Gazprom’s Q1 2014 outcomes under IFRS can be considered positive

Overall, Gazprom’s Q1 2014 outcomes under IFRS can be considered positive. EBITDA was slightly increased owing to higher than expected gas prices in Europe and the CIS.

Net cash flow generated by Gazprom in Q1 2014 – nearly a record-breaking USD 8 billion – can also be regarded as positive.

However, the near future looks uncertain because of the unsolved dispute between Gazprom and Naftogaz of Ukraine. Gazprom has not yet settled the price for gas, and it’s not clear when Russian gas supplies to Ukraine are going to be resumed – it leaves a question mark over the export volumes in the forthcoming months.

Revenue, EBITDA and net profit deviation from our forecast accounted for less than one per cent, i.e. the results fully met our expectations.

It should be mentioned that despite a considerable redemption of the Naftogaz debt for Russian gas supply, Gazprom’s Q1 2014 expenses nominated in US dollars remained on the level of Q1 2013 due to the year-on-year depreciation of the ruble. Exchange rate losses were totally expected, given the ruble depreciation in Q1 of the current year.

Most of all, we would like to draw the investors’ attention to Gazprom’s statements under RAS requirements, which serve as the basis for dividend payouts. We observed the Company write off Ukraine’s debt in the first half of the current year. Relying on this, we generated three scenarios of further developments and estimated the influence of each of them on 2014 dividend payouts. According to our pessimistic scenario, Gazprom’s 2014 dividends will not surpass RUB 4 per share, to the baseline scenario – RUB 4.5 per share, to the optimistic one – RUB 6.9 per share. In reality, everything will depend on the Russian gas export volumes and on the ability of Ukraine to pay off its gas debts as soon as possible.

I consider Q1 2014 financial outcomes to be neutral. Gazprom’s statements showed slightly higher return and EBITDA figures versus the market average, and lower net profit versus the market one and our expectations. However, I cannot see any considerable deviations from what we expected.

Shrunk ruble-wise investments and exceptionally high free cash flow are the most intriguing things of the statement. Floating capital reduction accounts for excessive free cash flow to be balanced through the allowance for the floating capital value. After such balancing it comes clear that Q1 2014 (represented in rubles) stands very close to Q1 2013. However, most USD-wise figures of Q1 2014 are lower due to ruble devaluation.

In terms of business, this quarter was quite successful and came up to our expectations. As to the future performances, namely Gazprom’s write-offs during the second and the third quarters and the Group’s pricing strategy in Europe – the situation is still unclear. The issue remains open.