Financial results as of H1 2019
(in millions of Russian rubles, unless otherwise stated)
|January - June 2019||January - June 2018||Change, %|
|Shipment volume, thousand tonnes||984||1 096||(10.2%)|
|Net profit||4 179||5 621||(25.7%)|
|EBITDA (adjusted )*||15,811||16,238||(2.6%)|
|EBITDA margin||18.4%||17.1%||1.3 p.p.|
|Operating cash flow||532||1 306||(59.3%)|
|Capital investments||2 623||2 371||10.6%|
|Amount of assets||150,350||140,763||6.8%|
* Adjusted EBITDA (hereinafter, EBITDA) represents the amount of profit/loss for the period adjusted for financial expenses and financial income, profits taxes, depreciation, 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 and intangible assets, changes in reserves for issued loans and accrued interest, changes in reserves for the depreciation of fixed assets and intangible assets, impairment of advances for major construction and intangible assets, goodwill impairment, social expenses and charitable contributions not related to operating activities.
• Shipment volumes of pipes amounted to 984 thousand tonnes in H1 2019.
•The share of ChelPipe Group in the total shipments of the Russian pipe producers amounted to 16.5%.
• As a result of adjusting the terms of shipments for a number of projects for the H2 of 2019, the company's revenue decreased by 9.6% compared to the same period last year and amounted to 85,838 million rubles.
• Gross profit remained at the level of H1 2018 and amounted to 23,288 million rubles, EBITDA amounted to 15,811 million rubles (-2.6%). At the same time, the efficiency of business was increased, which allowed to raise the EBITDA margin by 1.3 percentage points.
•The decrease in net profit by 1.4 billion rubles to 4 179 million rubles was affected by a reduction of operating profit (due to the adjustment of the schedule of shipments of LDP for current projects) and a one-time impairment of assets.
• Net debt of H1 2019 amounted to 73,709 million rubles.
• As of June 30, 2019, the ratio of net debt to EBITDA LTM was 2.7x.
• In February 2019, Expert RA agency confirmed the credit rating of ruA+ for Chelyabinsk Pipe Plant. The forecast rating is stable.
Key events of H1 2019:
• ChelPipe Group began shipping tubular products for the Sary-Arka gas pipeline in Kazakhstan. VTB Bank provided ChelPipe Group with bank guarantees for the implementation of this project.
• ChelPipe Group signed a contract for the shipment of more than 150 thousand tonnes of large-diameter pipes (LDP) with the Turkmengas state concern for the construction of the linear section of the TAPI gas pipeline (Turkmenistan – Afghanistan – Pakistan – India). Financing of the project, opening and acceptance of the letter of credit was provided by three financial organizations: ChelPipe Group's partner, Sberbank, Islamic Development Bank and the State Bank for Foreign Economic Affairs of Turkmenistan.
• An experimental workshop to design ChelPipe Prime threaded connections has been officially opened at the Pervouralsk Pipe Plant Finishing Center. These high-technology products will help to meet the ever-increasing needs of consumers conditioned by the growth of the complexity of oil extraction and oil & gas field development.
• Rimera Group Oilfield Services Division presented a new product line of high-technology equipment for multi-stage hydraulic fracturing FRACTURA, which will improve oil recovery from fields with hard-to-recover reserves. FRACTURA is entering the late stage of development.
Key events after the reporting date:
• As part of the reorganization of the Rimera-Service network (part of the ChelPipe Group oilfield services division), ChelPipe Group allocates pipe service as a separate business line. New business line, the Pipe Service of the Chelyabinsk Pipe Plant, will allow the company to become a universal supplier offering services in both production and maintenance of tubing.
• The Rimera Group of Companies (the ChelPipe Group oilfield services division) has opened a subsidiary in Dubai, United Arab Emirates — RIMERA OVERSEAS DMCC. Its major task will be to promote the comprehensive oilfield services provided by the Rimera Group on the international market: production and supply of equipment for oil production, servicing oil production equipment and a full product range of tubing.
Forecast for 2019:
• ChelPipe Group does not expect significant changes in the steel pipe market in H2 2019: The company expects to keep supplies at the same level as last year.
• The programs implemented by the management of the ChelPipe Group to improve the efficiency of operating activities, as well as customer-oriented transformation measures, will allow the company to maintain a stable financial position in 2019.
In the first half of 2019, ChelPipe Group retained its position as one of the main suppliers of tubular products for the oil and gas industry despite a slight decline in revenue and sales compared to the same period of the last year. This is due to the structure of a number of projects for which deliveries are planned for the second half of 2019. However, an improvement in the sales structure made it possible to maintain gross profit at the level of the same period last year and increase EBITDA margin. One of our strategic goals is to further diversify our client base. The company ranks first in the Russian market in terms of shipments volumes in the segment of seamless industrial pipes used in engineering, energy, construction, petrochemicals and a number of other industries. We consider the development of online retailing as an effective channel for attracting new clients from these sectors and plan its further development based on analytics and customer experience. Based on the results of work in 2019, we expect an increase in EBITDA compared to the last year.