Gazprom Group takes lead in 2011 by net profit worldwide
The Gazprom headquarters hosted today the Press Conference “Gazprom’s Financial and Economic Policy” held on the threshold of the annual General Shareholders Meeting. Taking part in the Press Conference were Andrey Kruglov, Deputy Chairman of the Management Committee – Head of the Finance and Economics Department, Elena Vasilieva, Deputy Chairwoman of the Management Committee – Chief Accountant, Elena Karpel, Head of the Pricing and Economic Expert Analysis Department, Karen Oganyan, Head of the Tax Policy Department, Alexander Ivannikov, First Deputy Head of the Finance and Economics Department and Mikhail Rosseev, Deputy Chief Accountant – Head of the Consolidated Financial Statements Directorate.
It was highlighted at the event that Gazprom had a strong financial standing and was a company capable of implementing large-scale investment projects to meet market demand for natural gas in the long term. In 2011 sales, EBITDA and net profit values hit the record level in the entire history of Gazprom Group. Moreover, the Group became the world’s leader by net profit. In other words, the sales (net of VAT and customs duties) grew by 29 per cent versus 2010 to RUB 4.637 trillion, the adjusted EBITDA increased by 42 per cent to RUB 1.931 trillion, the net profit – by 35 per cent to RUB 1.307 trillion.
Gazprom forecasts a further growth of sales in 2012 – approximately by 5 per cent versus 2011.
The primary adverse factor that affects Gazprom’s financial status is a rapid increase in the tax burden such as the severance tax on gas. As a result of the severance tax rate growth (from RUB 237 per 1,000 cubic meters in 2011 to RUB 509, 582 and 622 per 1,000 cubic meters in 2012, 2013 and 2014 accordingly) as prescribed by the Russian Tax Code, Gazprom Group’s tax payments will grow by nearly RUB 440 billion between 2012 and 2014.
At the Government meeting held in June and dedicated to taxation in the oil and gas industries the discussion centered on establishing a well-balanced rate of the severance tax on gas from July 1, 2013 as well as a formula to calculate the severance tax rate from January 2014.
Gazprom’s opinion is that a severance tax rate should reflect both the changing domestic prices for gas and their movement towards the economically viable level as well as ensure the required profitability of fields development.
It is extremely important that the formula of the natural gas severance tax rate includes such a system of development complexity factors that would account for economic and geographic conditions, a degree of development as well as formation depth and, therefore, guarantee the payback of production projects.
Development and introduction of a comprehensible gas severance tax formula may ensure stability and predictability of the tax environment.
The tax environment of the gas industry should allow Gazprom gaining a sound profit from gas sales in the domestic market. This will make it possible to shape own project financing sources to sustain and boost production and transportation of gas to serve the interests of Russian consumers. So far, the receipts from domestic operations secure Gazprom with only 44 per cent of required investments.
Gazprom raises and efficiently uses funds from internal sources to mitigate the impact of adverse external factors including the growing tax burden. The Company strictly controls expenses through a number of integrated activities: cost reduction within the budgeting process by ranking of projects, implementing the cost reduction program as well as introducing purpose-oriented measures on cost reduction. As a result, in 2011 the prime cost of gas production by Gazprom grew by only 8 per cent (excluding the rising severance tax), the prime cost of gas transmission – by 6 per cent versus 2010, while the price growth index among industrial producers – by 19 per cent.
Economic efficiency of investments may be improved through widespread application of tender procedures. In 2011 a new purchasing system came into existence in Gazprom, and it provides for competitive selection of suppliers. As a result, the prices dropped by some 8 per cent versus the initial (maximum) ones that yielded the economic effect of around USD 2 billion based on the 2011 results.
Gazprom pursues an efficient debt management policy. As at the end of 2011 the net debt was RUB 1.035 trillion. The debt amount remains at a reasonable level that is proven by the relative debt ratios. Thus, the net debt/adjusted EBITDA ratio stood at 0.5 by late 2011 having declined from 1.3 since 2009.
The Press Conference also reviewed the issues related to the current and future financial and economic activity of Gazprom.