Page 102 - RusRPTSept19

Therefore, EBITDA grew 14% QoQ to USD 5.1bn, or 15% above consensus. Adjusted for the gain from hedging operations, EBITDA was broadly in line with our forecast.
Tatneft reported weak 2Q19 IFRS results. They came below the consensus estimates, mainly driven by a significant build up in oil inventory, which could be the result of oil the contamination issue. Our unchanged 12-- month Target Prices for Tatneft’s ords and prefs are USD 8.80 and USD 8.50, implying ETRs of --9% and 1%, respectively. Thus, we reiterate our Sell for ords and Hold for prefs. Inventory build-up drove revenues down. Tatneft reported USD 1.8bn in gross revenues from crude sales in 2Q19, down 16% QoQ and 16% below our forecast. The discrepancy was due to domestic crude sales volumes coming 26% lower than we had anticipated as a result of an inventory build-up of 0.83mnt (after the inventory release of 0.26mmt in 1Q19). That was equal to 11% of the company’s crude production in 2Q19, while we had expected an inventory release of 0.04mnt. This can largely be explained by the incident with contaminated oil in the Druzhba pipeline. Gross revenues from oil product sales were 7% above our estimate, at USD 1.5bn (up 17% QoQ), supported by higher than forecasted oil products purchases. Tyre sales were up 60% QoQ on the low base of the previous quarter. As a result, total gross revenues were USD 3.7bn, down 3% QoQ. Better than expected costs. Tatneft showed better than expected cost control in 2Q19, with operating and SG&A costs coming 3% and 4% below our estimate, respectively. Distribution costs decreased 14% QoQ, mainly driven by a 12% QoQ decline in crude oil sales. In addition, the company reported a USD 7mn impairment reversal, while we had expected a loss of USD 26mn (as in the second quarter of 2018 ). The costs of crude and products purchased exceeded our estimate by 32% due to the significantly higher than expected volumes of hydrocarbons purchased (0.10mnt of crude and 0.38mnt of refined products vs. our estimates of 0.06mnt and 0.23mnt, respectively). These resulted in EBITDA declining 9% QoQ to USD 1.2bn, or 7% lower than our forecast and 8% below consensus.
9.2.3 Aviation corporate news
Russian national air carrier Aeroflot Group reported passenger turnover of 28mn people in 2Q19, with revenues of RUB271bn ($4bn) and net loss of RUB8.8bn. Company's Ebitda stood at RUB46.9bn, in line with expectations. Previously an investors’ darling, the last year has been tough on Russia’s national airline. Aeroflot has been posting solid traffic results, but high costs have been hurting its margins in 2018. However, recently Aeroflot's investment case was seen as improving in both structural and fundamental terms, seeing a brighter outlook on regulatory and cost relief in 2019-2020, as well as an expected resumption of dividends by investors. Notably, low-cost airline Pobeda, part of the Aeroflot group, is now in profit, reporting RUB1.5bn of net profit in 1H19 versus RUB0.9bn loss for the same period of last year. Ebitda doubled to RUB2.7bn, revenues were up 1.5-fold to RUB21.5bn.
Russian regional airline Utair filed a net loss in the first half of 2019, up by 83% according to its IFRS accounts, compared to the same period in 2018 and amounted to a total of RUB9.5bn the company said on September 2. Revenues of the carrier increased by 3% to RUB37.2bn. Operating expenses in the reporting period amounted to RUB37bn against RUB36.4bn a year ago. By the end of the first half of the year, short-term loans and borrowings
102 RUSSIA Country Report September 2019 www.intellinews.com