2015 Financial Statements

Rusneftegaz has elected to publish its full consolidated financial statements for 2015. These results were prepared in accordance with International Financial Reporting Standards, otherwise known as IFRS, and have been audited by Deloitte. Foremost, the directors can report a positive financial performance for the year. A synopsis of which is as follows:

• Rusneftegaz increased pre-tax profits for the financial year from $122.5m to $153.7m, in spite of a turbulent economic conditions stemming from unstable commodity prices.
• Investments made during the period more than doubled from $29.5m to $87.2m, with a long-term plan to expand the Group’s operations.
• Cuts made to costs resulted in net profits from oil production increasing from $118.5m to $126.4m despite a fall in both extraction and revenue.
• The electricity division raised revenue from $184.3m in 2014 to $233.5m in 2015, notwithstanding falls in both total generation and the value of the Ruble.
• Pre-tax profits earned from power production surged from $15.5m to $37.1m, with considerable growth forecast in the future.​

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At the end of the financial year, Rusneftegaz has overcome significant detrimental macroeconomic factors to increase its reported net profit from $122.5m to $153.7m, despite a fall in revenue from $552.9m to $431.2m. Over the course of the reporting period, there has been a consequential devaluation in the Group’s functional currency, the Russian Ruble, and a global depreciation in commodity prices. However, management has mitigated this through its extensive electricity generation programme, which has led to revenue earned through the sector escalating from $184.3m to $233.5m, and also becoming the largest segment within the Rusneftegaz group of companies. Petroleum production only attributed to $197.7m of earned revenue, compared to $368.6m in 2014, with oil output also diminishing from 8.35m barrels per year to a total of 5.88m barrels produced last year.

However, this abatement is part of the Group’s strategy in response to the fall in oil prices, and has managed to preserve the integrity and profitability of Rusneftegaz’s oil sector whilst retaining unextracted oil reserves for deployment in the future. The fulcrum of the relative prosperity of the Group’s petroleum division is largely as a result of a material reduction in mineral extraction taxes from $179.3m to $28.2m, due to some of the Group’s oilfields now being exempt from the tariff. The decline in the value of the Russian Ruble was also responsible for falls in labour costs from $40.1m to $38.7m, and maintenance charges from $11.5m to $9.9m. There were increases in other costs affiliated with crude oil extraction, including a rise in transportation charges from $7.1m to $8.2m, by virtue of oil deliveries inside the European Union.

Likewise, total electricity output also fell from 11.53 TWh in 2014 to 11.39 TWh in 2015, although contrarily the net profits from the generation division rose to $37.1m from $15.5m the year prior. This was in spite of stagnation in fuel costs at $115.0m, rising $0.2m from $114.8m, and transmission costs, which was maintained at $1.7m across both periods. There was however, a sizable decrease in administrative costs in 2015, which is composed of the wages of office-based staff, legal fees and insurance premiums, from $17.2m to $9.0m. Overall for the year, earnings per share amounted to $122 per share, and revenue per share amounted to the equivalent of $553 per share.

Rusneftegaz utilised these earned funds to invest $87.2m in new assets, compared to an expenditure of $29.5m the year before, mitigating a $28.6m loss from depreciation and a further $16.0m loss from mineral depletion. These costs represent an increase from 2014, where the total amount of depreciation, depletion and amortisation was reported at $40.1m, although the aggregate of impaired assets lowered from $2.3m to $2.1m. The total value of the Group’s property, plant and equipment nonetheless receded during the period from $713.8m to $586.8m because of a $172.4m loss arising from fluctuations in foreign exchange rates, which was a component of the $254.5m depression from currency conversion differences recorded during the year, although the book value of all property, plant and equipment did rise by $2.9m following revaluation.

The contraction in the value in the Ruble did not have as considerable impact as in 2014, where the total deflation was valued at $754.4m. The continuation of the fall has led to the total value of the Group’s assets falling from $851.2m to $695.2m. This included a decrease in the amount of cash recorded from $107.7m to $82.8m, with total foreign exchange losses valued at $93.6m. This offset gains from cash flows deriving from operations, financing and investing of $68.7m. Of this figure, operating activities accounted for a total increase of $201.5m, up from $167.1m the year before, resulting in a decrease in the cash flow per share from $167 per share in 2014 to $131 in per share 2015.

Along with cash and cash equivalents, Rusneftegaz also recognises other non-fixed assets including those that are held specifically for sale, the balance of which remained the same at $5.0m, and also trade and other receivables, the value of which fell from $22.0m to $11.4m. The only of Rusneftegaz’s current assets to increase in value during the year was inventory, the volume of which ascended almost seven-fold from $1.1m to $7.5m, composed mostly of crude oil and coal, but also spare parts and other petrochemical products. The monetary worth of the majority of the Group’s non-current assets also descended, with the book value of all intangible assets falling from $162 000 to $126 000 as a result of currency translation differences, although a $20 000 rise in the value of derivative financial instruments from $696 000 to $716 000 was a notable exception.

Of the $695.2m of total assets, $588.4m are classified as non-current, with the remaining $106.4m regarded as current. In comparison, $715.4m of assets were considered non-current assets in 2014, and $135.8m of assets were reported as current. Between the Group’s sectors, $393.9m of assets are affiliated with electricity generation, an expansion from $300.4m the year before, and an additional $275.7m are utilised in relation to petroleum production, compared to $431.5m in 2014. Likewise, Rusneftegaz can also report $87.0m of liabilities at the end of the financial year, down from $137.6m, of which $40.3m is associated with the power generation division, and $45.1m is correlated with oil operations. In both years, current liabilities exceed the total of non-current liabilities, with $52.8m of short-term and $34.2m of long-term liabilities recognised in this years financial statements, compared to $102.2m and $35.4m respectively the year before.

On 31 December 2015, the largest components of reported liabilities are accounts payable at $47.6m, which inflated from $27.6m on 31 December 2014, and provisions appraised at $23.4m. This particular liability is an estimation of the future financial burden of fulfilling Russian regulatory requirements once the Group’s oil extraction licences have expired, and decreased in value solely as a result of currency fluctuations in which the approximated charge is calculated. On the other hand, there were increases in Rusneftegaz’s taxes payable from $3.9m to $5.2m, and also in deferred tax liabilities which rose to $10.8m from $4.0m the year before.

Moreover, the value of the recognised deferred tax assets also increased from $718 000 to $805 000, with Rusneftegaz’s heightened profits have consequentially caused rises in almost all of the Group’s taxation assets, liabilities and charges. The largest single tax expense recorded during the financial year was income tax, which rose from $24.8m to $32.7m. Along with deferred tax liabilities, the Group also recognised a current liability of $5.2m for taxes and royalties due within the next financial year, with the figure climbing from $3.9m in 2014. The magnitude of Rusneftegaz’s foreign sales resulted in an export duty charge of $8.0m, which was reported as a component of cost of sales in the statement of profit or loss and other comprehensive income along with other taxes that are not income tax, which deflated from $5.3m to $4.8m.

Overall, the continued uncertainty in worldwide commodity prices is likely to ensure that the financial performance of the Rusneftegaz’s petroleum division remains not as positive as in previous periods. Thus, the management board has undertaken an extensive plan to mitigate the effects of more challenging economic conditions, primarily by accelerating the volume of investments made in electricity infrastructure to establish greater efficiency and profitability over the next five years. In addition, the Group also plans to continue its current strategy of managing the levels of oil extraction to maintain the profitability of the segment in the immediate term, whilst preserving the integrity of the oil reserves for the future when commodity process are higher and will cultivate greater revenues. Said agendum for the short-term is also encompassed in a greater strategy for Rusneftegaz’s long-term prosperity, involving the Group becoming one the largest energy companies in the Russian Federation by the end of the next decade through an aggressive expansion programme that is currently being planned.