ChelPipe Group Announces Financial Results for 1H 2015 as per IFRS

1H 2015 Financial Results

(in mln RUB, unless otherwise specified)
	1H 2015		1H 2014	%
Revenue	75,958		53,964	40.8%
Sales of pipes, k tons	1,073		879	22%
Gross profit	21,613		15,539	39%
Operating profit	10,769		6,737	60%
Profit before tax	5,689		611	831%
Net profit	4,211		189	2,128%
EBITDA (adjusted*)	14,458		10,393	39%
EBITDA margin	19.0%		19.3%
Net profit margin	5.5%		0.4%
Operating cash flow	10,286		4,417
Capital expenses	(3,348)		(2,244)

*Adjusted EBITDA (hereinafter - EBITDA) is the sum of net profit for the reporting period before deducting financial expenses and financial income, income tax expenses, depreciation of fixed assets and intangible assets, exchange differences, loss/(profit) from divestment of subsidiaries, negative goodwill.

Sales:

• The total volume of pipe product sales increased by 22% against the first half-year 2014 and amounted to 1,073 k tons (+194 k tons). Supplies to the Russian market totaled 976 k tons, and the same for export - 97 k tons.
• ChelPipe Group sold 532 k tons of welded pipes (508 k tons of large-bore pipes of that amount) which is up 39.6% on the volume of the same last year period (welded pipes: 381 k tons, where which large-bore pipes: 363 k tons). The increase was due to major energy projects, where the company took part, including the Power of Siberia, Southern Corridor, Bovanenkovo-Ukhta, Yamal LNG, Beineu-Bozoi-Shymkent, Stage 2, and supplies to meet the repair and operational needs of existing pipelines.
• Over the reporting period, ChelPipe Group sold 541 k tons of seamless pipes, having increased the volume by 8.6% against January-June 2014 (498 k tons). In this segment shipments increased due to growth of sales in the Russian Federation because of imports phase-out in the seamless pipes market.

Financial Results:

• The revenue for the first half-year 2015 increased by 40.8% against January-June 2014 and totaled RUB 75,958 M.
• The gross profit increased by 39% and amounted to RUB 21,613 M, EBITDA increased by 39% up to RUB 14,458 M. EBITDA margin declined by 0.3 percentage points to 19%, the main reason being the change in the pipe division sales structure.
• In January-June 2015, ChelPipe Group generated profit of 4,211 M RUB (for the 1st half-year 2014, the profit amounted to RUB 189 M) and positive operating cash flow which totaled RUB 10,286 M (over 6 months 2014: RUB 4,417 M). The net profit margin increased to 5.5%. These results were achieved due to growth in sales volumes, implementation of cost-reduction measures with the effect of RUB 1,260 M in the first half-year 2015, and the positive exchange difference.
• In 1H 2015, ChelPipe Group reduced the total debt on credits and loans by RUB 5,308 M down to RUB 94,121 M (as of December 31, 2014 - RUB 99,429 M), including repayment of bonds worth RUB 2,500 M.
• The company’s net debt fell to RUB 84,704 M (as of December 31, 2014 -  RUB 93,964 M). As of June 30, 2015, the ratio of net debt to adjusted EBITDA fell to 3.2x against 4.1x as of December 31, 2014.
• ChelPipe performs loan obligations on due time and in full, complies with all financial covenants under the loan agreements.

Main events:

• In the first half-year 2015, ChelPipe participated in a number of major projects in the oil and gas industry, inter alia, the pipe division delivered products for the following projects:

- OAO GAZPROM: Power of Siberia, Southern Corridor, Bovanenkovo-Ukhta, Stage 2;

- OAO Yamal LNG - OAO NOVATEK, Chinese CNPC and French Total’s joint project for the development of the South Tambey gas condensate field in the Yamal Peninsula.

- implementation of the pipeline projects in the Republic of Kazakhstan - construction of the second gas pipe line Beineu-Bozoi-Shymkent, and upgrading oil pipe-line Tuymazy-Omsk-Novosibirsk, Stage 2.

The Group’s oilfield service division Rimera supplied main equipment produced by the Pipeline Bends plant, inter alia, for the following projects:

- OAO GAZPROM: Power of Siberia;

- OAO Yamal LNG - OAO NOVATEK, Chinese CNPC and French Total’s joint project for the development of the South Tambey gas condensate field in the Yamal Peninsula.

- the State Oil Company of Azerbaijan (SOCAR): Southern Gas Corridor.

• ChelPipe became the sole supplier of large-bore pipes for construction of the supporting metalwork of the stadium in Samara which is being erected as part of preparation for the 2018 World Football Cup. 
• ChelPipe Group shipped pipes to the Far Eastern Generation Company (OJSC DGK) to equip the heat supply systems of major Far Eastern cities.
• The Pervouralsk Pipe plant supplied OCTG pipes with Premium I proprietary connection for Rosneft, Gazprom Neft Orenburg, and Gazprom Dobycha Nadym. 
• The Chelyabinsk Pipe plant upgraded production of hot-rolled seamless pipes. The pipe rolling plant commissioned a bandsaw machine which provides high quality pipe cutting and reduces metal consumption.
•  The Pervouralsk Pipe plant was the first Russian pipe plant to put into operation a multichannel ultrasonic flaw detector for ultrasonic examination and gauging of boiler pipes’ wall thickness. This made it possible to strengthen the quality control of pipe products.
•  ChelPipe paid more than 1 billion RUB of additional tax charges for 2010.
• ChelPipe successfully passed a voluntary certification audit for the quality management system’s compliance with the requirements of Gazprom Standard 9001-2012. The certificate confirms ChelPipe’s eligibility to deliver products to OAO Gazprom.
• The plant for fabrication of pressed and welded pipe fittings - ETERNO - whose construction is part of ChelPipe and RUSNANO’s joint project, installed almost all the major new production units.
• Rimera Group entered the market of Mexico having shipped a batch of stop valves produced by MSA plant for CUMEX.
• Rimera Group entered the market of Venezuela having shipped a batch of DP 70 beam pumping units produced by OJSC Izhneftemash.
• Since June 1, the Almetyevsk plant of Rimera Group - Alnas - has been headed by Sergey Shunin who previously held office as Executive Director at another company of the Group - OJSC Izhneftemash.

 Events after the Balance Sheet Date: 

• On July 27, 2015, Alexander Fedorov was re-elected as Chairman of the Board of Directors for OJSC Chelyabinsk Pipe Plant. 
• The plant for fabrication of pressed and welded pipe fittings – ETERNO, whose founders are ChelPipe and RUSNANO, successfully passed the audit of the quality management system’s compliance with Gazprom standards. 
• In August 2015, the company signed a loan facility agreement with Sberbank of Russia for 1.5 billion rubles with the maturity in December 2015.
• In August 2015, ChelPipe promptly repaid 1.225 billion rubles under bond issue BO-04.