Naftogaz’s 2013 net loss swells by 12%, based on preliminary results

Обзоры по компаниям и отраслям 17.03.2014 Ukraine’s natural gas production and transit state monopoly Naftogaz (NAFTO) reported a 23% yoy decrease in revenue to UAH 74.6 bln in 2013, according to preliminary IFRS-based statements released on March 14. The decline in its top line was mostly caused by smaller gas sales on the domestic market (-30% yoy to 29.36 bcm), the result of a deliberate policy of reducing Russian gas imports by the state holding. At the same time, the firm’s gas transit volumes through Ukrainian territory increased 1% yoy to 86.13 bcm. Own gas production rose 3% yoy to 18.66 bcm, driven solely by higher output of its Crimean subsidiary (+41% yoy to 1.65 bcm). Smaller gas sales to domestic consumers (with the only source of the decline being profit-making deliveries to industrial users) deepened Naftogaz’s losses in 2013: operating loss jumped 51% yoy to UAH 3.0 bln, while its net loss swelled 12% yoy to UAH 12.5 bln. The monopoly’s end-2013 total debt amounted to UAH 48.4 bln, which is UAH 7.2 bln, or 13% smaller yoy. The decline in leverage was caused mainly by smaller end-2013 inventories, which fell UAH 13.6 bln (29%) yoy to UAH 34.1 bln. End-2013 cash stood at UAH 1.3 bln, 20% smaller yoy. Alexander Paraschiy: Naftogaz’s financial position clearly illustrates that there is no chance for it to repay its USD 1.6 bln Eurobond in 3Q14 without state support. As before, we treat NAFTO bonds as sovereigns. At the same time, Naftogaz has a big opportunity to reduce its losses this year. Firstly, in 1Q14 it is enjoying a temporary discount for imported gas from Gazprom, which makes the gap between import price and sales price for heating utilities smaller. Secondly, the company should benefit from higher gas rates for heating utilities and households, which the new government promises to fulfill at the behest of the IMF. At the same time, we do not expect Naftogaz will break even this year. The extent of its losses will depend on the timing and scope of the gas price increase for its subsidized consumers.