Ukrnafta revises 1Q11 earnings downward, transfer pricing likely culprit

Ukrnafta (UX: UNAF UK) revised 1Q11 earnings downward to UAH 28.8 mln, down by 20x y-o-y, according to Interfax yesterday. The company previously posted UAH 44 mln in 1Q11 net income, down by 13x y-o-y. Meanwhile, reported net sales were unchanged, up 92% y-o-y to UAH 6.3 bln. Antonina Davydenko: We attribute the drop in income to significant price transferring with Ukrtatnafta, controlled by Privat Group, in order to boost its value prior to integrating it with Ukrnafta. The refinery posted a surprising USD 73 mln in net earnings in 1Q11 vs. a USD 170 mln loss in 1Q10.