February 21, 2020 1079

ChelPipe Group Announces Its 2019 Financial Results

ChelPipe Group Announces Its 2019 Financial Results ChelPipe Group Announces Its 2019 Financial Results
PJSC “Chelyabinsk Pipe Plant” (ChelPipe Group), a leading Russian steel pipe producer and provider of integrated solutions to companies in the oil&gas and energy sector, announces its consolidated financial results for 2019 in accordance with International Financial Reporting Standards (IFRS).

FY 2019 financial highlights
  • Revenue increased by 7.5% and reached a record amount of RUB 192,278 million thanks to steady revenue growth from sales of steel pipes at international markets;
  • Gross profit increased by 22.4% to RUB 54,191 million due to the expansion of the Company’s product line, excellent results in the LDP (large-diameter pipe) segment and growing profitability in Seamless Industrial and Seamless OCTG;
  • Adjusted EBITDA[1] increased by 12.8% to RUB 31,828 million. Adjusted EBITDA (EBITDA) margin increased by 0.8 p.p. comparing to 2018 and reached 16.6%;
  • Free cash flow[2] increased by 10.6% to RUB 11,123 million as result of increase of EBITDA, which has largely been converted into cash flow.
  • Capital expenditures amounted to RUB 7,558 million with an increase of 37.6% from the previous as a result of Company’s focus on projects aimed at transformation of the Group into a client-centric company, digitalisation, and carrying out projects to improve operational efficiency and sustainability initiatives.
  • Net debt[3] / EBITDA ratio was 2.1x at the end of 2019 comparing to 2.4x at the end of 2018.

2020 outlook
  • ChelPipe Group plans to focus on achieving the key goals outlined in its 2024 strategy: improving operational efficiency, customer experience and developing offers to its clients by gradually increasing its presence in adjacent markets and expanding the geography of shipments.
  • The Company intends to continue increasing its share of high value-added (HVA) products in order to increase marginal profit.
  • ChelPipe Group has established a minimum target for dividend payouts in 2020 and 2021 of at least RUB 7.5 billion each year in accordance with the Company’s approved dividend policy. Dividends declaration and payment will be carried out in accordance with resolutions of corporate governance bodies, including decision of General Shareholders Meeting.

[1] Adjusted EBITDA is determined as profit/loss adjusted by finance income and costs, income tax, depreciation and amortization, foreign exchange gain/loss, change in fair value of derivatives, gain/loss on disposal of subsidiaries, gain/loss on disposal of property plant and equipment and intangible assets, impairment of loans and interest receivable, impairment of assets (property plant and equipment, intangible assets, advances for capital construction and intangible assets), impairment of goodwill, social and charity expenses not related to operating activities.
[2] Free cash flow is a net cash generated from operating activities less the cash paid for acquisition of property, plant and equipment and intangible assets.
[3] Net debt is a total amount of non-current and current borrowings recognized in the consolidated statement of financial position less cash and cash equivalents.

In 2019, ChelPipe Group delivered sustained growth in financial performance driven to a significant extent by the Company’s export strategy and operational excellence programme. The Company reports a rise in both EBITDA and EBITDA margin. We expect that vertical integration in the seamless pipe segment and focus on developing the high-margin niche product range will allow the Group to maintain its strong financial position going forward. We were able to maintain a high degree of cash conversion – 80% on average and up to 95% for individual projects in the LDP segment – thanks to earlier investments in major overhauls of our production capacities. Last year, we continued our efforts to reduce debt burden and to optimise our credit portfolio. The Company successfully tapped the international bond market by placing Eurobonds with a coupon of 4.50% p.a. and high share of international investors – 72%. ChelPipe Group continues to focus on building a client-centric business and remains committed to our METAllurgy corporate philosophy based on the principles of sustainable development and a balance among the interests of all stakeholders: customers, investors, shareholders, employees and society.
Boris Kovalenkov
CEO of ChelPipe Group

Key financial and operating results for 2019 and 2018

(in RUB million, unless otherwise stated) 2019 2018 Change, %
Financial results
Revenue 192 278 178 840 7,5%
Gross profit 54 191 44 286 22,4%
Operating profit 22 543 20 126 12,0%
Net profit 9 955 7 726 28,9%
EBITDA 31 828 28 223 12,8%
EBITDA margin, % 16,6 15,8 0,8 п.п.
Free cash flow 11 123 10 057 10,6%
CAPEX 7 558 5 492 37,6%
Financial position (as of 31 December)
Net debt 67 060 68 421 (2)%
Net debt/ EBITDA 2,1х 2,4х -
Operating results
Pipe shipments, kt, including: 2 070 1 916 8,0%
To the Russian market 1 334 1 417 (5,9)%
For export 736 499 47,5%

Revenue and profit

ChelPipe Group’s revenue reached a record high during the reporting period. One of the key drivers was the sale of products manufactured by the pipe and trunk pipeline division for major infrastructure projects abroad.
While the Company has maintained its volume of pipe shipments since 2017, revenue over the past two years has grown by 21.5% due to an increase in the share of HVA products.
The increase in gross profit was driven by the expansion of the Company’s product line, excellent results in the LDP (large-diameter pipe) segment and growing profitability in Seamless Industrial and Seamless OCTG.

EBITDA and EBITDA margin
EBITDA amounted to RUB 31,828 million for 2019 with an increase of 12.8%. ChelPipe Group’s EBITDA margin increased by 0.8 p.p. to 16.6% thanks to vertical integration, a focus on the production of HVA products and the positive impact of the Company’s operational efficiency programme.

ChelPipe Group completed the implementation of large-scale projects to develop state-of-the-art production facilities. The Company’s investments are currently aimed at developing niche HVA products, implementing client-centric transformation programmes, expanding digitalisation and improving operational efficiency, as well as implementing sustainability initiatives.

Financial position
As of the end of 2019, net debt amounted to RUB 67,060 million. Net debt/ EBITDA ratio was 2.1x, which is in line with the Company’s strategy to consistently reduce its debt burden up until the end of 2024. In the reporting period, the Company successfully placed its first-ever issue of Eurobonds in the amount of USD 300 million, which made it possible to optimise the Company’s loan portfolio.

ChelPipe Group declared dividends twice in 2019: RUB 4.7 billion based on 2018 results (paid in 2019) and RUB 3.0 billion based on 9M 2019 results (paid in 2020). In the beginning of 2020, the Company approved a new dividend policy, according to which dividends will be paid out at least twice a year – the amount will depend on the Company’s debt burden. This decision is aimed at increasing both the Company’s shareholder value and shareholder return.

Highlights following the reporting period
  • On 31 January 2020, ChelPipe Group’s Board of Directors approved the Group’s development strategy to 2024, which aims to ensure consistent and sustainable business growth by transforming the Group into a client-centric company.
  • On 31 January 2020, ChelPipe Group’s Board of Directors approved a new dividend policy.
About ChelPipe Group
ChelPipe Group is one of the 10 largest pipe manufacturers in the world. The company produces about 2 million tonnes of pipe products per year, selling 64% of its production in Russia and exporting the remaining 36% to 52 countries around the world (according to 2019 results).
The Group stands out among Russian players thanks to its production range and highly diversified client portfolio. The company produced 18% of all pipes manufactured by Russian companies in 2019. Its market share for large-diameter pipes and oil country tubular goods, both high-margin sectors, was 31% and 19%, respectively.
ChelPipe Group comprises iron and steel plants such as Chelyabinsk Pipe Plant, Pervouralsk New Pipe Plant, a complex of warehouses supplying the Group’s pipe products to Russian regions, a company specialising in sourcing and processing of scrap metal (META), facilities producing pipeline equipment (SOT, ETERNO, MSA (Czech Republic)), and the Rimera Group responsible for oilfield services.
Thanks to the use of safe technologies and materials, ChelPipe Group’s modernised enterprises have a minimal environmental impact and produce environmentally friendly products. The company supports social projects and provides conditions that allow its employees to enjoy a healthy lifestyle.
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