Ukrnafta improves P&L, reduces debt to state 7% YTD in 1H18

Ukraine’s leading producer of crude oil Ukrnafta (UNAF
UK) reported a 22% yoy increase in net revenue to UAH 16.76 bln in 1H18,
according to its July 30 regulatory filing. The key growth factor was higher
revenue from crude oil sales (up 45% yoy to UAH 9.40 bln) amid an 8% increase
in oil sales in volume terms (to 713 kt), which implies a 34% yoy increase in
the average oil price. Better pricing of oil enabled the company to generate
54% higher EBITDA in 1H18 (UAH 3.80 bln) and resulted in the same 54% yoy
increase in its bottom line (to UAH 2.06 bln) in 1H18. Remarkably, the company
managed to reduce its tax payables to UAH 12.15 bln as of end-June 2018, which
is 4% less YTD and 7% less qoq. The company’s end-June cash balance was UAH
0.24 bln (37% less YTD).

Alexander Paraschiy: Despite
preferable market conditions and excessively good P&L, the company’s
balance sheet continues to disappoint. Namely, most of generated EBITDA in 1H18
came to increase Ukrnafta’s inventories (by UAH 3.08 bln YTD to UAH 8.28 bln in
1H18) and only a tiny amount of that (UAH 0.53 bln) was used to slightly reduce
the company’s debt to the state budget.

Higher accumulated inventories might be considered
an opportunity to partially resolve the outstanding debt issue as soon as the
company de-stocks. However, in the case of Ukrnafta it’s more of a risk. So
far, the nature of inventories increase is not clear, as well as there is no
information on how liquid the inventories are. We remain skeptical about
Ukrnafta’s ability to remain a going concern.