FY2019 IFRS results and market overview
February 2020
FY2019 IFRS results and market overview February 2020 This - - PowerPoint PPT Presentation
Public Joint Stock Company Chelyabinsk Pipe Plant FY2019 IFRS results and market overview February 2020 This Presentation does not constitute or form part of, and should not be construed as, any offer to sell or issue or invitation to
February 2020
This Presentation does not constitute or form part of, and should not be construed as, any offer to sell or issue or invitation to purchase or subscribe for, or any solicitation of any
"Group"), nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision in relation thereto nor does it constitute a recommendation regarding the securities of the Company. The information in this Presentation may include forward-looking statements, which are based on current expectations, projections and assumptions about future events. These statements may include, without limitation, any statements preceded by, followed by or including words such as "target", "believe", "expect", "aim", "intend", "may", "anticipate", "estimate", "plan", "project", "will", "can have", "likely", "should", "would", "could" and other words and terms of similar meaning or the negative thereof. These forward-looking statements include all matters that are not historical facts. These forward-looking statements as well as those included in any other information discussed in the Presentation are subject to known or unknown risks, uncertainties and assumptions about the Group and its investments, including, among other things, the development of its business, its growth plan, trends in its operating industry, its future capital expenditures and acquisitions. In light of these risks, uncertainties and assumptions, the events in the forward-looking statements may not occur and actual results, performance or achievements may materially differ from any future results, performance or achievements that may be expressed
a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance
undertakes to release any update or revision of any such forward looking statement, whether as a result of new information, future events or otherwise. No statement in this presentation is intended to be a profit forecast. Accordingly, undue reliance should not be placed on any forward-looking statement contained in this Presentation. Certain industry, market and competitive position data contained in this Presentation come from official or third party sources. Third party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but there is no guarantee of the accuracy or completeness of such data. While the Company reasonably believes that each of these publications, studies and surveys has been prepared by a reputable source, none of the Company, the Shareholders, the Banks, nor any of their respective subsidiary undertakings or affiliates, or its or their respective directors, officers, employees, advisers or agents, have independently verified the data contained therein. In addition, certain of the industry, market and competitive position data contained in this Presentation come from the Group’s own internal research and estimates based on the knowledge and experience of the Group’s management in the markets in which the Group operates. While the Company reasonably believes that such research and estimates are reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change. Accordingly, undue reliance should not be placed on any of the industry, market or competitive position data contained in this Presentation. Certain information contained in this Presentation is subject to rounding adjustments. Accordingly, any discrepancies between the totals and the sums of the amounts listed are due to rounding. Certain financial information and operating data relating to the Group contained in this Presentation has not been audited and in some cases is based on management information and estimates, and is subject to change. This Presentation also includes certain non-IFRS measures, which have not been subject to a financial audit for any period and which may differ materially from similarly-titled measures used by other companies. The information in this Presentation has not been independently verified. The information and opinions contained in this Presentation are provided as at the date of the Presentation and are subject to amendment, completion and change without notice. In giving this Presentation, neither the Company, nor any of their respective subsidiary undertakings or affiliates, or its or their respective directors, officers, employees, advisers or agents, undertakes any obligation to amend, correct or update this Presentation or to provide the recipient with access to any additional information that may arise in connection with it. 2
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15 Appendix 24
3
COMPANY OVERVIEW CHELPIPE’S KEY PRODUCTS AND SERVICES
diversified client base and a strong positions in Russia
Pervouralsk (Pervouralsk Pipe Plant), Almetyevsk and Izhevsk (Alnas and Izhneftemash)
(87%) and Pavel Fedorov (11%)
quality, sustainability, HSE and development of human capital, which is now implemented across all Company’s assets
development strategy for the period through 2024
members being INEDs
KEY FINANCIALS
Source: Company data, IFRS Financial Statements. The segmentation is made for business purposes only, IFRS reporting is based on 4 segments. (1) In Russian market including import in 2019. (2) Based on production of Russian pipe producers including export. (3) Based on 2019. (4) Including 77.3% owned directly and 9.3%, which is currently being transferred to Andrey Komarov from BOUNCEWARD LTD. (5) December 31, 2019. (6) The Company estimates for contribution of various product groups to Company’s adjusted EBITDA over the last 24 months. (7) Adjusted EBITDA is determined as profit/loss for the period 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 receivable, interest receivable, property plant and equipment and intangible assets, advances for capital construction and intangible assets, impairment of goodwill, social and charity expenses not related to operating activities.
RUB bn 2017 2018 2019 Revenue 158.3 178.8 192.3 Adjusted EBITDA(7) 23.6 28.2 31.8 Margin 14.9% 15.8% 16.6% Net Debt 67.3 68.4 67.1 Net Debt / Adjusted EBITDA 2.8x 2.4x 2.1х Capex 5.3 5.5 7.6
#1 #2 #1 #5 #1
Seamless Industrial pipes Seamless O&G pipes
Approximate contribution to adj. EBITDA(6)
Trunk pipeline systems Large diameter pipes (LDP) and other welded pipes Oilfield Services
34% 11% 37% 3% 15%
Total pipe segment in adjusted EBITDA split: ~85%
5
LDP
(BY PRODUCTION IN RUSSIA IN 2019)
31% 20% 18% 16% 11% 4%
3.0mt
#1
SEAMLESS OIL & GAS PIPES
(BY SALES VOLUME IN RUSSIA IN 2019)
SEAMLESS INDUSTRIAL PIPES
(BY SALES VOLUME IN RUSSIA IN 2019)
49% 31% 4% 16%
0.8 mt
Other Import
#1
49% 18% 11% 14% 8%
2.8 mt
Other Import
#2
Other
Source: Company data, public data
6
FRACTURA ChelPipe presented a new product line of high-tech equipment for multi-stage fracking FRACTURA EUROBOND ISSUE Oilfield services division of the ChelPipe Group opened a subsidiary in the United Arab Emirates SARYARQA ChelPipe Group delivered 130 kt
gas pipeline in Kazakhstan TAPI PROJECT CHELPIPE PRIME CONNECTION Chelpipe launched an experimental production facility for development of threaded connections
January
ChelPipe launched new line of complex engineering solutions for metallurgical production ETERNO INGENIUM ETERNO INGENIUM
March April
RIMERA OVERSEAS
June
RIMERA 12Y CONTRACT Oilfield services division of the ChelPipe Group signed a 12 year contract for rolling services with Gazpromneft-Noyabrskneftegas JSC
July
ChelPipe has delivered 2.5 kt
pipes for construction of Amur TPS AMYR TPS
September November
ChelPipe successfully issued debut Eurobonds in the amount
STAINLESS SEAMLESS PIPES ChelPipe started implementing a large-scale investment project for the production of stainless seamless pipes for NPP steam generators FINISHING CENTRE ChelPipe has increased OCTG production capacity with Prime threaded connections for 30 kt
December
IRON OZON 32 ChelPipe has increased melting capacity of Iron Ozon 32 up to 1,245 kt ChelPipe delivered 150 kt of pipes for the TAPI main gas pipeline in Turkmenistan
7
KEY PRODUCTS Supplies, th.tons RF Market share, % Production facility
Steel pipe production Seamless industrial pipes 498 Chelyabinsk Pipe Plant Pervouralsk Pipe Plant Seamless O&G 622 Chelyabinsk Pipe Plant Pervouralsk Pipe Plant LDP 916 Chelyabinsk Pipe Plant Other welded 35 Chelyabinsk Pipe Plant Pervouralsk Pipe Plant Trunk pipeline systems Pipeline fittings 21(1) ETERNO SOT Oilfield services Electric Submersible Pumps (ESP) 3,910 pcs ALNAS SRP, custom vehicles and other oilfield equipment 6,311 SPR Izhneftemash Oilfield services 7,098 wells servicing RIMERA-Service
49% 12% 18% 19% <1% 19(2) 45% 15%
8
Source: Company data. (1) Production including other steel products (2) Only Hot-Formed Bends & Stamp-welded pipe fittings
9
META and Rimera regional presence Pipe Products & Scrap Oilfield Services Pipeline Equipment
Source: Company data.
Czech Republic
R U S S I A
Pervouralsk
MSA
in 2018 ALNAS
META
equipment RIMERA-SERVICE
in 2018 IZHNEFTEMASH Chelyabinsk Almetievsk Izhevsk Moscow
CHELYABINSK PIPE PLANT
pipeline parts
LDP), 0.5 mt of seamless pipes
PERVOURALSK PIPE PLANT
seamless industrial pipes and seamless oil & gas pipe products
welded pipes, 1.1 mt of steel billets
ETERNO VYSOTA 239 FINISHING CENTER IRON OZON 32 CHELYABINSK WORKSHOPS PERVOURALSK WORKSHOPS
3,2 3,3 2,4 2,4 2,1 1,7 1,0 0,8 0,6 0,6 3.8 3.9 0.9 0.6 0.5 0.5 0.3 0.4 0.2 1.3 0.5
7.9 7.4 Top-2 Producer in Russia
… WITH A STRONG POSITION IN THE RUSSIAN MARKET AND A PRESENCE IN ALL ATTRACTIVE PIPE SEGMENTS
#1
Seamless industrial pipes
(2019 shipments in Russia, mt) Chelpipe ТМK #1
LDP
(2019 production, mt) OMK TMK Chelpipe #2
Seamless O&G pipes(3)
(2019 shipments in Russia, mt) ТМK Chelpipe
Contribution to Chelpipe adjusted EBITDA(4) 37% 34% Trunk pipeline systems
(2019 production, kt) #1 ОМK Chelpipe
15% 3%
ONE OF THE LARGEST STEEL PIPE PRODUCERS GLOBALLY(1)…
(2019 shipments, mt) ТМK Tenaris Chelpipe Vallourec OMK Severstal ArcelorMittal USS(2) #5
Source: Company estimates based on public data. (1) Excluding Chinese producers. (2) US Steel – based on production volumes for 2018. (3) OCTG shipments do not include shipments of drilling pipes. (4) The Company estimates for contribution of various product groups to Company’s adjusted EBITDA over the last 12-24 months.
ZTZ ITZ After sale
10
694 768 788 770 2016 2017 2018 2019
Source: Fastmarkets MB.
GROWTH OF SEAMLESS INDUSTRIAL PIPES CONSUMPTION IN RUSSIA
(kt)
EXPANSION OF DOMESTIC VEHICLE MANUFACTURING LARGE INFRASTRUCTURE PROJECTS
Russian oil refineries modernization program Reconstruction of power generation plants Sports venues construction for 2018 FIFA World Cup in Russia Domestic Cars Production Domestic Trucks and Buses Production 11
2.0 2.3 2.3 2.3 201 6 201 7 201 8 201 9 1 0.9 1 0.9 1 1 .1 1 1 .2 201 6 201 7 201 8 1 1 M 201 9 68 76 76 75 33% 39% 48% 53% 201 6 201 7 201 8 201 9
Upstream EBITDA as a % of oil price (1)
Source: Company data, Fastmarkets MB, corporate financial statements, FactSet, CDU TEK. Upstream taxes are based on Rosneft’s and Lukoil’s disclosure. Exchange rate and Brent price are based on FactSet data. Oil production and drilling volume are based on CDU TEK. (1) Calculated as average based on upstream EBITDA divided by production as reported by Rosneft, Gazprom Neft and Lukoil in MD&A disclosure.
RUSSIAN OILS REMAIN PROFITABLE DESPITE OIL PRICE VOLATILITY…
Oil production
(mn bblpd)
DRILLING ACTIVITY HAS BEEN RISING AND BECOME MORE COMPLEX…
(km per day)
… CREATING STRONG DEMAND FOR OCTG
(shipments of OCTG in Russia, mt) Brent Price EBITDA, $/boe EBITDA Margin Drilling Volume Share of Horizontal Drilling
… AND KEEP GROWING OIL PRODUCTION
44 54 71 66 9 1 1 1 6 1 6 20% 21 % 22% 24% 201 6 201 7 201 8 1 H 201 9
12
2016 2017 2018 1H 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019
11.3 11.1 10.9 10.9
31% 17% 16% 12% 8% 17% China North America Russia & CIS Other Asia EU RoW
14.0 15.7 15.9 16.3
2016 2017 2018 2019
Source: Fastmarkets MB, Company data.
GLOBAL LDP CONSUMPTION BY REGION 2019
(%)
LDP PRODUCTION IN RUSSIA 2016-2019
(shipments, kt)
GLOBAL LDP CONSUMPTION
(mt)
China RoW
Russia & CIS Other Asia EU
13 318 169 238 445 426 297 392 385 153 187 229 207 457 225 324 381 1,354 878 1,182 1,419 2016 2017 2018 2019
Transneft Gazprom IOC & Other Energy Industrial
RENOVATION AND REPAIR VOLUMES IN RUSSIA 2016-2019
(kt)
2 114 1 608 2 090 2 114 394 1 077 760 861 2 508 2 685 2 850 2 975 2016 2017 2018 2019
Source: Company data. (1) Total costs of Chelpipe subtracting raw materials costs: steel scrap and steel plate.
Aim to become #1 Pipe company globally by EBITDA margin in the medium term, to increase adjusted EBITDA by c.30% and deleverage to a target Net debt/EBITDA <1.5x
METALLURGY PHILOSOPHY AND
CLIENT-CENTRIC TRANSFORMATION
Further digitalization of production system and business-processes Enhancement of client services and
Internal efficiency and sustainability Corporate culture cultivation and
OPERATIONAL EFFICIENCY IMPROVEMENTS
Clear areas for further improvements: Cutting 2.5% of costs p.a.(1) Operating efficiency program with tangible results for ‘17-’19: >US$155mn in total
DEVELOPMENT OF PRODUCT OFFERING
Product mix improvement by investing in HVA niche products with moderate competition Export sales expansion Expected growth of EBITDA by c.30% in the medium term ESG initiatives
14
KEY FINANCIAL METRICS ADJUSTED EBITDA(1) BRIDGE
RUB bn RUB bn
*excl. D&A (1) Adjusted EBITDA is determined as profit/loss for the period 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 receivable, interest receivable, property plant and equipment and intangible assets, advances for capital construction and intangible assets, impairment of goodwill, social and charity expenses not related to operating activities.
2017 2018 2019 Revenue ADJUSTED EBITDA EBITDA margin (%) 14.9 15.8 16.6 158.3 23.6 178.8 28.2 192.3 31.8
16
28.2 13.4 (2.9) (3.4) (1.9) (1.6) 0.1 31.8 ADJUSTED EBITDA 2018 Revenue difference COGS* Distribution costs* G&A* Impairment
Others ADJUSTED EBITDA 2019
Revenue growth is mainly driven by seamless pipes and supported by stable LDP results on the back of persistent demand from the largest O&G clients High cost efficiency in seamless pipes due to vertical integration coupled with increased proportion of export sales provide for strong EBITDA margin Segment represents equipment manufacturing and support services for oil well extraction equipment In 2019, Rimera Group has presented a new product line
fracturing FRACTURA improving oil recovery from fields with hard-to-recover reserves Segment’s revenue is highly dependent on the large infrastructure and industrial projects Trunk pipeline systems revenue linked to Steel pipes revenue, especially to LDP sales (due to complementary nature of trunk products) 2019 revenue growth was driven by increased LDP volumes thanks to export projects
REVENUE FROM EXTERNAL CUSTOMERS
(RUB bn)
STEEL PIPE PRODUCTION(2) OILFIELD SERVICES TRUNK PIPELINE SYSTEMS
ADJUSTED EBITDA(1)
(RUB bn)
Source: IFRS Financial Statements. Numbers may not add up due to rounding (1) Does not include inter-segment adjustments (in 2017 amounted RUB 409mn, in 2018 amounted to RUB 74mn and null in 2019) (2) Include results of Scrap procurement division (3) Calculated as adjusted EBITDA (excl. inter-segment adjustments) divided by the revenue from external customers
COMMENTARIES
15% 15% 16% 18% 22% 25% 18% 35% 17% EBITDA margin(3) 142.2 163.4 173.4 2017 2018 2019 21.6 24.3 27.6 2017 2018 2019 11.4 12.3 13.6 2017 2018 2019 2.0 2.7 3.4 2017 2018 2019 2.6 3.1 5.3 2017 2018 2019 0.5 1.1 0.9 2017 2018 2019
17
Source: IFRS Financial Statements. Numbers may not add up due to rounding error. (1) Includes adjustments for changes in allowances for inventory obsolesce and changes in balances of work in progress and finished goods (2) Includes adjustments for impairment of assets and loans and interest receivable, adjustments for social and charity expenses, etc.
COST OF SALES 2019 (excl. D&A)
(RUB bn)
DISTRIBUTION COSTS 2019 (excl. D&A)
(RUB bn)
COGS AND SG&A
(RUB bn) 7.6 1.7 1.6 1.1 0.7
2019: RUB12.7 bn
Raw Materials Production Overheads and Repairs Salaries and Salary Taxes Energy and Utilities Cost of Goods for Resale
REVENUE TO ADJUSTED EBITDA BRIDGE 2019 (excl. D&A)
(RUB bn)
G&A COSTS 2019 (excl. D&A)
(RUB bn) 13.5 86.0 14.6 11.0 7.0
2019: RUB131.5bn(1)
3.4 8.1
2019: RUB14.4 bn
1.9 1.0
Transportation, Surveyor and Customs Expenses Salaries and Salary Taxes Packaging, storage and handling Other Commission Salaries and Salary Taxes Consultancy, audit and legal services Other Non-production Overheads and Repairs
(2)
78.5 78.3 86.0 18.5 20.6 23.3 12.5 15.9 14.4 7.4 6.9 7.9 25.0 35.5 35.0 142.0 157.2 166.5 2017 2018 2019 Raw materials Salaries and Salary Taxes Overheads and Repairs D&A Other 192.3 (131.5) (12.7) (14.4) (1.9) 31.8 Revenue Cost of Sales Distribution costs G&A expenses Other Adjusted EBITDA
18
2.7 2.7 6.8 6.8 9.8 4.1 3.0 2017 2018 2019
43% 32% 1 0% 6% 8%
Source: Company data. (1) Includes cut in energy costs and supply chain management initiatives. (2) Total non-raw materials costs: Total costs of Chelpipe subtracting raw material costs: steel scrap, steel plate and other general raw materials.
Operating efficiency program with target to cut
2.5%
Optimization of production costs Improving inventory management system Increase pipe-rolling productivity through further debottlenecking Further vertical integration in EAF: 1.25mln mt → 1.35mln mt Creation of Shared Service Center to reduce G&A Increase in energy efficiency through internal generation: 30-40% cheaper electricity based
Digitalization and predictive analytics based on BigData Optimization of business portfolio to focus on high margin business
Increase in Vertical Integration (in-house steel production) Decrease in Raw Material Costs Staffing Optimization Production Efficiency Gain Other(1)
ALREADY IDENTIFIED AREAS FOR OPERATING EFFICIENCY IMPROVEMENTS CUMULATIVE SAVINGS
(RUB bn)
2017- 2019 TOTAL SAVINGS BREAKDOWN
(%)
>US$155mn
Expected contribution to target adjusted EBITDA growth: c.15%
19
MAIN CAPEX ACTIVITIES (RUB mn)
(RUB mn)
Expansion Projects
2,484
IT strategy incl.:
269 Business digitalization (ERP) 212 Internal documentation IT solutions 4 Security automatization 53
Operational efficiency program & modernization / Artificial intelligence solutions
832
Innovative projects / Big data analysis
42
R&D
256
Ecological projects
598
Projects in oilfield services
274
Scrap division improvements
16
Other projects
197
Maintenance projects
2,767
Pipe division
2,056
Rimera (rolling scheme)
2,307
TOTAL CAPEX
7,558
Y-o-Y DYNAMICS
1,936 2,307 1,968 2,767 1,588 2,484
2018 2019
Rimera (rolling scheme) Maintenance Projects
TOTAL CAPEX + 38%
CAPEX as % of revenue CAPEX as % of revenue excluding OFS segment 2.8% 3.1% 2.9% 3.9%
7,558 5,492
20
24.3 18.8 10.0 19.7 (5.5) (8.8) 30.8 (3.6) (7.6) (8.6) 11.1 OCF Before change in WC Cap Ex FCFF Net interest FCF OCF Before change in WC Change in WC Cap Ex FCFF Net interest FCF
1
FREE CASH FLOW BRIDGE
(RUB bn)
2018 2019
Source: IFRS Financial Statements. Free Cash Flow is calculated as Cash generated from operating activities (excluding net interest payments) – Income tax paid – Capex – net interests. (1) After income tax paid.
RUB5.9 bn (US$95.6 m) increase in Receivables due to delay of payment from customers (almost fully released by 10-Feb-2020)
21
1
LEVERAGE EVOLUTION
(RUB bn)
21.1 26.5 35.5 23.0 20.4 13.2 7.9 23.6 83.1 Liquidity position 2020 2021 2022 2023 2024
Source: Company data, IFRS Financial Statements.
Net Debt Net Debt / Adjusted EBITDA
Chelpipe’s 5-year target: 1.5x Net Debt / Adjusted EBITDA
BY CURRENCY BY INTEREST RATE
72.2% Rub 63.7 bn 27.8% Rub 24.5 bn
Russian rubles Foreign currency
73.9% Rub 65.2 bn 26.1% Rub 23.0 bn
Fixed Floating Current liquidity position can comfortably cover upcoming maturities for the next 4 years Put option on RUB 9.9 bn bond maturing in 2027 Cash & cash equivalents Undrawn committed credit lines Undrawn uncommitted credit lines Debt to be repaid
DEBT BREAKDOWN
(as of 31 Dec 2019)
DEBT REPAYMENT SCHEDULE
(RUB bn, as of 31 Dec 2019)
22
86.1 76.2 67.3 68.4 67.1 3.0х 2.7х 2.8х 2.4х 2.1х 2015 2016 2017 2018 2019
NET DEBT / EBITDA LEVEL DIVIDEND FORMULA(1) TIMING MANAGEMENT TARGETS
─ 100% of IFRS Net
Profit
─ 100% of FCF
─ 70% of IFRS Net
Profit
─ 100% of FCF
─ 50% of IFRS Net
Profit
─ 75% of FCF
Target to pay dividends of not less than:
Source: Company data (1) It is necessary to maintain positive level of FCF adjusted by Capex for strategic initiatives after dividend payments calculated on the basis of IFRS financial statements for the period
Directors’ discretion
23
CHELPIPE AT A GLANCE
Stable demand due to growing drilling activity in Russia Stable demand for maintenance and pipeline constructions in CIS Diversified client base with about 6% of revenues coming from Top-7 clients
Source: Company’s data
25
STEEL PLATE PURCHASING STRUCTURE ADVANTAGEOUS LOCATION OF CHELPIPE NEAR STEEL PLATE SUPPLIERS
Source: Company data
HIGH LEVEL OF VERTICAL INTEGRATION IN THE PROCESS OF SEAMPLESS PIPE PRODUCTION BILLETS SUPPLY STRUCTURE
(000 tn)
74% 78% 85% 85%
2016 2017 2018 2019 Metalloinvest Evraz UMMC Others incl. imports IO-32 1,229 1,449 1,464 1,471
55% 59% 40% 41% 40% 20% 42% 43% 17% 17% 16%
2016 2017 2018 2019 ММК Metalloinvest Severstal Others incl. imports
R U S S I A Metalloinvest ММК Chelpipe Chelpipe ММК Metalloinvest
Scrap metal collection
Iron Ozon 32 Pipe-rolling workshops
Chelyabinsk pipe plants Meta Group
Pipe billet production Seamless pipes production 26
META GROUP OVERVIEW
top 3 Russian companies engaged in scrap processing – More than 90 manufacturing and production sites located in 13 regions of Russia – Production capacity of ca.1.4mt p.a. – Most manufacturing and production sites are equipped with hydraulic belt elevators and excavators (FUCHS and LIEBHERR)
steel mini-mill at Iron Ozon 32 (located in Pervouralsk Pipe Plant)
META BENEFITS
Strong collection and processing network generates scrap at below market prices Proximity of scrap collection to manufacturing facilities in Pervouralsk and Chelyabinsk provides competitive advantage via minimized transportation costs Additional cost savings from in-house processing compared to purchased scrap
KEY GEOGRAPHIC REGIONS IN 2019 SCRAP METAL SALE DYNAMICS AND DEMAND FOR METAL FOR BILLET PRODUCTION
(kt)
Source: Company data (1) Pervouralsk pipe plant
KEY PARTNERSHIPS
No Region 1 Sverdlovsk Region 2 Chelyabinsk Region 3 Perm Territory 4 KhMAD 5 Ulyanovsk Region 6 Tyumen region 7 Novosibirsk Region 8 Bashkortostan Republic 9 Krasnoyarsk Region 10 Kurgan Region
PNTZ1 958 1,067 1,161 328 315 212 984 974 1,173 Demand for metal for billet production (IO-32) External client sales (META) Sales to PNTZ (META)
2017 2018 2019
27
Source: Company data (1) Electric submersible pump; (2) Sucker-rod drilling pumps;
(such as ESP(1) systems) ‒ Company also produces SRPs(2), beam pumping units, custom vehicles, tubing pipe couplings, completion equipment for hydraulic fracturing
services in respect of ESP systems and provides additional products and services for various stages of oilfield development
Izhneftemash, RIMERA-Service and TOO RIMERA-Kazakhstan ‒ Currently, Chelpipe considers strategic options (incl. potential divestment) around the OFS segment subject to obtaining favorable terms for the disposal
SEGMENT OVERVIEW
1 2 3 4 5
Production Service net
KEY GEOGRAPHIC REGIONS PRODUCTION VOLUME IS OPTIMIZED IN ACCORDANCE WITH THE MARKET ENVIRONMENT SHARE OF ESP WELLS SERVICING IN RUSSIA IS INCREASING
52% 58% 62% 48% 42% 38%
2017 2018 2019
Sucker rod pumps Electric submersible pumps
9,367 10,221 10,435
80% 79% 88% 20% 21% 12%
2017 2018 2019
Wells not serviced by RIMERA Wells serviced by RIMERA
55,866 52,277 58,868
28
META and Rimera regional presence Pipe Products & Scrap Oilfield Services Pipeline Equipment
Source: Company data as of December 31, 2019.
Czech Republic
R U S S I A
Pervouralsk
META
equipment RIMERA-SERVICE Chelyabinsk Almetievsk Izhevsk Moscow
CHELYABINSK PIPE PLANT
pipeline parts
LDP), 0.5 mt of seamless pipes
PERVOURALSK PIPE PLANT
seamless industrial pipes and seamless oil & gas pipe products
welded pipes, 1.25 mt of steel billets
ETERNO VYSOTA 239 FINISHING CENTER IRON OZON 32 CHELYABINSK WORKSHOPS PERVOURALSK WORKSHOPS
MSA
IZHNEFTEMASH
ALNAS
29
1,000 1,000 1,100 1,100 1,250 1,250 1,350 100 150 100 2017A 2018A 2019A Target 412 1,333 1,477 2017A 2018A 2019A
FURTHER ENHANCEMENT IN VERTICAL INTEGRATION
Source: Company data.
ENERGY EFFICIENCY PROGRAMME
increased by 25%. Project completion is expected in 2020
steel billets leading to significant cost reduction and increased self-sufficiency in steel billets
equipment and de-bottlenecking through changes in process organization (i.e. reduction of preparation time and improvement in scrap quality)
OWN STEEL PRODUCTION CAPACITY IMPROVEMENT
(kt)
SAVINGS FROM OWN BILLET PRODUCTION
(RUB mn)
programme envisages various activities aimed at reducing energy consumption costs including natural gas and electricity (through changes in production technologies, usage
procurement consolidation)
137 152 100
2017A 2018A 2019A
SAVINGS FROM ENERGY EFFICIENCY PROGRAMME
(RUB mn)
energy service contract for 10 years, whereby the electricity provider builds power generation units and supplies electricity directly to the Company at a fixed price leading to significant cost reduction (>RUB 360 mn p.a.)
30
2018 2019 RUB bn Cash & cash equivalents 21.6 21.1 Current assets 77.5 81.0 Non-current assets 64.6 67.1 Total assets 142.1 148.1 Current liabilities 64.1 74.6 Non-current liabilities 74.2 67.8 Total liabilities 138.3 142.4 Total equity 3.8 5.7 Total equity and liabilities 142.1 148.1
SUMMARY BALANCE SHEET
31
2018 2019 RUB bn Revenue 178.8 192.3 COS (134.6) (138.1) EBITDA 28.2 31.8 Margin (%) 15.8 16.6 Operating profit 20.1 22.5 Margin (%) 11.2 11.7 Profit before income tax 10.8 13.6 Margin (%) 6.0 7.1 Net income 7.7 10.0 Margin (%) 4.3 5.2 Basic EPS (RUB/share) 25.8 32.5
SUMMARY INCOME STATEMENT
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2018 2019 RUB bn Profit before income tax 10.8 13.6 Adjustments for depreciation and amortization 6.9 7.9 Adjustments for finance costs 9.4 9.5 Operating cash flows before working capital changes 28.7 33.8 Cash generated from operations (after interest) 15.5 18.7 Purchase of PPE & intangible assets (CAPEX) (5.5) (7.6) Net cash used in investing activities (6.0) (9.3) Proceeds from borrowings 44.5 61.8 Repayment of borrowings (42.7) (64.3) Dividends paid to owners of the Company (3.7) (4.7) Net cash used in financing activities (8.7) (8.3) Increase/(decrease) in cash & cash equivalents 2.5 (0.4) Cash & cash equivalents at beginning of period 19.1 21.6 Cash & cash equivalents at end of period 21.6 21.1 Free cash flow 10.0 11.1
SUMMARY CASH FLOW STATEMENT
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Department of corporate finance & investor relations Moscow, Lesnaya Street 5B, 14th floor IR@chelpipe.ru Dmitry Muz +7 (495) 933-27-80 #4485 Elena Karpova +7 (495) 933-27-80 #4440
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