Gazprom losing hope for dividend boost as ruble hurts profit

By Elena Mazneva on 8/30/2017

MOSCOW (Bloomberg) -- Gazprom PJSC’s profit slumped in the last quarter, cooling the prospect of an increased dividend from the world’s largest natural gas producer.

Net income plunged 80% as record gas exports to Europe were offset by foreign-currency losses, the Moscow-based company said in a statement late Tuesday. Gazprom aims to keep its dividend payments in rubles no lower than last year’s level while maintaining “conservative financial strategy,” it said in a separate release after its board discussed the payout policy for 2018 to 2020.

“This is a well-known strategy that we all live with -- Gazprom apparently has no desire or will to boost dividends even with really good operational results,” Otkritie Capital analyst Artem Konchin said by telephone Wednesday. “All non-cash losses continue to dampen the outlook for a stronger dividend,” he said.

The state-run gas giant, which plans to match or even beat last year’s record European exports, has fought government demands to raise its dividend for years. While officials have been pushing state-run companies to pay as much as 50% of profit under international financial reporting standards, Gazprom has won exceptions citing high costs and tax burden.

The value of the ruble slid 11% from April to June against the euro and also fell against the dollar, reversing a gain in the previous three-month period. A weaker ruble is hurting Gazprom’s income as it has 78% of its debt denominated in dollars and euros, which it re-evaluates each quarter. 

Gazprom executives have repeatedly said the company aims to keep dividends at the same level as in 2016 for the next three years, but with a possibility of an increase if market conditions and investment plans allow. As the gas producer continues to expand export pipelines, spending money on links to Germany, Turkey and China, its free cash flow may remain negative through next year. That “does not bode well for its dividend payouts,” Renaissance Capital analysts in London said in a note last week.

Under current dividend policy, Gazprom can pay out between 17.5% and 35% of profit under Russian accounting standards, which dropped 91% to 17.4 billion rubles in the first half. It has the right, but isn’t obliged to, exclude paper losses or gains to calculate payments.

Gazprom posted net income of 47.9 billion rubles ($815 million) for the three months to June 30, down from 245 billion rubles a year ago. That was almost in line with the 47 billion-ruble average estimate of 11 analysts. The company returned to positive free cash flow, posting 11.2 billion rubles in the quarter compared with a negative 216 billion in the previous three months. Revenue rose 5% from a year earlier to 1.39 trillion rubles, almost matching the average estimate of 1.40 trillion rubles. Earnings before interest, tax, depreciation and amortization jumped 37% to 344 billion rubles, beating the average estimate of 301 billion. Gazprom Group’s 2017 investment plan, including its oil and power units, was cut to 1.58 trillion rubles compared with a target of 1.85 trillion disclosed earlier this year. Gazprom plans a conference call on the second-quarter results and further forecasts on Wednesday at 5 p.m. Moscow time.

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