ChelPipe Group Publishes IFRS Financial Results for 2015

OREANDA-NEWS. April 20, 2016. The Chelyabinsk Pipe plant (ChelPipe), a leading Russian producer of pipes and a supplier of integrated solutions for the oil and gas industry, has published its consolidated IFRS financial results for the year ended December 31 2015.

2015 Financial Results

* Adjusted EBITDA (hereinafter “EBITDA”) is net profit for the reporting period before financial expenses and income, profit tax, amortisation of core and non-core assets, foreign-exchange gains or losses, change of derivative fair value, profit or losses from disposals of subsidiaries, and negative goodwill.

Sales:

• Overall pipe sales dropped 2,6% vs. the same period in 2014 and totaled 2,019,000 tons. ChelPipe’s share in overall Russian pipe supplies amounted to 17.7%. A slight drop in the shipping volumes was due to the completion of some large Transneft projects, postponed CIS pipeline projects and falling demand for pipes from the industrial, energy and construction sectors.

• At year-end 2015, ChelPipe supplies to the Russian market slightly declined 0.3% to 1,818,000 tons; export shipments dropped 19% (201,000 tons). Despite the lower export volumes, the Company has expanded its clientele in the far-abroad countries, including the USA, Columbia, Egypt and Turkey.

• The Company built up the shipment volume of seamless pipes by 4% to 1,081,000 tons, where 399,000 tons were OCTG, including 8.200 tons of Premium-thread pipes. The growth of shipments in the OCTG segment vs. 2014 amounted to 49% (+132,000 tons). The shipment volumes increased due to the upgrade of the ChelPipe rolling capacity and growing demand from the Russian pipe users under the import substitution program.

• The company shipped 938,000 tonnes of welded pipes, down 11% vs. 2014, where 883,000 tons were LDPs (down 13%). The shipment volumes declined after completion of Transneft’s pipeline projects Kuyumba-Tayshet and Zapolyarye-Purpe and delays in CIS pipeline projects Central Asia – China and Malay - Bagtayarlyk.

Financial Results:

• Revenues grew 16% vs. 2014 and amounted to 148,367 million rubles.

• Gross profit went up 18%, EBITDA went up 27% and reached 28,901 million rubles. EBITDA margin went up 2% and reached 19.5%.

• In 2015, Russian pipe manufacturers were challenged by unstable world economy, high metal prices and high volatility in the foreign currency market. However, a shift in the shipment structure towards high-margin products, growth of export revenues from far-abroad sales, boosting the plant's own workpiece production and introducing new steel grades helped ChelPipe Group increase the revenue and generate 6,041 million rubles of profit (in 2014 – 1 216 million rubles of loss), where foreign exchange loss was 832,901 thousand rubles (in 2014 – 3,677 million rubles). The Group also generated a net positive operating cash flow of 12,023 million rubles (in 2014 – 12, 839 million rubles).

• A 2.7-billion ruble operating efficiency improvement and cost reduction program has been put in place.

 Liabilities:

• In 2015, the Company fully repaid the outstanding balance of bonded debt for the total of 3,728 million rubles. In total, the debt load dropped by 5.3 billion rubles; the Group has a balanced credit portfolio with 81% of debt being long-term loans, the bulk of the debt is nominated in the Russian rubles. An essential part of the debt is covered by a governmental guarantee until 2020.

 Main events:

• In 2015, ChelPipe Group took part in a number of major projects in the oil and gas sector and supplied products for:

  - Gazprom's Power of Siberia, the Southern Corridor, Ukhta-Torzhok, Bovanenkovo-Ukhta (second string);

  - Yamal LNG, a joint project of NOVATEK, Chinese CNPC and French Total for development of South-Tambey gas condensate field on the Yamal peninsula;

  - KazTransOil: Tuymazy-Omsk-Novosibirsk 2;

  - Beyney-Bozoy-Shumkent operated by KazTransGaz (Republic of Kazakhstan) and Trans-Asia Gas Pipeline Company Limited (China);

  - Bukhara Gas Province – Tashkent-Bishkek-Almaty, KazTransGaz, Uzbekneftegaz, Gazprom Kyrgyzstan;

  - Los Ramones South gas pipeline operated by Mexican state-owned petroleum company PEMEX.

• ChelPipe Group and RUSNANO accomplished a joint ETERNO plant project. The plant was certified and listed as Gazprom and Transneft supplier.

• Transneft and KazMunayGaz acknowledged high performance of the White Well, a joint project of Chelpipe Group's Pipe and Petroleum Services Divisions.

• ChelPipe Group became the first Russian manufacturer to launch production of 530-mm O.D. single-joint welded pipes, grade X70, wall thickness 25, 28 and 28.5 mm, for the Yamal LNG project.

• As part of the import substitution campaign, ChelPipe launched production of 508-mm O.D. pipes, wall thickness 22.2 and 24.9 mm, for Kirinskoye gas condensate field.  The products were certified by Gazprom VNIIGAZ and National Agency of Non-Destructive Testing and Welding (NAKS).

• The Pervouralsk Pipe plant supplied the 1st generation of OCTG pipes with proprietary Premium connections to Rosneft, Gazpromneft-Orenburg and Gazprom dobycha Nadym.

• ChelPipe’s ceramic flux passed T?V certification, which enables its supply to the EU market with CE label to guarantee top quality and safety of the product to human health and environment.

• Valve manufacturer MSA commissioned a cryogenic valve testing facility. It contributed to 25% capacity increase and helped MSA debottleneck the production cycle and improve product quality.

• ChelPipe has successfully passed a voluntary audit for compliance with Gazprom quality management standard STO 9001-2012. The certificate confirms ChelPipe as a supplier to Gazprom.

• The Pipeline Bends has passed certification for compliance with the Customs Union requirements effective as of August 1, 2015, having confirmed its position as a supplier of pipe fittings for process and petrochemical pipelines under STO, OST and GOST standards, including custom specifications.

• Rimera Group entered the Venezuelan market and made a shipment of DP 70 sucker-rod pumping units manufactured by Izhneftemash.

Events past the reporting date:

• ChelPipe signed a contract with Nord Stream 2 AG for supplying 596,000 tons of pipes for two strings of Nord Stream 2 gas pipeline.

• ChelPipe Group and Gazprom signed an agreement on formula-based pricing for large-diameter pipes for the period from 2016 to 2018.

• ChelPipe Group and Magnitogorsk Iron and Steel Company signed an agreement on formula-based pricing for hot-rolled flat products from the 5000 ММК rolling mill.

• In February 2016, the Company made an early redemption of 1 billion rubles of syndicated loan. The redemption was originally scheduled for June 2016.

2016 forecast:

In 2016, ChelPipe Group intends to retain the production volumes approximately at the last year’s level, primarily, by participating in government infrastructure projects, such as the Power of Siberia, Ukhta-Torzhok, Gryazovets-Vyborg pipelines, as well as construction projects for the 2018 World Football Championship. 

ChelPipe has plans to build up export shipments, including LDP for international project Nord Stream 2.

In 2016, the Company will continue improving business efficiency, focusing on improving the labor performance and optimizing costs.

ChelPipe Group will continue to systematically manage its credit portfolio and bring the debt down by paying off 10,760 million rubles in loans and bond loans to banks.