Boosting Performance February 2020 in a Changing Environment 1 - - PowerPoint PPT Presentation

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Boosting Performance February 2020 in a Changing Environment 1 - - PowerPoint PPT Presentation

Boosting Performance February 2020 in a Changing Environment 1 Disclaimer This presentation and its contents are confidential and may not be reproduced, redistributed, from official or third party sources. Third party industry publications,


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February 2020

Boosting Performance in a Changing Environment

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Disclaimer

This presentation and its contents are confidential and may not be reproduced, redistributed, published or passed on to any person, directly or indirectly, in whole or in part, for any purpose. If this presentation has been received in error, it must be returned immediately to NJSC Naftogaz. (the “Company”). This presentation does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any securities

  • f the Company or any of its subsidiaries in any jurisdiction, nor shall it or any part of it nor the

fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. This presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. This presentation is not an offer of securities for sale in the United States. The Company’s securities may not be offered or sold in the United States except pursuant to an exemption from,

  • r transaction not subject to, the registration requirements of the United States Securities Act of

1933. This presentation is directed solely at persons outside the United Kingdom, or within the United Kingdom, to (i) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”), (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iii) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities of the Company or any member of its group may otherwise lawfully be communicated

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  • f the industry or market data contained in this presentation.

The presentation has been prepared using information available to the Company at the time of preparation of the presentation. External or other factors may have impacted on the business of the Company and the content of this presentation, since its preparation. In addition all relevant information about the Company may not be included in this presentation. The information in this presentation has not been independently verified. This presentation contains forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words “targets”, “believes”, “expects”, “aims”, “intends”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the Company’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which it will operate in the future. These forward-looking statements speak only as at the date

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disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based. Individual figures (including percentages) appearing in this presentation have been rounded according to standard business practice. Figures rounded in this manner may not necessarily add up to the totals contained in a given table. However, actual values, and not the figures rounded according to standard business practice, were used in calculating the percentages indicated in the text. Manufacturer target market (MIFID II product governance) is eligible counterparties and professional clients only (all distribution channels). No PRIIPs key information document (KID) has been prepared as not available to retail in EEA

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Summary

  • key uncertainties

resolved in a positive way: the Big Achievements

  • low price market
  • low gearing
  • focused pipeline of

projects to take advantage of new

  • pportunities
  • spending

management Well-positioned to benefit from changing environment Pulling levers to manage through gas price downturn Balancing act between growth and profitability

  • lower operating

expenditure

  • capital discipline
  • transformation

activities

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Naftogaz at a glance, 2019

78%

share in total gas production in Ukraine

89.6 bcm

gas transit via Ukrainian GTS Gas imports by the group

7.2 bcm 7%

contribution to Ukraine’s GDP Royalty paid by the group

UAH 32.2 bn

55,078

employees

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Macroeconomic stabilization supports Ukraine’s growth

Key macroeconomic indices in Ukraine

131 87.5 92.3 113 131 150 24.9 43.3 12.4 13.7 9.8 4.1 15.8 24.0 27.1 28.2 27.7 23.7

Inflation, % GDP growth, USD bn UAH/USD exchange rate

2019 2014 2015 2016 2017 2018 2019E 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018

NBU interest rate, %

2019 2016 2017 2018

22.0 15.5 12.5 16.0 18.0 18.0 16.5 11.0

Sources: Ukrstat, NBU, IMF

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Naftogaz: key figures

Financial Highlights, UAH (mln) FY 2017 FY 2018 FY 2019 (1) Revenues

227,478 256,312 218,545

Operating profit

60,545 26,397 86,044

Adjusted EBITDA(2)

83,945 87,497 62,261

CAPEX

16,995 30,595 33,565

Total Assets

723,124 603,712 598,048

Cash position

23,093 14,224 78,016

Net Debt/Adjusted EBITDA

0.43 0.48 0.68 (3)

bcm

15.5 14.9 1.1 1.2 16.6 16.1 2018 2019 Ukrnafta Ukrgasvydobuvannya

Total

Gross Gas Production Volumes

(1) These are preliminary unaudited results of the Group’s operations for 2019. These results include Gas Transit and Gas Transmission results that will be shown as discontinued operations. Final audited results could differ significantly from the figures stated above. (2) Adjusted EBITDA is net profit/(loss) for the period, adjusted to exclude the effects of income tax expense/(benefit), finance costs, finance income, share of after-tax results of associates and joint- ventures, net foreign exchange loss, depreciation, depletion, and amortization, impairment of property, plant and equipment, provisions, and non-refundable VAT, arbitration income, and arbitration expense recognised as a result of the Gas Transit and Sales Arbitration (3) Net Debt/Adjusted EBITDA for 2019 is calculated as Total Debt less Cash (adjusted for cash received in December 2019 per results of transit arbitration).

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2017 2018 2019F 2017 2018 2019F 2017 2018 2019F

Integrated gas is the key part of Naftogaz business following the unbundling

227.6

2017

Revenues 256.4

2018

218.5

2019F

83.9

2017

87.5

2018

62.3

2019F

Adjusted EBITDA CAPEX 17.0

2017

30.6

2018

33.6

2019F

Integrated gas

89.1 108.5 90.2 39.1 43.9 33.4 13.7 24.7 26.9

Gas transit and gas domestic transmission

Other segments and unallocated items

2017 2018 2019F 2017 2018 2019F 2017 2018 2019F 2017 2018 2019F 2017 2018 2019F 2017 2018 2019F

98.7 97.2 87.0 39.8 50.7 41.3 41.4 36.3 26.8 3.4 7.3 2.1 1.8 2.8 2.2 1.5 3.1 4.5

UAH bn

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Ukraine’s gas market is half-way through to full liberalization

billion cubic meters (bcm)

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Traders boosted gas reserves anticipating gas transit interruption

Sources: Naftogaz and Ukrtransgaz

billion cubic meters (bcm)

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Gas transit deal removed risks and created price pressure

Gazprom’s gas exports, mcm/d

Sources: pipeline operators; TurkStream – estimated; eegas.com, Powernext

  • Three main routes

delivered just 9.72 bcm in January Gas price at TTF, EUR/Mwh

  • 25%
  • TurkStream

delivered 1 bcm+ to Turkey and Bulgaria

  • European gas demand fell

due to warm weather and withdrawals from UGS instead of pipeline exports

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Extra gas in Ukraine’s storages creates additional price pressure and opportunities

Gas stocks in Ukraine’s UGS facilities, bcm

2 4 6 8 10 12 14 16 18 20 21

13.8 14.7

16.2

19.02.20

21.9

01.11.19

10.2

19.02.19

17.2

01.11.18

Oct Nov Dec Jan Feb Jan Feb Mar Apr May Jun Jul Aug Sep

utg.ua

Historic low Heating s season 2 2018/ 18/201 2019 Heating s season 2 2019/ 19/202 2020

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Important achievements: positive arbitration outcome

$2.1 bn $2.9 bn

Compensation from Gazprom, incl. interest ─ compensation received through offset in February 2018 +over $80 bn of Gazprom’s claims to Naftogaz fully dismissed ─ compensation received in cash in December 2019 following attachment of Gazprom’s assets in EU

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13 2020 2021 2022 2023 2024

65 40 40 40

bcm bcm bcm bcm bcm

40

Important achievements: unbundling and gas transit deal

Transit deal: stable revenues, cost reduction, more security

  • No gas war occurred
  • Guaranteed transit revenues in 2020-2024 thanks to ship-or-pay clause
  • Gas prices collapsed by 25% over 1.5 months
  • Gas transmission tariffs decreased by 2-4 times for Ukrainian consumers
  • Ukraine is now directly connected with EU gas network

minimum

$7.2bn

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Priorities going forward: operating efficiency

Pulling levers to manage through gas price downturn Lower operating expenditure Capital discipline Transformation activities

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Naftogaz is well positioned with low gearing

(*) Total pledge of assets (gas in storage) and proceeds from future sales – USD 2.2 bln

Weighted Average Interest Rate Total Debt, $bn Debt Structure, February 2020

8% 7% 17%

0% 5% 10% 15% 20%

USD EUR UAH

Eurobonds

300 199 469 65 1041 500 300 199 134 65 371 1069 335 669 500 1504

2020 2021 2022 2023 2024 2025 2026

Debt Repayment 2020-26

State-owned banks Total, in $mn 1 2 3 FY 2016 FY 2017 FY 2018 FY 2019

Unsecured $1.5bn 60% Secured $1.0bn 40% 2.6 2.1 2.0 2.5

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Upstream: focused brownfield strategy, new opportunities

Brownfield redevelopment Unconventional resources New exploration effort Naftogaz objectives Partnership considerations

  • Maximize value of depleted

brownfield reserves

  • Optimize costs and increase

profitability

  • Develop evaluation criteria for cost

efficiency and brownfield performance

  • Partner requirements – proven track

record, operational efficiency, excellence, willingness to invest

  • Contract type – Production

Enhancement (PEC)

  • Commercialize Naftogaz' and

Ukraine's tight gas resources

  • Efficiently scale up
  • Build technological capability
  • Partner requirements – proven

track record, technological excellence, readiness and ability to scale in Ukraine

  • Contract type –

Risk Service Contracts (RSC)

  • Share risks and invest in resource base

development

  • Ensure sustainable production

increase through greenfield development

  • Optimize capital commitment
  • Build exploration capacity
  • Partner requirements – proven

track record, significant capital exposure, readiness to scale up in Ukraine

  • Contract type – Production

Sharing Agreement (PSA) 1 2 3

Status

  • Announced

competition for two UGV deposit clusters in the Western region; participant qualification stage

  • UGV acquired 4

greenfield sites, 2 of which will be developed by Vermilion (Canada); draft agreements submitted to CMU

  • Preparing tender

documentation; looking for partners

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Naftogaz prioritizes UN Sustainable Development Goals

  • compliance with OECD

principles

  • majority of Supervisory

Board Members are independent directors

  • 0 tolerance to

corruption

Environmental Social Governance

  • reasonable natural

resource management

  • negative impact

reduction

  • energy efficiency

& renewables

  • footprints disclosure

and reporting

  • biodiversity
  • responsible

procurement

  • educational projects
  • enhanced

environmental and health safety

  • infrastructure

maintenance

  • contribution to local

budgets through royalty

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EBRD supported and supervised corporate governance reform in Naftogaz

Supervisory Board with a majority of independent members in place is yet to be fully empowered with authority to:

  • Approve strategy
  • Approve financial plans
  • Appoint and remove Executive Board members

Clare Spottiswoode Chair, Independent director Bruno Lescoeur Independent director Amos Hochstein Independent director Ludo Van der Heyden Independent director Yuliia Kovaliv State representative Nataliya Boyko State representative

Supervisory Board Members

2/3 of the Board are independent members

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121

UAH bn

2019

14%

2014

  • 97
  • 33

74

41

  • 53

110

57

  • 56

139

82

121

69

  • 30
  • 17

48

1

  • 15
  • 87

20 2015 2016 2017 2018 2019

+163

  • 52

Naftogaz is the largest net contributor to the state budget

From the ‘black hole’ to the biggest payer of taxes and dividends for the state as the sole shareholder

POSITIVE EFFECT ON THE STATE BUDGET, UAH bn

  • f revenues to the

state budget in 2019

Every seventh hryvnia was contributed by Naftogaz Taxes and dividends paid to the state budget by Naftogaz Direct subsidies provided by the government to low-income consumers Recapitalization of Naftogaz from the state budget

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20 NAFTOGAZ GROUP ir@naftogaz.com +380 44 586 3537 www.naftogaz.com @NaftogazUkraine