Public Joint Stock Company “Chelyabinsk Pipe Plant” H1 2019 IFRS results and market overview August 2019
Page number SECTION I KEY FIGURES 3 SECTION II MARKET OVERVIEW & COMPANY STRATEGY 7 SECTION III FINANCIALS 20 SECTION IV APPENDICES 26 2
KEY FIGURES 3
CHELPIPE AT A GLANCE KEY NUMBERS KEY FACTS • One of Russia’s largest pipe manufacturers with a diversified customer base within RUB bn H1 2018 H1 2019 Change Oil & Gas and Industrial sectors Revenue 94.9 85.8 (9.6%) • Main operational assets are located in Chelyabinsk (PJSC “ Chelpipe ”), Pervouralsk EBITDA 16.2 15.8 (2.5%) (JSC “PNTZ”), Almetyevsk & Izhevsk (RIMERA Group) Margin (%) 17.1 18.4 1.3 p.p. • Core shareholders are Andrey Komarov and Pavel Fedorov (jointly control more Net Income 5.6 4.2 (25.0%) than 80% of ChelPipe Group) Shipments 2 , 000 tons 1,096 984 (10.2%) • Credit ratings: Moody's – Ba3 (stable), Fitch – BB- (stable), RA Expert – ruA+, Industrial seamless pipes 288 269 (6.6%) (stable) OCTG 206 248 20.4% KEY EVENTS IN H1 2019 Line pipes (O&G) 110 74 (32.7%) • ChelPipe Group shipped split tees to Gazprom for Urengoy – Surgut condensate LDP 472 377 (20.1%) pipeline Other welded pipes 20 16 (20.0%) • ChelPipe Group launched pilot site to develop threaded pipe connections “ Chelpipe RUB bn 31 Dec. 2018 30 Jun. 2019 Change Prime ” Gross Debt 90.0 89.2 (0.9%) • ChelPipe Group signed LDP supply contract for Saryarka gas pipeline in Kazakhstan Cash and cash equivalents 21.6 15.5 (28.2%) • ChelPipe Group signed LDP supply contract for TAPI gas pipeline (Turkmenistan) Net Debt 68.4 73.7 7.7% • RIMERA Group presented new product range of high-tech equipment for multistage Net Debt / EBITDA LTM 2.4x 2.7x 0.3x fracturing FRACTURA SECTOR POSITIONING AMONG RUSSIAN PRODUCERS 1 REVENUE COMPOSITION #1 in the LDP segment #2 in the OCTG segment Product mix Regional structure 4% ChelPipe ChelPipe Seamless pipes Domestic sales 15% 19% 21% 16% 25% 27% OMK TMK LDP Export sales ZTZ OMK OFS* 14% 13% 54% ITZ Others Others 7% 21% TMK 79% 12% 21% 52% Others Market: 1.5 mn t 1 Market: 1.3 mn t 1 RUB 85.8 bn RUB 85.8 bn Source: Company’s data Company’s estimates, market size is provided exclusively for LDP & OCTG pipe segments, incl. exports/imports from/to Russia 4 (1) *OFS – oilfield services division (Rimera group of companies)
MARKET UPDATE 1. In H1 2019, total LDP demand decreased y-o-y. Lower shipments to the export market were partially compensated by higher LDP demand in Russia (+105 th tonnes, +10% y-o-y) and CIS (+76 th tonnes, x2.8 y-o-y) 2. The main projects for Russian pipe producers in H1 2019 were: o Nord Stream 2 LDP o The Power Of Siberia o Sakhalin-Khabarovsk-Vladivostok o Gasification of Nursultan (Saryarka gas pipeline) o TAPI gas pipeline (Turkmenistan) 1. In H1 2019, OCTG market in Russia increased by 6% y-o-y to 1,200 th tonnes OCTG 2. Demand for tubing pipes increased while demand for casing pipes fell by 2% y-o-y 1. In H1 2019, independent market of ESP* service in Russia increased by 3% y-o-y 2. ESP market (direct sales and rolling schemes) decreased by 4% y-o-y. However, we expect stable moderate growth of ESP market Oilfield services in the long run 3. The SRP** market decreased by 7% y-o-y due to lower demand from Lukoil and Russneft. This decrease is in line with long-term trend of well equipping with ESP instead of SRP 1. In H1 2019, demand for pipeline fittings fell in Russia following completion of a number of large scale projects by Gazprom and Novatek (-0.74 th tonnes, -4% y-o-y) 2. The main projects for Russian producers in H1 2019 were: o Construction of compressor facilities at Nord Stream 2 Trunk pipeline o Modernization and major capital expenditure programs of Transneft and Gazprom equipment o Field infrastructure development of independent oil and gas companies o Gasification of Nursultan (Saryarka gas pipeline) o TAPI gas pipeline (Turkmenistan) *Electric submersible pump 5 ** Sucker-rod pump
SEGMENTAL PERFORMANCE DYNAMICS REVENUE 1 EBITDA 2 83.3 RUB bn 18.9% 74.0 17.5% 66.9 14.1% 14.6 14.0 9.4 Pipe segment* H1 2017 H1 2018 H1 2019 H1 2017 H1 2018 H1 2019 21.4% 20.3% 18.2% 7.0 6.4 5.5 1.5 1.3 Oilfield Services 1.0 H1 2017 H1 2018 H1 2019 H1 2017 H1 2018 H1 2019 14.8% 12.1% 3.4% 3.3 0.4 0.4 Trunk Pipeline 2.9 2.7 Equipment 0.1 H1 2017 H1 2018 H1 2019 H1 2017 H1 2018 H1 2019 1.4% 14.7 0.2 14.3 Scrap division* 0.0 H1 2017 H1 2018 H1 2019 H1 2017 H1 2018 H1 2019 (1) Including inter-segment revenue = EBITDA margin 6 (2) EBITDA figures exclude adjustments and eliminations and hence differ from consolidated group EBITDA *H1 2017 financials of Scrap division (Meta Group) is a part of Pipe division
MARKET OVERVIEW & COMPANY STRATEGY 7
CHELPIPE RANKS AMONG THE TOP GLOBAL STEEL PIPE PRODUCERS Total sales EBITDA margin* Sales in Russia mn tonnes ТМК 1.2 1.2 2.0 14.4% ОМК 0.7 0.7 1.0 18.4% No data Chelpipe 0.7 0.7 0.9 Severstal 0.5 0.5 33.7% 0.5 No data 0.3 Zagorsk 0.3 20.1% Tenaris 1.7 1.2 8.0% Vallourec 0.4 8.0% US Steel *Data for the Group as defined at IFRS reporting Source: Company’s data and publicly available figures for H1 2019 8
REVENUE MIX IN THE PIPE SEGMENT 38% Oil segment Stable demand due to growing drilling activity in Russia 39% Industrial sector RUB Diversified client base with about 6% of revenues 75.5 bn* coming from Top-7 clients 23% Gas segment Stable demand for maintenance and pipeline constructions in CIS Source: Company’s data * Revenue of pipe segment from external customers + revenue from trunk pipeline equipment (external and inter-segment) 9
STABLE OIL AND GAS CAPEX SUPPORTS LDP AND OCTG DEMAND DECREASE IN NEW LDP PROJECT DEMAND IS PARTIALLY OFFSET BY INCREASE STABLE VOLUMES OF DRILLING IN RUSSIA IN MAINTENANCE LDP DEMAND th tonnes -5% CAGR 35 70% +6.1% 3,513 3,330 28.8 28.7 30 60% 28.0 24.7 25 50% 22.9 20.8 50% -16% 48% 20 40% 39% 15 30% 1,517 33% 1,268 +11% 30% 27% 10 20% 700 632 5 10% 0 0% 2014 2015 2016 2017 2018 2019E New pipeline Renewal of existing Consumption of oil construction(LDP) pipelines (LDP) & gas industry (OCTG and line pipe) 2018 2019E Drilling volume (th km's) Share of horisontal drilling Source: Company data, CDU TEK, public sources 10
MAINTENANCE OF OIL PRODUCTION VOLUMES SUPPORTS INCREASE OF HORIZONTAL DRILLING HORIZONTAL DRILLING IN RUSSIA RUSSIAN OIL PRODUCTION Kilometers Mmbpd* +1% +15% 13,901 14,000 11.39 11.16 10.98 10.97 11,232 10.91 8,145 6,954 2015 2016 2017 2018 2019E 2015 2016 2017 2018 2019E NUMBER OF NEW WELLS COMPLETED IN RUSSIA NUMBER OF TOTAL RUNNING WELLS IN RUSSIA +3% 155,046 8,185 7,946 7,405 7,141 151,470 150,770 150,000 6,261 148,658 2015 2016 2017 2018 2019E 2015 2016 2017 2018 2019E Source: Oil and Gas Vertical, BP Statistical Review of Energy 11 * Million Barrels of Oil Per Day
CHELPIPE HOLDS LEADING POSITIONS IN INDUSTRIAL SEGMENTS 32% 45% 55% 60% Other producers ChelPipe market 68% share in H1 2019 55% 45% 40% Machinery Energy Chemicals/Petrochemicals General use • • • • The growth of industrial According to the In 2019, the development The increase of investments production in 2019 is development program of of the chemical industry in in capital facilities of Russian for key industries expecting to be 1.4%* the unified energy system Russia will be determined economy (not related to 2019 forecast in 2019, it is planned to by investment projects for the production and • Maintaining sustainable introduce TPP** capacity- the commissioning of new transportation of investment growth will 970 MW, NPP**-1,200 facilities and technical re- hydrocarbons and electricity) ensure the demand for MW equipment of the following is expecting to be 1.2%* investment products such companies: Akron, • • as machine tools, forging The growth of investments Demand in the construction SDS Azot, Uralkali, machines, agricultural and in energy (except for industry will be supported by Gazprom road construction transmission and infrastructure projects, such equipment, trucks, railway distribution) is expecting as the construction of locomotives to be 2.6%* bridges, roads, construction of ports and naval bases *According to the forecast of The state development corporation «VEB.RF» 12 ** TPP - thermal power plant NPP - nuclear power plant
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