14 Nov 2017 07:02
Financial results for 3Q 2017 and 9M 2017
· 9M 2017 revenue growth by 22.9% in RUB terms and by 43.7% in USD terms YoY
· 9M 2017 EBITDA exceeded RUB 1 trln, growth by 10.6% YoY
· 3Q 2017 EBITDA margin improvement
· Successful timely close of strategic deals with potential breakthrough growth in shareholder value
· Approval of the first interim dividend with 50% payout ratio of net income under IFRS
Consolidated IFRS financial results for 3Q 2017 and 9M 2017:
| 3Q 2017 | 2Q 2017 | Change, % | 9M 2017 | 9M 2016 | Change, % |
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Financial results | RUB bln (except %) |
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Revenues and equity share in profits of associates and joint ventures | 1,496 | 1,399 | 6.9% | 4,305 | 3,503 | 22.9% |
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EBITDA | 371 | 306 | 21.2% | 1,010 | 913 | 10.6% |
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EBITDA margin | 24.0% | 21.2% | 2.8 p.p. | 22.7% | 25.4% | (2.7) p.p. |
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Net income attributable to Rosneft shareholders | 47 | 641 | (26.6) % | 122 | 127 | (3.9)% |
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Net income margin | 3.1% | 4.6% | (1.5) p.p. | 2.8% | 3,6% | (0,8) p.p. |
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Capital expenditures | 223 | 215 | 3.7% | 630 | 475 | 32.6% |
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Free cash flow (RUB equivalent)2 | 8 | 59 | (86.4)% | 185 | 344 | (46.2)% |
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Upstream operating expenses RUB/boe | 189 | 185 | 2.2% | 1733 | 161 | 7.5% |
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USD bln4 (except %) |
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Revenues and equity share in profits of associates and joint ventures | 26.2 | 25.3 | 3.6% | 76.3 | 53.1 | 43.7% |
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EBITDA | 6.3 | 5.3 | 18.9% | 17.3 | 13.5 | 28.1% |
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Net income attributable to Rosneft shareholders | 0.7 | 1.1 | (36.4)% | 2.0 | 2.0 | - |
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Capital expenditures | 3.8 | 3.7 | 2.7% | 10.8 | 7.0 | 54.3% |
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Free cash flow | 0.1 | 1.0 | (90.0)% | 3.1 | 5.1 | (39.2)% |
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Upstream operating expenses USD/boe | 3.2 | 3.2 | - | 3.03 | 2.4 | 25.0% |
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For reference |
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Average Urals price, USD per bbl | 50.8 | 48.8 | 4.1% | 50.6 | 40.0 | 26.5% |
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Average Urals price, th. RUB per bbl | 3.00 | 2.79 | 7.5% | 2.95 | 2.74 | 8.0% |
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1In the financial statements for the 9 months of 2017 the Company recognized the allocation of the purchase price of the fair value of Bashneft assets acquired and liabilities assumed as of the acquisition date. The impact on depreciation due to the re-assessment of the value of fixed assets was recognized quarterly in the 9 months of 2017. Quarterly impact of RUB 4 billion was recognized in the revised results of 2Q 2017 and 1Q 2017, respectively.
2 Calculation includes interest expense on the prepayment on long-term oil and petroleum products supply agreements.
3 Excluding the expenses of Bashneft assets acquired in October 2016.
4 Calculated using average monthly Central Bank of Russia exchange rates for the reporting period.
Commenting the results for 3Q 2017 and 9M 2017, Rosneft Chairman of the Management Board and Chief Executive Officer Igor Sechin said:
"In 3Q 2017 the Company continued executing the key upstream projects, developing the trading and commercial "hubs" that ensured the revenue and EBITDA growth in the quarter, achieving one of the best performance in the industry.
At the same time the Company successfully and timely completed the acquisition of a number of the key strategic assets. The focus on expanding the presence in the key energy consuming regions and on entering new first-class upstream projects will strengthen the Company's position as a leader on the global commodity markets. Gradual oil price recovery lays the groundwork for an advanced growth in their value and a substantial increase in the capitalization of the acquired businesses - internal rate of return of these projects including the prepayments substantially exceeds 20%. As an example of the assets of the Erginsky block in the West Siberia, - their purchase at today's price would be at least USD 0.5 bln more expensive under current oil pricing vs. June levels in the financial model - this represents a highly efficient indicator for our shareholders. As a result of only price appreciation and already realized synergies the estimated value of the assets acquired over the last two years increased by more than USD 3 bln. The Company finalizes the integration of new assets and assessment of their additional synergy effect, which by preliminary estimates is in excess of USD 5 bln. In addition to Bashneft assets, the highest synergy potential is linked to the integration of "Essar" in the trading business and global Company's turnover, the development of the Zohr gas field and the Erginsky block in the West Siberia and other projects.
With intense business development the liquidity profile is maintained at the level that ensures high Company's stability. Furthermore, the deals which were completed recently with the participation of the global partners in the upstream projects proved the quality and the opportunity of additional capitalization of our resource base that provides supporting evidence of fundamental investment prospects of the Company.
We will continue our work for the benefit of our shareholders."
Financial performance
Revenues and equity share in profits of associates and joint ventures
In 3Q 2017 revenues amounted to RUB 1,496 bln (USD 26.2 bln). Revenues increased by 6.9% QoQ on the back of further quality improvement in the production process, optimization of the sales structure with stable sales volumes and partly positive costs' dynamics in the operating segment.
In 9M 2017 revenues amounted to RUB 4,305 bln, rising by 22.9% YoY (76.3 bln in USD terms, increase by 43.7%) thanks to the integration of new assets, improvements in the sales mix, expanding trading activity and some positive implications from macro-economic indicators during the last weeks of the period.
EBITDA
Thus, in 3Q 2017 EBITDA increased by 21.2% QoQ up to RUB 371 bln (USD 6.3 bln).
Sales volumes increase, efficient cost control as well as synergies from the integration of new assets were the main positive factors boosting EBITDA in 9M 2017 that reached RUB 1,010 bln(USD 17.3 bln). In particular, the approximate synergy effect achieved by the Company as a result of Bashneft acquisition already exceeded expectations at RUB 40 bln.
Growth in 9M 2017 EBITDA was at 10.6% YoY (+28.1% in USD terms) despite the growth in excise taxes, tariffs (+3.5-4.0% in part of pipeline transportation in 9M 2017) compared to a sharp slowdown in the inflation rates.
At the same time, in conditions of Large tax maneuver and the local market regulations, refining business of the Company continued to put significant pressure on the financial performance of the Company.
In accordance with the requirements of FAS, the Company also continued to ensure the price stability at the gas filling stations. Currently the Company continues to keep leading position in pricing policy at the Russian retail market.
3Q 2017 EBITDA margin increased by 2.8 p.p. QoQ up to 24.0%, while 9M 2017 EBITDA margin improved up to 22.7% compared with 22.0% in 1H 2017.
Net income attributable to Rosneft shareholders
Net income attributable to Rosneft shareholders amounted to RUB 47 bln in 3Q 2017 and RUB 122 bln in 9M 2017.
With the pressure from the global and national financial regulators leading to the replacement of foreign currency borrowings by RUB obligations driven by the sanctions, the share of foreign currency liabilities in the gross debt decreased by 15 p.p. in 9M 2017. At the same time, the average reference rate was at 9.43% in Russia. In conditions of a sharp slowdown in inflation this resulted in significant growth in real interest rates compared to the average cost of funding of major peers, and was recognized in the financial statements of the Company.
Capital expenditures
Given the large number of prospective upstream projects planned for launching in 2017-2018 and the end of "OPEC+" Agreement planned in the first half of 2018, the capital expenditures increased to RUB 223 bln (USD 3.8 bln) in 3Q 2017. In 9M 2017 capital expenditures reached RUB 630 bln, rising by 32.6% YoY. The planned growth was driven mainly by the capital construction program at the key upstream projects - Tagul, Rospan, Taas-Yuryah and Russkoe, and the acquisition of efficient strategic assets.
Free cash flow
Taking into account the investments into development of the Company's certain projects, free cash flow remained positive in 3Q 2017, and amounted to RUB 185 bln (USD 3.1 bln) in 9M 2017. In current market environment the Company plans to focus on stable positive free cash flow generation considering the market price trends and the growth in the business scale while keeping adequate liquidity position to meet all the financial obligations and to ensure the dividend payments at 50% of the net income under IFRS at least twice a year.
Dividends payout
In accordance with the decision of the Annual General Shareholders' Meeting in 3Q 2017 the Company made the payment of the dividends at RUB 63 bln based on the results for 2016.
At Extraordinary General Shareholders' Meeting held on September, 29, the decision to make the interim dividend payment at RUB 40.6 bln (based on the results of 1H 2017) was made.
Rosneft Information Division
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
November 14, 2017
These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.