gazprom’s financial and economic policy ......2017/06/22 · china gas business 5 cost...
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Moscow
GAZPROM’S FINANCIAL AND ECONOMIC POLICY
PRESS CONFERENCE
JUNE 22, 2017
1
DISCLAIMER
1
This presentation was prepared by Gazprom (hereafter “the Company”). It contains corporate information for investors. This presentation does not constitute an offer to
sell or a solicitation of any offer to purchase any shares or other securities for equity participation in the Company, or a subscription for such. The presentation and
information contained herein, as well as the fact of the display or publication thereof, cannot be regarded in connection with any contract or investment decision.
The information contained herein should not be construed as investment advice. The Company made every effort to ensure that the facts contained in this presentation
would be reliable and the opinions voiced herein would be reasonable and impartial. However, no guarantees or assurances, either expressed or implied, are provided
as to the accuracy and completeness of the information or opinions contained or reviewed herein on behalf of the Company or any of its shareholders, directors, officials,
employees or any other persons. None of the Company’s directors, shareholders, officials, employees or any other persons assume any responsibility for any losses that
may occur as a result of using this presentation or its contents in any form or in any other way relating to this presentation.
This presentation may contain forward-looking statements. Such forward-looking statements include the following: the data that are not accomplished facts; statements
of the Company’s intentions; and suggestions or current expectations in relation to, inter alia, the Company’s operating results, its financial condition and liquidity,
prospects, growth, strategy, and development of the industry the Company operates in. Due to being related to future events and depending on the circumstances that
may occur in the future, forward-looking statements inherently involve risks and uncertainties. The Company wishes to advise that it provides no guarantees for forward-
looking statements to be realized and that the actual operating results, financial condition and liquidity, as well as the development of the industry the Company operates
in, may differ essentially from the projections or suggestions contained or implied in the said forward-looking statements. Furthermore, regardless of whether the
Company’s operating results, financial condition and liquidity, as well as the development of the industry the Company operates in, conform with forward-looking
statements contained herein, such results and circumstances do not reflect the results and circumstances of the future periods.
The data and statements contained in this presentation are relevant as of the time of its display and are subject to change without prior notice. No party is under legal
obligation to update and amend the data contained herein.
By attending this presentation, you agree to abide by the limitations mentioned above.
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
2
FUNDAMENTAL ASPECTS OF FINANCIAL POLICY
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Key developments in Gazprom’s financial
performance throughout 2016
• Increased severance tax on natural gas
• Reduced revenue from gas sales (caused by lower contract gas prices) offset by record gas exports
• Positive free cash flow (RUB 202 bln)
• Strong discipline with regard to capital expenditures
• Dividends increase to RUB 190 bln in 2016
• High level of corporate governance at Gazprom confirmed by Moscow Exchange
167
42.0
66.9
166
48.0
63.3
0
50
100
150
200
GAS EXPORT PRICE OIL RUB/USD
Basic planning assumptions for 2017 budget
USD
2016 2017actual budget
2016 2017actual budget
2016 2017actual budget
3
GAZPROM GROUP’S KEY FINANCIAL INDICATORS
(1) Net of excise tax, VAT and customs duties
(2) EBITDA is adjusted by changes in asset impairment reserves
(3) Annual profit attributable to Gazprom shareholders
(4) Average quarterly figures
RUB bln
20
40
60
80
100
120
1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16 4q16 1q 17
OIL NBP GAZPROM'S AVERAGE EXPORT PRICE FOR EUROPE
Oil and gas prices, 2014-2017%
(1) (2) (3)
(4)
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
5,590
1,963
159
6,073
1,875
787
6,111
1,322952
0
2,000
4,000
6,000
Revenue Adjusted EBITDA Net profit
2014 2015 2016
4
KEY INVESTMENT PROJECTS IN GAS BUSINESS
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Oil
26%
Power generation
3%
Other lines of business
3%
Gazprom’s investment program
(RUB 911 bln)
Other lines of gas business
Gas business
68%
Gazprom Group’s Investment Program for 2017
Major projects under Gazprom’s Investment Program for 2017
MAJOR INVESTMENT PROJECTS
CAPITAL INVESTMENTS IN 2017, RUB BLN
St. Petersburg
Moscow
Torzhok
Blagoveshchensk
Ukhta POWER OF SIBERIA
RUB 159 BLN
AMUR GPP
RUB 102 BLN
CHAYANDINSKOYE
OIL, GAS AND
CONDENSATE FIELD
RUB 64 BLN
UKHTA –
TORZHOK 2
RUB 62 BLN
NORD STREAM 2
RUB 111 BLN
TURKSTREAM
RUB 42 BLN
Anapa
BOVANENKOVSKOYE
OIL, GAS AND
CONDENSATE FIELD
RUB 37 BLN
RUSSIA
TURKEYKiyikoy (Turkey)
GERMANY
Greifswald (Germany)
CHINA
Gas business
5
COST OPTIMIZATION FOCUS AREAS AND PRIORITIES FOR 2017
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
• Strategic planning for 10-year period
Scope of workMain cost optimization stages
• Gazprom’s 3-year budget plan and
investment program
• Gazprom’s budget and investment program
for upcoming year
• Defining key development targets for Gazprom and scope of priority
projects, building long-term financial model, and developing three
development scenarios for Gazprom
Major steps in restraining cost escalation
• Project development
• Project execution
• Detailed analysis and design
• Appraisal and optimization of project solutions
• Setting limits for investment program and operating expenses
• Ranking investment projects and preliminary approval thereof. Control of
claimed costs
• Setting limits for investment program
• Approving investment program. Control of claimed costs
• Control over project execution
• Procurement optimization. Control over contract performance
6
* Prime cost of gas production – costs for production of 1,000 m3 of gas by 7 major gas producing subsidiaries of Gazprom
** Average severance tax rate for taxable volume of gas production
*** Prime cost of gas transmission – costs for transmission of 1,000 m3 of gas per 100 km by Gazprom’s gas transmission subsidiaries (within Russian Federation)
WELL-BALANCED COST MANAGEMENT POLICY
53 57
65 6570
0
20
40
60
80
2013 2014 2015 2016 2017P
631 717872 880 906
602719
677 722991
0
400
800
1200
1600
2000
2013 2014 2015 2016 2017P
UNIT COST OF GAS PRODUCTION SEVERANCE TAX FOR GAS**
RUB /1,000 m3
RUB /1,000 m3 per 100 km
1,896
1,233
1,436
Prime cost of gas production*
Prime cost of gas transmission***
1,549 1,601
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Forecast effect from Program in 2017: RUB 12.2 bln:
• Operating activities:
current costs: RUB 6.9 bln
financial costs: RUB 0.2 bln
• Investment activities: RUB 5.1 bln
Effect from Program in 2016: RUB 19.7 bln:
• Operating activities:
current costs: RUB 9.8 bln
financial costs: RUB 1.2 bln
• Investment activities: RUB 8.7 bln
Cost optimization (reduction) program, 2016–2017
7
TAX PAYMENT STRUCTURE
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Tax payment by Gazprom Group’s companies (RUB mln)
31%
3%12%31%
5%6%
12%
Tax payments in 2016
НДПИ НДС
Акциз Таможенные пошлины
Налог на прибыль Налог на имущество
Прочие
Excise tax
Profit tax
Others
Customs duties
Property tax
2015 2016
Customs duties 693,746 617,788
Severance tax 599,433 601,985
Excise tax 219,105 236,892
Property tax 110,123 120,391
Profit tax 104,729 95,576
VAT 27,586 53,771
Others 191,942 240,048
Total: 1,946,664 1,966,451
Severance tax VAT
8
?Upward revision of
withholding ratio in severance
tax formula for gas and
condensate produced by
Gazprom Group:
• 0.2051 in 2016
Upward revision of Cgp
coefficient in severance
tax formula for gas
produced by Gazprom
Group:
• 1.7969 in 2017
• 1.4022 in 2018
• 1.4441 in 2019
CHANGES IN SEVERANCE TAX FOR NATURAL GAS PRODUCTION
BY GAZPROM GROUP
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
0.15 0.15
0.2051 0.2103 0.2166 0.2166
719677
1,001
557531
586611
563
722
1,063
809
891 910
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0
200
400
600
800
1000
2014 2015 2016 2017 2018 2019 2020
Average rates, RUB / 1,000 m3
Withholding ratio
0.3411
0.2695
Fixed severance tax
rate for Gazprom
Group
RUB 700 / 1,000 m3
Q1-Q2 2014Q3-Q42014 2016 Q1-Q3 2017 Q4 2017
Introduction of formula-based
severance tax. Single withholding
ratio for Gazprom Group and
independent producers:
• 0.15 with no time limit
- 2015
Upward revision of Cgp
coefficient in severance
tax formula for gas
produced by Gazprom
Group:
• 2.2738 in Q4 2017
• 1.4441 in 2020
2016 scenario
2014 scenario
2017 initial scenario
2017 updated scenario
9
NEED FOR EQUAL CONDITIONS FOR DOMESTIC GAS SALES
Current terms
Measures aimed at creating equal conditions for competition in domestic market
Wholesale gas price regulation
Regulated prices and tariffs do not offset costs of gas transmission
via UGSS
For independent gas producersFor Gazprom
Increased tax burden on gas production
Obligations to ensure reliability of gas supplies to all consumer
categories, including in peak consumption periods
Social obligations for gas supplies to and gasification of regions
Free gas pricing
Lower tariffs for gas transmission services
Preferential taxation (severance tax)
Gas supplies mostly to major industrial consumers in high-yield
regions
1. Various approaches are being explored for gradual transition from stringent regulation of Gazprom’s gas prices in the domestic market to pricing
within a regulated range and free pricing.
2. Work is underway on deregulation of gas prices, providing for gas liquefaction at any stage of gas delivery.
3. Proposals are under development to allow Gazprom to sell its natural gas at unregulated prices to companies specializing in gas liquefaction for
export purposes.
4. A joint working group for domestic gas market development was set up under the Federal Antimonopoly Service of Russia.
5. Gas volumes supplied via an established trading platform are increasing.
Short transportation distances
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
10
DEVELOPMENT OF CENTRALIZED MANAGEMENT SYSTEM FOR
GAZPROM GROUP’S LIQUIDITY
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Centralized
Management of
Gazprom Group’s Cash
Flows
Efficient Liquidity
Management at
Gazprom
Centralized
Management of
Financial Risks
• developing ruble-based
cash pooling system
• developing cash pooling
system involving
Gazprom Group’s
companies based
abroad
• setting up single
transaction processing
center for Gazprom
Group
• expanding list of
treasury instruments
• maintaining liquidity
reserve through short-
term credit lines
• improving financial
discipline across
Gazprom Group
• introducing uniform
standards for financial
risk management
• setting limits on credit
institutions, including
foreign ones
• creating internal control
and efficiency
evaluation system for
treasury operations
11
20 23.4
40.9
28.2
48.155.7
47.454.7
50.5
33.5
23.5
-16.2-21.2
-28.7-25
-34.3
-52.8
-43.4 -43.9
-33.2-27.1
-20.5
3.8 2.212.1
3.213.7
2.9 4.010.8
17.2
6.43.0
-60
-40
-20
0
20
40
60
80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
OPERATING CASH FLOW CAPITAL INVESTMENTS FREE CASH FLOW
CONSISTENT GENERATION OF FREE CASH FLOW
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
USD bln
unfavorable price environment for natural gas at foreign markets
low prices for oil and petroleum products
growing debt burden
strong trend for gas exports
increasing revenue from oil and power generation businesses
tight discipline in capital investment management
+ USD 3.0 blnof free cash flow
In 2016:
Conservative financial policy : generating positive free cash flow for 11 years
12
* As of late 2016
** Including capitalized interest
DEBT BURDEN
Repayment schedule of Gazprom Group’s debt
for 2017–2020*
7.4
11.7
6.9
4.3
0
3
6
9
12
15
2017 2018 2019 2020
USD bln
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
2.7
1.45.8%
8.4%
0%
3%
6%
9%
0
1
2
3
Interest paid Interest
revenues
Average interest rates of borrowings and
placements
Interest revenues and expenses** of Gazprom Group in 2016
46.6
14.8
3.1
0
15
30
45
Total debt Cash and cash
equivalents
Gazprom Group’s debt under IFRS*
• Efficient debt and liquidity management
• Conservative financial policy
USD bln
USD bln
Bank deposits
with maturity of
over 3 months17.9
Cash and cash
equivalents
13
SUCCESSFUL PERFORMANCE IN DEBT CAPITAL MARKETS
Q1 2016 EUR 2,000 mlnEURIBOR+3.5%
EUR 800 mlnEURIBOR+2.6%
Q4 2016
Q1 2017
Q2 2017
CHF 500 mln3.375%
CHF 500 mln2.75%
EUR 1,000 mln3.125%
Loans Bonds
EUR 700 mlnEURIBOR+2.5%
USD 750 mln4.95%
RUB 30 bln*
8.9%
GBP 850 mln4.25%
• In March 2016, Gazprom got a EUR 2 billion loan from Bank of China. It was the Company’s largest deal in terms of financing
attracted directly from one credit institution and first bilateral loan facility agreement with Chinese bank.
• In March 2017, Gazprom placed dollar bonds for the first time in three years.
• In April 2017, Gazprom issued bonds for GBP 850 mln, thereby closing the largest deal in the UK among the same-ranking companies
in the emerging markets over the past 3 years.
• Two bond issues were placed in Q1 2017, each with value of RUB 15 bln.
• In June 2017, Gazprom obtained a long-term loan of EUR 300 mln from VTB Bank (Austria), with insurance coverage provided by
Austria's export credit agency OeKB.
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
* Two bond issues each worth RUB 15 bln
EUR 300 mln
14
DIVIDENDS
* Proposed by Board of Directors
** Dividend yield: ratio of dividends for 2016 to share price as of June 16, 2017
Dividend payout Dividend yield on shares in largest global oil
and gas companies**
Dividend yield on Gazprom’s shares is commensurate with that of largest global oil and gas companies
SOURCE: COMPANY’S DATA, BLOOMBERG, JP MORGAN
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
0.36
2.39
3.85
8.97
5.99
7.2 7.2
7.89 8.04
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012 2013 2014 2015 2016
RUB/ share
* 7.0% 7.0%6.7%
5.8%5.5%
5.2%
4.5%
4.0%3.6%
2.3%2.0%
1.4%
0%
2%
4%
6%
8%
10%
12%
**
15
STREAMLINING CORPORATE GOVERNANCE
GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
Current Board of Directors includes three independent
directors (status is confirmed by Russian stock exchanges)
Audit Committee, largely made up of independent directors
and chaired by independent director, was created
Nomination and Remuneration Committee, consisting mostly
of independent directors, was set up
Corporate Secretary unit (responsibility distributed among
several structural units) was established
Gazprom’s key corporate documents aimed at protecting
shareholders’ rights were updated to best practice standards
Continuous enhancement of corporate governance standards in accordance with
best practices and improvement in transparency of Company’s activitiesGoal
Planned efforts:Results of efforts made in 2016:
to conduct independent audit of Company’s corporate
governance; to receive and implement recommendations on
further improvement of corporate standards
to evaluate Board of Directors and its committees’ performance
to receive and implement recommendations on further
streamlining of corporate standards based on independent
audit of corporate governance
to continue practice of arranging conference calls and personal
meetings of independent directors with shareholders and
investors
16 GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017
KEY OBJECTIVES
Stable tax and regulatory environment needed for sustainable
development of Company
Continuous cost control
and optimization at all
levels
Efficient debt and liquidity management
Stable dividend policyCorporate governance
improvement