Analysis

H1 Review: Results, profits, dividends and statistical data

The manufacturing and extractive industries were the stars of the five months of the year in Romania in the share of industrial production, both as gross series, with 4%, and as adjusted series, with 5.7%, compared to the same period of the previous year, according to data from the National Institute of Statistics (INS). Within industrial production (gross series) there were positive results in the manufacturing industry (+5.1%) and extractive industry (+1.9%). On the other hand, electricity and heat, gas, hot water and air conditioning production and supply fell by 1.7%.

 

In the margin of 5.7% growth of industrial production, as adjusted series depending on the number of working days and seasonality, the manufacturing industry registered a jump of 6.9% and the extractive industry of 2.1%. At the opposite side were electricity and heat, gas, hot water and air conditioning production and supply, with a decline of 1.4%.

This was the context in which the activity of companies in the industry was carried out, and their financial results are presented next.

 

Dividends of RON 8.041/share at Conpet

Conpet Ploiesti, the national transporter of crude oil through pipelines, reported in the first half of this year a net profit of RON 21.6mln, while the turnover maintained at a similar value as that in H1/2017, i.e. RON 185mln. The operating profit achieved in the first half of 2018, compared to the same half of 2017, recorded a decline to RON 23.25mln (42.48%), mainly as a result of lower revenues from the provision of transmission services for crude oil, gasoline and condensate and an increase in staff expenses.

Conpet Ploiesti carried in the first half of the year more crude oil than in the similar period of 2017 and posted a turnover of RON 184.93mln, by only 0.74% lower. Operating income stood at RON 199.98mln, down by 1.3% compared to the amount of RON 202.60mln recorded in H1/2017, in conditions of an increase by 2.68% in the quantity of crude oil transported, to 3.30 million tons, from 3.21 million tons. Thus, while in the domestic transmission segment there was a decline of 1.51%, to 1.76 million tons, from 1.78mln million tons, in the case of imported oil the transmission climbed by 7.92%, to 1.54 million tons, from 1.43 million tons. The financial results have better prospects in the second half of the year, as the tariff for the domestic transmission of crude oil was increased by 6% in June, to RON 84.37/ton, from RON 79.75/ton.

The Ordinary General Meeting of Shareholders of Conpet Ploiesti approved the proposal for the distribution of a gross dividend of RON 8.04168315/share. Thus, no less than RON 69.62mln, representing 90% of the net profit of RON 77.35mln obtained last year, will go to shareholders in the form of dividends, while other 3.84% of the gain, i.e. the amount of RON 2.97mln, would represent employees’ participation in profits, according to shareholders’ decision. The date of dividend payment was 28 June and the amount received by the state for its shareholding of 58.71% held through the Ministry of Energy would amount to RON 40.87mln. Also, portfolio investors should get RON 29.09mln.

 

Romgaz has proposed a dividend of RON 4.99/share

Romgaz recorded in the first half of the year a net profit of RON 797mln, down 10% compared to the profit recorded in the similar period of last year (RON 887.5mln), following an increase by 18% in expenses (and by only 5% in revenues). The main additional expenses were of fiscal nature: royalty being calculated at the gas price in Vienna (42.53% compared to H1 2017), which led to an increase by RON 60mln in expenses with the payment of the tax on windfall gains obtained as a result of price deregulation in the gas sector.

Romgaz’s turnover went up 3.4%, from approximately RON 2.4bn to RON 2.47bn. Overall, the influence of increased taxation in the field (introducing a reference price from the Vienna exchange in the royalty calculation formula and its direct impact on the windfall tax) was RON 117mln (an additional amount of RON 57mln from royalties and RON 60mln from the windfall tax).

If the National Agency for Mineral Resources (NAMR) hadn’t decided to chance the royalty calculation formula in February, Romgaz would have recorded a profit of RON 914mln in the first half of the year, by 3% higher than the one in the similar period of last year, this despite a decrease in gas supplies by approximately 3%. National gas consumption recorded in the first 6 months of 2018 a decline by 3.5% compared to the similar period of the previous year, while Romgaz’s supplies went down only 2.96%, from 32.06TWh to 31.11TW. Therefore, Romgaz’s market share in the Romanian gas supply market reached 45.26%, by 0.27% higher than the market share held during the previous reporting period (44.98%).

In the first half of 2018, Romgaz produced a volume of 2,640 million cubic metres of natural gas, by 81 million cubic meters (3.2%) more than in the same period of last year.

The gas producer has proposed for dividends granted to shareholders the amount of RON 4.99/share.

 

Revenues by 84% higher at Rompetrol Well Services

In the first half of this year, Rompetrol Well Services posted total operating revenues of RON 27.73mln, by 84% higher than the amount of RON 15.07mln posted in H1/2017. In the same reporting period, operating expenses increased at a much slower pace, +46.19%, to RON 24.56mln, from RON 16.80mln. Thus, the company obtained an operational result of RON 3.16mln, compared to operational losses of RON 1.73mln in the first 6 months of last year.

A positive impact also came from the financial result, which increased by 59.46%, to RON 1.77mln, from RON 1.11mln. This is the context in which Rompetrol Well Services obtained a net global result of RON 4.03mln, after in the first half of 2017 it had posted losses of almost RON 620,000.

The turning point was recorded last year, when the petroleum services company obtained a net profit of RON 2.47mln, compared to losses of RON 5.82mln in 2016.

On 30 June 2018, the total assets of the company stood at RON 134.19mln, by 3.28% higher compared to RON 134.19mln at the end of last year.

Rompetrol Well Services, a company listed on the Bucharest Stock Exchange, is controlled by KMG International, company registered by the Kazakh owner in the Netherlands, with a 73.01% stake. Another significant shareholder, with a 10.67% stake, is the Finnish fund KJK Fund II, SICAV – SIF.

 

OMV Petrom’s net profit went up 6%

The OMV Petrom Group posted, in the first half of this year, a net profit of RON 1.28bn, up 6% compared to the similar period of 2017, when the result displayed was RON 1.21bn, according to financial data published by the company. Under these circumstances, earnings per share stood at RON 0.0227, up 6% in H1/2018.

The operating result increased by 13% in the first six months of this year, to RON 1.781bn, while the Clean CCS Operating Result was RON 1.694bn, stable compared to the similar period of last year, the Upstream segment having the biggest contribution.

Consolidated sales of RON 9,851mln for 6m/18 increased by 6% compared to 6m/17, sustained by higher crude oil and natural gas prices and higher electricity volumes sold, which compensated for the lower quantities of petroleum products and natural gas sold and a lower selling price for electricity.

Downstream Oil represented 75% of total consolidated sales and Downstream Gas accounted for 22%. The number of employees of OMV Petrom is lower by 6%, i.e. 13,421 persons at the end of June 2018.

In the first six months of this year, the company made investments of RON 2.102bn, up 130% compared to the first half of last year.

OMV Petrom estimates investments of RON 3.7bn for the entire year 2018, 75% following to go to the Upstream segment. The increase in investments is explained mainly by a ramp-up in drilling of development and exploration wells and intensified works in infrastructure projects in the Upstream segment, where investments during January – June 2018 amounted to RON 1.44bn, compared to RON 797mln in the similar period of last year.

For the entire year, the company estimates investments of around RON 2.8bn (excluding E&A), including more than 100 new wells and side-tracks, around 1,000 workovers and the Neptun Deep project. Also, the company will sell 50-60 fields to focus on the most profitable barrels.

In Downstream Oil, increase in investments was related to the Petrobrazi refinery turnaround and the Polyfuel growth project. Downstream investments amounted to RON 661mln in 6m/18 (6m/17: RON 115mln), thereof RON 635mln in Downstream Oil (6m/17: RON 105mln). In turn, Corporate and Other CAPEX was nil (6m/17: RON 1mln).

Group oil and gas production amounted to 29.18mln boe in the first half of this year.

In Romania total oil and gas production was 27.90mln boe, 5% lower compared to 29.39mln boe in 6m/17. Crude oil and NGL production in Romania was 12.20mln bbl, 3% lower compared to 6m/17, mainly due to the natural decline.

Gas production in Romania decreased by 7% to 15.70mln boe, due to the natural decline in the main gas fields (Totea Deep and Lebada East), the one-time effect of works and equipment replacement in the Totea – Hurezani area, and maintenance activities.

The company has proposed a profit distribution rate of 45%, the proposed dividend being RON 0.02/share.

 

Rompetrol increased its gross turnover by 50%

Rompetrol Rafinare, company member of KMG International, recorded in the first half of this year an increase by over 50% in gross turnover compared to the indicator reached in the similar period of 2017, to USD 2.6bn.

Amid an increase by 27% in raw materials processed by its production units (Petromidia Navodari and Vega Ploiesti refineries, the petrochemical division), the company obtained an operational result (EBITDA) of approximately USD 86mln, by 49% higher than in the first half of last year. At the same time, the increase in the volume of raw materials processed and petroleum products sold, but also the continuation of the processing costs and operational expenses optimization programs supported a net profit of USD 2.78 million, compared to a negative value of USD 7 million in H1/2017.

The results were influenced by the volatility of international quotations for petroleum products, in conditions in which the price of raw material – crude oil increased by around 36%, reaching in H1 to USD 70/bbl.

At European level, European refining margins fell in the first half of the year by over 12%, compared to the indicator related to the similar period in 2017, in the context of an accentuated increase in crude oil prices, well above the evolution of petroleum products.

The refining and petrochemical divisions of Rompetrol Rafinare managed to increase by 34% their quantities of petroleum products delivered to export in the first half of the year, their value amounting to over USD 926mln (by around 80% above the indicator in H1/2017).

In the refining segment, the company posted a gross turnover worth USD 2.24 billion in the first half of the year, up by approximately 60% over the same period of 2017. The increase was mainly determined by the high quotations of crude oil and petroleum products. The net result obtained in the refining segment in H1/2018 was positive, of USD 17.5mln, compared to a negative one of USD 17.2mln recorded in the similar period of 2017.

The financial results were supported by the improvement by 25% of the gross refining margin of the unit at the Black Sea coast to USD 49.6/ton and by 27% of raw material quantities processed and fuels sold.

Petromidia refinery processed in the first half of the year around 3.1 million tons of raw material, increasing by over 27% compared to the level obtained in the similar period of 2017.

In the first half of the year, Vega Ploiesti refinery processed a total quantity of 194 thousand tons, increasing by 28% compared to the similar period of 2017. Currently, the refinery is the most long-lasting unit in Romania and is the only domestic producer of bitumen and hexane.

The refining capacity utilization increased by 28% in the case of Petromidia refinery (98.45%) and by over 25% for Vega refinery (117.53%). Thus, Petromidia refinery obtained about 2.42 million tons of fuels, of which over 64% were diesel fuels and jet fuels.

The petrochemical division recorded a turnover of USD 114.3mln, increasing by 43% compared to the level recorded in the similar period of 2017. Currently, this is the only producer of polymers in Romania. Total production of polymers increased by 26% compared to the period January-June of last year, to a level of 81.6 thousand tons.

The distribution segment recorded an increase by 38% in the gross turnover compared to H1/2017, amid a 12% improvement in domestic fuel sales (gasoline, diesel, liquefied petroleum gas). Thus, Rompetrol Downstream managed to increase by 12% the quantity of fuels sold, from 1.03 million tons in H1/2017 to 1.15 million tons in H1 this year.

 

Different views of the Ministry of Energy and Transgaz in terms of dividends

Transgaz has published on its own website the notices on auctioning the gas export and import capacities from and to Hungary and Bulgaria, for the gas year 2018 – 2019.

In terms of dividends proposed, they have different values in the view of the Ministry of Energy, which wants RON 45.38/share at a profit distribution rate of 90%, while the dividend proposed by company’s management is RON 25/share at a profit distribution rate of 50%.

 

The largest dividends in the history of Hidroelectrica

Hidroelectrica distributed dividends worth a total of RON 1.134bn, the largest in company’s history, accounting for 90% of the profit posted last year. Thus, RON 908mln will be paid to the Ministry of Energy, which has an 80% stake, and RON 226mln to Fondul Proprietatea, the other shareholder, the amount distributed in total being by 10% higher than that granted last year. These things were possible because, in 2017, Hidroelectrica had record financial results: a turnover of RON 3.254bn and a net profit of RON 1.603bn, posted in conditions of an EBITDA of 69%.

“The exceptional financial results of the company in 2017 allow us to distribute to shareholders the biggest amount resulting from dividends in company’s history. Company’s performance is even more notable as it was achieved in a year with low hidraulicity. We put these results on the effective contracting plan and on the very good understanding of the mechanisms and the way the energy market works. However, we are concerned about the long-term sustainability of the success of the company, so we have included in the strategy business diversification, especially in the green energy field, without losing sight of other opportunities,” said the President of the Management Board Bogdan Badea.

Energy production and sales in the first half of 2018 predict that the current year will be even better for Hidroelectrica, Badea also said.

The company produced 9.345 TWh since the beginning of the year to 30 June, about 20% more than in the similar period of 2017, when 7.783 TWh were produced.

“We expect to surpass all records in terms of profitability. Beyond better hidraulicity, I see this performance as a result of the strategic measures that management has implemented since 2017: the staffing plan has been optimized, maintenance plans have been redesigned so we do not have capacities withdrawn at peak times,” Badea also mentioned.

The company has scheduled for 2018 investments worth EUR 109mln, the largest in the recent history of the company. In parallel, Hidroelectrica plans to resume in the near future the financing of some of the objectives with viable complex functions from an economic point of view, investments that so far have been blocked.

 

Transelectrica, strategic investment in northern Moldavia

The National Power Grid Company Transelectrica SA made the decision not to distribute dividends, but started upgrade works at the Substation 400/220/110/20 kV Suceava, which has an essential role in ensuring electricity supply to counties in northern Moldavia. The investment is worth RON 24,840,100 excluding VAT and execution was made by Siemens SRL – Emsens Prod SRL association. “Investments of strategic companies transporting energy, in the portfolio of the Ministry of Economy, are on schedule: Transgaz has started construction at BRUA pipeline and Transelectrica is working to close the 400 KV ring,” Economy Minister Danut Andrusca stated.

“The Substation 400/220/110/20 kV Suceava is ready to become one of the key nodes of the National Power System, which links the historical regions of Romania, from an energy point of view. With the modernization of 110 kV and 20 kV levels, the Substation 400/220/110/20 kV Suceava allows the closure of the 400-kV ring in the northern area, ensuring connection between Moldavia and Transylvania, through the future 400 kV Suceava – Gadalin line. At the same time, conditions are created for this substation to be a connection point for the future interconnection of the power systems of Romania and of the Republic of Moldova, through the 400 kV Suceava-Balti line. The full upgrade of this substation increases safety of supply to domestic consumers and it also increases safety in operation of the National Power System,” the CEO of Transelectrica Adrian Constantin Rusu has mentioned.

 

What do INS data show

Romania’s net coal production amounted to 2.05 million tons of oil equivalent in the first six months of the year, down 9.3% (209,400 toe), lower than in the same period last year, according to data centralized by the National Institute of Statistics (INS). During the mentioned period, Romania imported 225,300 toe of net coal, with 44,700 toe (24.8%) more than the imported quantity during January – June 2017.

According to the National Energy Strategy, published on the website of the relevant ministry, Romania has total reserves of 12.6 billion tons of lignite, geographically concentrated in the Oltenia Mining Basin. Deposits under exploitation total 986 million tons. Hard coal reserves, concentrated in the carboniferous basin of Jiu Valley, amount to 2.2 billion tons, of which 592 million tons are in exploited perimeters.

In terms of crude oil, Romania imported in the first six months of 2018 a quantity of crude oil of around 4.18 million tons of oil equivalent (toe), by 861,400 toe (26%) more than in the similar period of 2017. Crude oil production totalled, in the mentioned period, 1.67 million toe, being by 2.9% (50,500 toe) lower than in the previous year. According to the document mentioned above, a halving of the domestic crude oil production is expected for 2030, to approximately 2 million tons.

Increasing the reliance on imports cannot be avoided in the medium and long term, except by encouraging the exploration and production activity, respectively by increasing efficiency in consumption of fuels and petroleum products. Also, it is estimated that oil production will continue its slow downward trend between 2030 and 2050, from 22TWh to 13TWh (1.93 to 1.15 million tons of oil equivalent).

In the ambitious scenario of decarbonization combined with low oil prices, oil production witnesses a turning point in 2035, starting from which a sharp decline takes place, towards zero. Romania’s proven oil reserves will be over within 12 – 15 years, at the current exploitation rate.

Romania imported, in the first five months of 2018, a quantity of crude oil of over 3.46 million tons of oil equivalent (toe), by 620,100 toe (21.8%) more than in the similar period of 2017.

Oil production totalled, in the mentioned period, 1.394 million toe, being by 2.9% (42,200 toe) lower than in the previous year.

Primary energy resources increased in the first six months of 2018 by 4.5%, to 17.045 million tons of oil equivalent (toe), and electricity resources fell by 0.5% compared to the same period of the previous year, reaching 33.984 billion kWh. The main sources of primary energy, during 1 January – 30 June 2018, totalled 17.045 million tons of oil equivalent (toe), by 739,300 toe higher than in the similar interval of 2017.

Domestic production totalled 10.427 million toe, down by 98,700 toe compared to the same period of last year, and import was 6.618 million toe.

Electricity resources stood in this period at 33.984 billion kWh, down by 167.9 million kWh compared to H1/2017.

In the first six months of this year, production of thermal power plants was 13.003 billion kWh, down by 940.4 million kWh (-6.75%).

Production in hydropower stations was 9.762 billion KWh, increasing by 1.568 billion KWh (+19.1%), and in nuclear power plants reached 5.413 billion KWh, falling by 106.5 million KWh (-1.9%).

In terms of production of wind power plants, during 1 January – 30 June 2018 it amounted to 3.627 billion kWh, down by 188.7 million KWh, and solar energy produced in photovoltaic power plants in this period was 802.3 million KWh, declining by 178.2 million KWh y/y.

Final electricity consumption in the first half of 2018 was 27.878 billion kWh, by 2.4% higher than in the corresponding period of 2017, public lighting recorded a decrease by 3.6% and household consumption fell by 10.6%.

Electricity export amounted to 2.962 billion kWh, falling by 784.7 million kWh.

Own technological consumption in networks and stations was 3.144 billion kWh, by 41.4 million kWh lower, INS data show.

 

The lowest gas prices in the EU for household consumers

Romania in 2017 recorded the lowest gas price for household consumers among EU member states, according to data published by the European Statistics Office.

For the first time, Eurostat published gas and electricity prices that are fully comparable among EU Member States. These prices vary in the European Union depending on supply and demand, including geopolitical situation, national energy mix, network costs and weather conditions.

The lowest price per kWh of natural gas for household consumers was recorded last year in Romania (three cents), and the highest in Sweden (12 cents), while in most of the 21 Member States that provided the data for 2017 the price was below 8 cents per kWh.

The electricity price per kWh paid by household consumers in 2017 varied from 10 cents in Bulgaria to 11 cents in Lithuania and Hungary, 12 cents in Croatia and Romania, to 28 cents in Belgium, while in most of the 24 Member States that provided the data for 2017 the price ranged between 10 and 20 cents per kWh.

 

What are dividends, who benefits from them and how are they taxed

Besides the right to vote in the General Meeting of Shareholders, the investor, as holder of part of the company, is entitled to receive part of the profit made by that company. Thus, dividends represent part of the profit recorded by a company, which is distributed to shareholders after the approval of annual financial statements. Dividend value is established at the General Meeting of Shareholders (GMS), which is held at least once a year and within 5 months from the end of the financial year.

Not all companies are required to distribute to shareholders the profit achieved and not all shares issued by companies give the same rights. Some may give the right to receive dividends, but do not give the right to vote in the general meetings of shareholders, others, preferential shares, give the right to preferential dividends that are paid before common shares that are deprived of vote.

Under the law, they are distributed proportionally to the share of the paid-up share capital, i.e. each investor receives a share of the company’s profit according to the number of shares it owns on the date of registration.

Companies in which the state is majority shareholder (Romgaz, Transgaz, Transelectrica etc.) are required by law, as of 2017, to distribute at least 90% of the profit made to shareholders.

To benefit from dividends, an investor should hold shares in that company on a date established and announced by the General Meeting of Shareholders. As the ownership of companies listed on the stock exchange changes continuously, companies establish a series of calendar dates that should be considered by investors.

Dividend yield represents the ratio between the dividend per share and the price per share. Dividend distribution rate represents the percentage of the total profit made by a company, which will be distributed to shareholders that are entitled to dividends.

As of 2016, dividends have been taxed with 5%, the tax being withheld at the source. Thus, the investor collects in its account the net dividend value. Declaration and payment of the tax on these types of revenues lies with the company that issued the dividend, the investor being exempt from such a payment obligation.

 

Romania – Most significant quarterly increase

Romania recorded the most significant economic growth in the EU in the second quarter of this year, compared to the previous three months, according to data published by the European Statistics Office (Eurostat). Both in the European Union and the Eurozone, Gross Domestic Product recorded a 0.4% gain in the second quarter of 2018, compared to the previous three months.

Among the Member States, the most significant quarterly increase was recorded between April and June 2018 in Romania (1.4%), Slovakia and Sweden (both with 1%), Poland, Lithuania and Hungary (all with 0.9%).

Data for seven countries are not available: Slovenia, Malta, Luxembourg, Croatia, Greece, Ireland and Estonia.

At annual rate, in the second quarter of 2018 compared to the same period last year, Gross Domestic Product grew by 2.2% in the EU and the Eurozone. In this case, Romania ranks among the strongest growth countries, with a 4.2% gain, being surpassed by Poland (5%) and Hungary (4.4%). According to INS data, the Romanian economy grew by 1.4% in the second quarter of 2018, compared to the previous three months.

Romania’s GDP recorded an annual growth of 4.1% in gross series terms and 4.2% in seasonally adjusted terms, between April and June 2018.

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