First Vice President of Transneft Maksim Grishanin has answered some relevant questions asked by investors and analysts in the course of a telephone conference following the publication of the Company’s financial statements by IFRS for 2019.
The management of Transneft suggests that 50% of the adjusted net profit by IFRS or RUB 81 billion (RUB 11,200 per share) should be paid out as dividends for 2019.
According to the Company’s First Vice President, Transneft from now on plans to pay out 50% of the adjusted net profit by IFRS as dividends. “In the years to come we’ll follow this pattern,” he said.
Mr. Grishanin also informs that Transneft is discussing the possibility of paying the dividends for 2019 by installments. “We are discussing with the government the possibility of paying out the dividends for 2019 by three installments, i.e. during three years to come. We propose paying roughly half of this amount this year and then pay another RUB 40 billion during three years to come as an additional sum to what will be due in the following years,” he explained.
“In the meantime, we do not plead for any support from the government which wants our investment programme to be implemented as planned, because it is very important for many industries. With that in mind, we do not ask to cut the dividends, I’d like to reemphasise that we do not ask for dividends cancellation; we just ask to allow their payout by several installments,” noted First Vice President.
An objective set by the government (the main shareholder of Transneft) for the Company is to abstain from curbing the investment programme since the latter is very important for the national economy, Mr. Grishanin emphasised. “We have monetary assets on our accounts that could be used for dividends payout, but we also have other tasks in front of us. Our main shareholder challenges us not to slash our investment programme because the latter is important for Russia’s economy,” he added.
“We believe this is a more open and honest approach; we do realise that many Russian companies will most likely cut their dividends against the forecast (amounts credited rather than actually paid out); we are aware that the financial sector will also feel more like building its capital instead of paying out dividends. I can say that our position is to credit dividends and to pay them out in full, but in several installments. Our policy is most friendly towards our shareholders, given the current state of the world energy sector,” he underlined.
In the words of Mr. Grishanin, if the Company sees that the situation is better than the basic scenario, then it will increase the share of dividends for 2019 to be paid in 2020 and, accordingly, reduce the share to be paid by installments.
Yet First Vice President underscored that this matter is not settled yet. “We are discussing this possibility with the government. Yet the government as our main voting shareholder has not made this decision so far,” he said.
Impact of OPEC+ Deal
The decrease in oil production planned by the Russian Federation as part of the OPEC+ agreement will bring about a reduction in Transneft’s freight turnover by 10-13%, Vice President informed.
He added that the decrease in supplies to the domestic market would be somewhat less that along export supplies, percentagewise. Mr. Grishanin did not specify on what export routes the supply may fall.
In his words, given the freight turnover reduction, Transneft will consider, among other things, reducing capital expenditure. “After the May holidays we’ll have a clearer picture of the policy we should pursue this year and what items of capital expenditures planned for 2020 we’ll have to cut or push back to later years,” added First Vice President.
Transneft expects the Company’s tariff policy won’t change in the years to come.
“We will have the same ‘inflation minus’ tariff policy,” said Grishanin in the course of the telephone conference. “We are currently having discussions with the respective regulator, following the ‘inflation minus’ logic,” he said. The exact meaning of the minus is not being debated right now.
Indexing Wages of Operational Staff
In 2019, Transneft indexed the wages of its principal operational staff by 5-7%, First Vice President informed.
“The key driver is traditional expenditures on labour remuneration and electricity. In 2019, following the incident on the Druzhba, we had to redirect crude oil flows to other routes, which meant electric energy and power overdraft, as well as higher energy rates,” said Mr. Grishanin.
“Furthermore, our personnel were paid extra remuneration for overtime – actually across the entire system, to begin with, and in 2019 we carried out the planned indexation of labour renumeration for the principal operational staff by 5-7%. We had not done that for three years,” he added.
Quality of Crude Oil
Mr. Grishanin informed that on Thursday Transneft signed an agreement with Gazprom Neft regarding the settlement of Druzhba pipeline force majeure consequences.
After that incident,120-130 thousand tonnes of off-spec oil are left in the Transneft system, but this does not affect the operations, he pointed out.
“After that unpleasant incident we held negotiations with our consignors regarding the fix-up and making up for their losses caused by that nuisance, and we believe the negotiations were a success. By now we’ve settled all issues with Kazakhstani firms, LUKOIL, Surgutneftegaz (regarding the volumes) and we’ve finalised the amount of payments to the Mozyr Refinery in Belarus. Today we’ve signed an agreement about the settlement with Gazprom Neft,” First Vice President informed.