Chelyabinskiy truboprokatnyi zavod : ChelPipe Group announces financial results as of H1 2017 in accordance with IFRS

Chelyabinsk Pipe-Rolling Plant Public Joint-Stock Company (ChelPipe PJSC), a leading Russian manufacturer of pipe products and provider of integrated solutions for companies of the fuel and energy complex, announces its consolidated financial results for the six months ending June 30, 2017, in accordance with International Financial Reporting Standards (IFRS).

Financial results as of H1 2017

(in millions of Russian rubles, unless otherwise stated)
			H1 2017		H1 2016		%
Revenue			72,566		68,624		6%
Volume of pipe sales, thousand tonnes			977		876		12%
Gross profit			17,297		21,945		−21%
Profit before tax			3,114		7,624		−59%
Operating profit			7,362		12,809		−43%
Net profit			2,101		5,810		−64%
EBITDA (adjusted*)			11,001		16,955		−35%
EBITDA margin			15.2%		24.7%
Net profit margin			2.9%		8.5%
Operating cash flow			5,183		7,611
Capital investments			(2,216)		(2,151)

* Adjusted EBITDA (hereinafter referred to as 'EBITDA') is the sum of net profit for the reporting period before deducting financial expenses and financial income, profits taxes, depreciation and amortization of fixed assets and intangible assets, foreign currency exchange gains or losses, changes in the fair value of derivatives, gains/losses on divestment in subsidiaries, gains/losses on disposal of fixed assets, changes in provisions for issued loans, changes in provisions for depreciation of fixed assets, social expenses not related to operating activity, charity expenses, negative goodwill.

Sales:

• The total sales of pipe products in H1 2017 were equal to 977,000 tonnes, 12% higher than the volumes of the same period in 2016 (876,000 tonnes).
• The export of pipes increased by 315% up to 270,000 tonnes, supply to the Russian market was equal to 707,000 tonnes (−13%). The decrease was affected by the change in the schedule of LDP supply for Gazprom projects (Power of Siberia and Nord Stream). However, the share of ChelPipe Group in the total shipments of Russian pipe manufacturers increased by 2.3% compared to the same period in 2016 and amounted to 18.6%.
• The company sold 389,000 tonnes of welded pipes including 371,000 tonnes of large diameter pipes (LDP), which is 9% and 12% higher than the respective figures for January-June 2016.
• The sales volumes of seamless products increased by 14% and was equal to 588,000 tonnes of pipes.
• The company increased the shipments of pipe fittings by 2,300 tonnes (+51% compared to the same period last year). The growth was determined by the increase of laterals sales to Gazprom PJSC and oil and gas companies.

Financial results:

• The revenue of H1 2017 increased by 6% compared to the same period in 2016 and amounted to 72,566 million rubles.
• Gross profit decreased by 21% and amounted to 17,297 million rubles, EBITDA - 11,001 million rubles.
• EBITDA margin decreased by 9.5% and is equal to 15.2%. EBITDA was affected by the decrease of marginal revenue in seamless pipes segment due to an increase in prices of the metal for billet production, a lagging increase in prices for finished pipes, as well as the decrease of LDP consumption in the Russian market due to the rescheduling of Gazprom projects.
• For January-June 2017 ChelPipe Group earned a profit of 2,101 million rubles (H1 2016 -5,810 million rubles). Also, during H1 2017 the Group generated a positive net operating cash flow of 5,183 million rubles (H1 2016 -7,611 million rubles)

Key events:

• In January 2017, the Group refinanced a syndicated loan for 75,689 million rubles by the funds received in new credit facilities.
• Andrey Komarov was elected the Chairman of Board of Directors of Chelyabinsk Pipe-Rolling Plant, PJSC. Aleksandr Fyodorov, who formerly held this position, was elected the Chairman of Board of Directors of Pervouralsk New Pipe Plant, JSC and the Chairman of Board of Directors of ChelPipe Group, JSC.
• The company was a winning bidder for the supply of an additional lot of products for the construction of the Nord Stream 2 pipeline: more than 3,200 tonnes of LDP, 12 reducers and 499 pcs of buckle arrestors.
• For the first time ever, ChelPipe Group supplied large diameter pipes to the African continent: Over 2,000 meters of LDP were used for the implementation of the Ain Sukhna Product Hub liquefied gas transportation and storage project in Egypt.
• ChelPipe Group recently supplied a batch of tubing pipes for oil production in the Prirazlomnoe field.
• Izhevsk Petroleum Engineering Plant (Izhneftemash), a member of Rimera Group, was a winning bidder for the supply of the lot of couplings for stalks of various sizes to Surgutneftegaz and a winning bidder for the supply of more than 2,200 barrel insert pumps to Bashneft-Dobycha.
• Chelyabinsk Pipe-Rolling Plant upgraded the quality control equipment for large diameter pipes for oil-trunk pipelines within the framework of cooperation with Transneft. The total volume of investment was equal to 244 million rubles.
• ChelPipe Group concluded a long-term contract with Gazprom, for serial production, supply and maintenance of pipe products with guaranteed supply volumes of the next years. ChelPipe will supply pipes for the construction of underwater and shore pipelines for Kirinsky and Yuzhno-Kirinsky fields of Gazprom located offshore in the Sea of Okhotsk.
• The company was the winning bidder for the supply of the lot of seamless stainless pipes for Belenergomash-BZEM. The products are designed for pipelines of the III and IV power units of the Kudankulam Nuclear Power Plant in India.
• ChelPipe Group supplied hot-rolled steel pipes and bended rods for the construction of the Volgograd Arena stadium that is being constructed for the World Cup 2018.
• ChelPipe PJSC and NC Rosneft PJSC signed a long-term contract for supply of pipe products. The contract based on formula pricing will be valid for 5.5 years.

Events after the reporting date:

• The company concluded loan contracts with banks for the total amount of 6,250 million rubles maturing in May-December 2020. The lending purpose is the working capital financing.
• In July, the ChelPipe Group repaid the loans for the total amount of 2,543 million rubles including 1,455 million rubles before maturity. According to the payment schedule, repayment was scheduled for July-December 2023.
• ChelPipe Group supplied hot finished pipes for the reconstruction of the main sports arena of Belarus, the Dinamo Stadium in Minsk.
• Rating agency RAEX (Expert RA) assigned ChelPipe ruA+ credit rating with Stable forecast. The assigned rating is reflecting the high level of trust of the investment community in ChelPipe. According to the agency data, the rating was positively affected by the company's strong market position, the comfortable level of indebtedness and the high forecasted liquidity.

Forecast for H2 2017 and Y2017:

According to the company data, in H2 2017 the main trends on the steel pipes market will be connected with the supply of large diameter pipes. The increase of LDP demand is forecasted on the Russian market due to the supplies for Gazprom PJSC for the Power of Siberia and Nord Stream projects. In connection with the expected increase of LDP supply, an increase in shipments and ChelPipe's market share in the RF market are forecasted.

The company forecasts a decrease in the consumption of seamless pipes due to the rescheduling of procurements for H1 and a decrease in the demand for welded pipes of small and medium diameter due to the seasonality of sales. Also, the decrease of LDP market volumes is forecast as a result of 2017 due to the absence of large projects in July-December.

Overall, the company expects that under the conditions of the expected growth of the internal large diameter pipe market, the financial and economic results achieved in H1 and the operating activity efficiency enhancement programs being implemented by the management will allow ChelPipe Group to maintain the stable financial position based on the year's results.