Gazprom's 2014 net profit falls 86% amid foreign exchange losses

Gazprom's net profit plunged 86 per cent last year amid heavy foreign exchange losses, a protracted dispute with Ukraine and mild weather.

Russia's state-controlled gas group, however, also reported record cash flow for 2014 as it cut capital expenditure and trimmed operating costs, in similar moves to other large energy companies hit by the sharp fall in oil prices.

Gazprom, the world's biggest gas producer which accounts for about a fifth of Russian government revenue, reported on Wednesday that net income attributable to its shareholders for 2014 fell to Rbs159bn ($3.1bn) from Rbs1.1tn in 2013.

This was largely due to the rouble's rapid decline at the end of 2014, which triggered a Rbs1.1tn accounting charge as Gazprom revalued its foreign currency-denominated debt.

The group spent most of 2014 embroiled in a dispute with Ukraine and cut off supplies to one of its largest customers for much of the second half of the year.

Total gas sales by volume last year came to 439.9bn cubic metres, down 7.8 per cent on to 2013 as deliveries to Ukraine dropped. European and Russian customers also bought less gas during the mild winters of 2013-14 and 2014-15.

Nonetheless, free cash flow almost doubled from a year earlier to $17.2bn in 2014 as the company cut capital expenditure by 24 per cent to $33.2bn.

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"One would not identify 2014 as a successful year for Gazprom," said analysts at Bank of America Merrill Lynch. "The company was at the centre of the geopolitical dispute with Ukraine and was affected by falling volumes in Europe and on the domestic market. Yet Gazprom's results surprised on the upside in free cash flow generation."

Gazprom's realised prices for gas, which tend to follow oil prices with a lag, held up at the end of last year.

The company said average export prices to Europe were 11 per cent higher in rouble terms in 2014 on the previous year.

<>However, with the value of Brent crude having fallen more than 40 per cent since last summer, analysts expect Gazprom to receive significantly lower prices for its gas through the course of this year as the full impact of falling oil prices is felt by the company.

At the same time, the European Commission's antitrust charges against the company, announced last week, could force it to change its pricing structure.

"Gazprom has emerged into a new pricing environment with its core income drivers strong," said the company.

Foreign exchange risks were "naturally hedged by maintaining a balance of currencies in Gazprom's debt portfolio close to the balance of revenue currencies", it added.

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