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August 11 413

ChelPipe Group Announces Financial and Operating Results for H1 2020

ChelPipe Group Announces Financial and Operating Results for H1 2020 ChelPipe Group Announces Financial and Operating Results for H1 2020

The Chelyabinsk Pipe Plant (ChelPipe Group), a leading Russian producer of tubular products and a supplier of integrated solutions for the oil and gas industry, has published its operating and financial IFRS results for H1 2020.

Key financial results for H1 2020

·       The Company’s revenue amounted to RUB 71,844 million, down by 16.3% year-on-year as a result of decreased shipment volumes, mostly of large-diameter pipes (LDP).

·       The net profit increased by 7.2% year-on-year to RUB 4,480 million.

·       The EBITDA margin increased by 3.2 p.p. year-on-year to 21.6%. The Group’s EBITDA decreased by 1.7% to RUB 15,541 million.

·       Capital investments increased by 18.6% year-on-year to RUB 3,112 million, driven by operational efficiency projects, the Company’s environmental programme, and the oilfield services division’s rental scheme.

·       Net debt / LTM EBITDA was 2.3x, as compared to 2.7x in H1 2019.

Financial performance

in RUB million, unless otherwise stated

H1 2020

H1 2019

Change, %

Revenue

71,844

85,838

(16.3)%

Operating profit

11,250

10,853

3.7%

EBITDA

15,541

15,811

(1.7)%

Net profit

4,480

4,179

7.2%

EBITDA margin

21.6%

18.4%

3.2 p.p.

Operating cash flow

1,334

532

150.8%

Net debt

73,906

73,709

0.3%

Capital investment

3,112

2,623

18.6%


EBITDA and EBITDA margin

In H1 2020, EBITDA decreased to RUB 15,541 million (down by 1.7%) with EBITDA margin going up by 3.2 p.p. to 21.6%. The margin growth primarily resulted from the efforts taken by the management of ChelPipe Group to implement the operational efficiency programme, reduce operating, administrative and management costs, and from a constant focus on increasing the share of high-margin products in the sales mix.

Capital investments

Capex growth in H1 2020 was mostly driven by an increase in investments in the rental scheme of the Group’s oilfield services division. The investments made a substantial contribution to the development of the division. The Company also ramped up investments in the operational efficiency and environmental programmes.

ChelPipe Group intends to continue a balanced implementation of its investment programme by adopting a flexible approach to capex depending on the market environment. ChelPipe Group’s current focus is on projects to improve productivity of the Iron Ozone 32 electric arc furnace plant to secure supply of own-produced pipe billets as well as on environmental projects.

Financial condition      

Despite a decline in revenue, ChelPipe Group maintained a stable financial condition in H1 2020. In May 2020, Fitch Ratings confirmed ChelPipe’s long-term rating of “BB-” with a Stable outlook.

In 2020, the Company continued with the strategy to reduce its debt burden. Net debt in H1 2020 was RUB 73,906 million.

Dividends

In early 2020, the Company approved a new dividend policy which aims for a dividend payout frequency of at least two times a year. The dividend amount will depend on ChelPipe Group’s debt burden, free cash flow and net profit.

In the reporting period, ChelPipe Group paid out dividends for Q3 2019 for a total amount of RUB 1.7 billion and for past years for a total amount of RUB 1.3 billion. The Company also announced dividends of RUB 2.5 billion for 2019.

 

Operating results

kt, unless otherwise stated

H1 2020

H1

2019

Change, %

Seamless industrial pipes

254

270

(5.9)%

OCTG

220

247

(10.9)%

Line pipes (O&G)

67

74

(9.5)%

LDPs

180

377

(52.3)%

Other welded pipes

20

16

25.0%

TOTAL

741

984

(24.7)%

In H1 2020, total pipe shipments decreased by 24.7% to 741 kt. The key driver behind the decrease was a general decline in demand for LDPs from energy companies and completion of large infrastructure projects in CIS and non-CIS countries.

The decrease in seamless industrial pipe shipments is insignificant and was caused by a decreased activity in construction industry and operations of regional small and mid-sized enterprises, as well as by the induction of the quarantine regulations at the major enterprises due to the threat of COVID 19 coronavirus infection spread.

In H1 2020, demand for OCTG was under pressure as oil majors were revising their upstream investments due to a decrease in the global demand for oil products. ChelPipe Group’s OCTG shipments went down by 10.9% in H1 2020.

Outlook 2020

·       ChelPipe Group plans to focus on achieving the key goals outlined in its strategy to 2024: developing a high-margin product line, improving operational efficiency, improving customer experience and enhancing the offering while increasing the Group’s presence in adjacent markets and expanding its target geography.

·       ChelPipe Group expects that the spread of COVID-19 will continue to adversely affect the macroeconomic situation in 2020. However, the Group’s anti-crisis measures and its operational efficiency programme as well as forecasted rebounding demand in H2 2020 in a number of segments will allow ChelPipe to maintain its stable financial condition.

Key events after the reporting date   

  • In July 2020, ChelPipe Group successfully issued a five-year exchange-traded bonds with a coupon of 6.60% p.a. for a total amount of RUB 10 billion. The proceeds were used to improve the Group’s debt portfolio structure.
  • ChelPipe Group announced its plans to set up an industrial and financial group with Zagorsk Pipe Plant to secure supply of pipe and related products to energy companies. To work on further steps, financial and economic, legal, technological, and commercial task forces including representatives of both parties have been set up.
ChelPipe Group is closely monitoring the market and retains its focus on maintaining business stability and epidemiological safety of its workforce. We are meeting our obligations to our customers in full, while preserving a high standard of sales and service. Despite the complicated macroeconomic situation caused by the COVID-19 pandemic and lowered demand for pipe products both domestically and internationally, ChelPipe Group reported strong financial performance in the first half of 2020, first of all thanks to its operational efficiency programme. External challenges became an additional driver for client-centric transformation, which is our priority today. Being subject to the lifting of quarantine restrictions, we expect demand to partially restore across sectors in the second half of 2020.
Boris Kovalenkov
CEO
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