 | 73,946 | 748,337 | 0,1 |
Dividends
According to the dividend policy, at least 50% from consolidated net income under IFRS, adjusted for non-recurring and non-cash items. The company itself pays dividends twice a year based on the results of the reporting half of the year.. Dividend payments for the first half of 2021 amounted to 27,67 P per share. At the end of the second half of the year, investors can count on 41,7 P per share.
However, it is important to remember, that Novatek has never been a dividend company and is primarily perceived by market participants as a growth company. Management plans to increase LNG production to 40 million tons in 2025, and by 2030 volumes can reach 70 million tons.
Dividend per share
| 2016 | 13,9 R |
| 2017 | 14,95 R |
| 2018 | 26,06 R |
| 2019 | 32,33 R |
| 2020 | 35,56 R |
| 1п2021 | 27,67 R |
13,9 R
What's the bottom line?
As expected, Novatek's financials hit new all-time highs amid high oil prices, gas and products of their processing. Annual revenue exceeded 1 trillion rubles for the first time, and net profit showed a multiple growth. As a result, the Board of Directors recommended a record dividend for the reporting period.. The holding not only managed to recover from the 2020 crisis, but also surpassed the results of the pre-crisis years. Separately, I want to note the extremely low debt burden, despite the implementation of a large-scale investment program and generous dividends.
Strong results driven by favorable market conditions and high hydrocarbon prices in Europe and Asia amid energy crisis. High natural gas prices have already triggered the shutdown of a number of enterprises in Europe. Probably, as the market balance is restored and risks are reduced, associated with the passage of the current heating season, gas price will be adjusted from peak values.
Against this background, it is important for Novatek to switch to long-term export contracts for the supply of LNG, which will reduce dependence on market price volatility and more accurately predict future supply volumes.
