OREANDA-NEWS. April 30, 2015. ChelPipe Group, 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 31 December 2014.

2014 Financial Results

(RUB million, unless otherwise stated)

2014

2013

%

Revenues

128,123

112,428

14%

Pipe sales, thousand tonnes

2,073

1,678

24%

Gross profit

36,008

27,392

31%

Operating profit

15,373

10,905

41%

Net loss

(1,216)

(1 868)

EBITDA (adjusted*)

22,741

18,173

25%

EBITDA margin

17.7%

16.2%

Operating cash flow

12,839

5,248

Debt repaid

(4,604)

(3,589)

CAPEX

(6,587)

(4,281)

Assets

137,977

120,238

15%

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

Sales:

  • Overall pipe sales totalled 2,073 thousand tonnes, up 24% year-on-year. ChelPipe’s share in overall Russian pipe supplies amounted to 18%. The sales increase was due to an escalating supply of large-diameter pipes (LDPs) to the domestic market and growing supplies of OCTG to CIS countries.
  • Domestic pipe shipments came to 1,824 thousand tonnes, which is 440 thousand tonnes more than the prior period (+32%). Export supplies totalled 249 thousand tonnes, which is 15% down from 2013 (294 thousand tonnes), due to fewer shipments to CIS countries. Declining shipments to CIS countries is an industry-wide trend resulting from a lack of trunkline construction projects going on in these countries.
  • The company shipped 1,038 thousand tonnes of welded pipes, up 38% year-on-year, of which 1 million tonnes were LDPs (+40%). Large pipe quantities were supplied for the Gazprom projects: the Southern Corridor, the Power of Siberia, and the Bovanenkovo-Ukhta project, and Transneft’s Kuyumba-Taishet project, and for maintenance and running of Gazprom’s and Transneft’s active pipelines.
  • ChelPipe Group sold 1,035 thousand tonnes of seamless pipes, which is up 12% year-on-year, including 267 thousand tonnes of OCTG (+9%). Seamless pipe sales increased in all directions – in Russia, CIS countries and further abroad.

Financial results:

  • Revenues totalled 128,123 million roubles, up 14% year-on-year.
  • Gross profit went up 31% and EBITDA was up 25% totalling 222,741 million roubles. EBITDA margin amounted to 17.7%, up 1.5 percentage points.
  • Despite the growing sales volumes in 2014, ChelPipe’s performance was affected by events beyond the company’s control such as lack of global economic stability, escalating prices of metal and high volatility in the foreign currency market. In 2014, net foreign exchange losses amounted to 3,677 million roubles vs. 989 million roubles in 2013. At year-end, ChelPipe incurred losses of 1,216 million roubles (vs. 1,868 million roubles in 2013). Despite that the company generated a positive net operating cash flow of 12,839 million roubles (vs. 5,248 million roubles in 2013).

Liabilities:

· In 2014, the company timely paid off series BO-2 and BO-3 bonds worth in total 3,500 million roubles. The Group holds a balanced credit portfolio where 87% of the debt is long-term loans and the bulk of the debt is denominated in Russian roubles. An essential part of the debt is covered by a government guarantee up until 2020.

Main events:

  • In 2014, ChelPipe 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, the South Stream, Bovanenkovo-Ukhta (second string) and the Puginsky underground gas storage facility;

- Rosneft’s Yamal and Suzun-Vankor projects;

- Transneft’s the Kuyumba – Taishet and the Zapolyarye – Purpe projects

- Lukoil’s Filanovsky field.

  • In January 2014, ChelPipe Group passed a pre-qualification audit to supply large-diameter pipes (LPDs) for the expansion of Gazprom’s North Stream trunk pipeline.
  • In January 2014, as part of a project to modernise its foundry operations aimed at expanding production capacity and reducing production costs, Alnas, a petroleum engineering plant, part of the ChelPipe oilfield service division, began installing the second stage of a foundry complex made by Germany's Laempe.
  • In January 2014, Rimera-Servis, an oilfield service division of ChelPipe Group, won a three-year tender contract for servicing more than 560 wells belonging to Slavneft-Megionneftegaz.
  • In February 2014, Vitaly Sadykov was appointed ChelPipe CEO and took the lead of Rimera, ChelPipe’s oilfield service (manages the Group’s oilfield service assets).
  • In February 2014, the Pervouralsk Pipe plant launched a lime production facility at the Iron Ozone 32 seamless tube shell production shop where lime is used in smelting and secondary metallurgy, thereby creating full-cycle steel production.
  • In April 2014, Izhneftemash petroleum engineering plant (part of the Group’s oilfield service division) signed a three-year supply contract with Tatneft.
  • In April 2014, Rimera brought service assets of Noyabrskaya Central Pipe Base and Rimera-Servis under the single Rimera-Servis brand.
  • In May 2014, ChelPipe Group began batch production of large-diameter pipes with three-layer anti-corrosion polyethylene coating made from Russian-made nanomodified materials by Rusnano’s Metaclay for Gazprom.
  • In July 2014, Aleksandr Fedorov was re-elected Chairman of the Board of the Chelyabinsk Pipe plant.
  • In September 2014, Rimera-Servis, an oilfield service division of ChelPipe Group, expanded its regional coverage by opening a downhole rod pump maintenance workshop in Belebey, Republic of Bashkortostan.
  • In October 2014, SOT plant, part of the ChelPipe Trunkline Equipment division, was recommended to Rosneft as a supplier of a full range of connectors at the end of a technical audit conducted by the oil company.
  • In November 2014, Chelyabinsk Pipe plant together with RUSNANO set up Eterno JV to build a plant producing stamp-welded pipe fittings using nanostructured materials. 50.1% in the JV belongs to ChelPipe, while the other 49.9% is owned by RUSNANO.
  • In December 2014, ChelPipe’s innovations: a unit to enhance strength and durability of OCTG threaded connectors and an LDP laser-beam welding technology received a government co-funding guarantee.
  • SOT plant (part of the Group’s Trunkline Equipment division) expanded its range of goods supplied to Gazprom by including connectors made according SOT Technical Specifications 1469-038-74238272-2014 for knuckle bends using induction heating of strength class up to K60 and Technical Specifications 1469-009-74238272-2011 for the production of steel welded connectors for 9.8 MPa trunk pipelines and up to 16 MPa flow lines.
  • Throughout the year, ChelPipe mastered the production of highly profitable hydrogen sulphide-resistant OCTG and 139.7x10.54mm casing pipes with self-design Premium Class first generation threads as part of an import substitution programme.
  • ChelPipe Group mastered a new grade of steel, 18G1FA, used in the production of hot-deformed cold-resistant oil and gas pipes according to Rosneft requirements.
  • In December 2014, Aleksandr Grubman was elected ChelPipe CEO.

Events past the reporting date:

  • ChelPipe continued implementation of its joint project with RUSNANO, i.e. building a stamp-welded pipe fitting production plant. In 1Q 2015, ChelPipe made its second equity payment of 3.1 billion roubles into ETERNO. The workshop building has been built and equipment is being installed.
  • In February 2015, Chelyabinsk Pipe plant was entered on the Government list of strategic companies.
  • In February 2015, ChelPipe fully redeemed its BO-3 bonds worth 2.5 billion roubles.

2015 forecast:

ChelPipe Groups is expecting a steady situation in the domestic pipe market in 2015. The Company is planning to keep up its production volumes at the 2014 level, mainly, by participating in governmental pipeline construction projects such as the Power of Siberia, the Southern Corridor, the Bovanenkovo-Ukhta, the Ukhta-Torzhok, and the Sakhalin-Khabarovsk-Vladivostok.

Imports of tubular goods into Russia went down by over 25% in 2014 compared to the prior year. During 2015, the Group is expecting further decline in imports, which gives the company a chance to continue import substitution in the Russian pipe market. The company is also planning to boost up its export sales in order to increase shipments and diversify its backlog of orders.

In view of the expected increase in drilling as part of oil and gas production, ChelPipe Group is expecting a surge in the demand for OCTG, ESPs and rod pumps throughout 2015, which will allow the company to increase its share in these market segments.

In 2015, the Group will strive to keep up profitability of its products amidst escalating prices of metal, by increasing production efficiency as one of the measures.

ChelPipe Group will continue to systematically manage its credit portfolio and bring the debt down by paying off bond loans worth 3,728 million roubles and settling loans with non-resident banks worth 1,950 million roubles and those with Russian banks worth 848 million roubles.