Public Joint Stock Company “Chelyabinsk Pipe Plant” FY2018 IFRS results and market overview March 2019
Page number SECTION I KEY FIGURES 3 SECTION II MARKET OVERVIEW & COMPANY STRATEGY 7 SECTION III FINANCIALS 20 SECTION IV APPENDIX 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 Oil & Gas and Industrial sectors • Main operational assets are located in Chelyabinsk (ChelPipe), Pervouralsk (Pervouralsk Pipe Plant), Almetyevsk & Izhevsk (Rimera) • Core shareholders are Andrey Komarov and Pavel Fedorov (jointly control more than 80% of ChelPipe Group) • Credit ratings: Moody's - Ba3 (stable), Fitch - BB- (stable), RA Expert - A+, (stable) KEY EVENTS • ChelPipe launched an e-commerce platform to develop an additional sales via direct order channel and expand the possibilities of acquiring pipe products end users • ChelPipe became the sole supplier of low-temperature LDP for the Nord Stream 2 in the coastal zone. For this order the Group mastered a new LDP welding technology • Gazprom and ChelPipe signed a roadmap for offshore fields pipes • Fitch upgrades ChelPipe outlook to Stable, affirms rating at BB- • The BoD of ChelPipe approved the program for customer-centric transformation • ChelPipe signed release of pledge of shares with GPB and VTB SECTOR POSITIONING AMONG RUSSIAN PRODUCERS 1 PRODUCT MIX Shipments 2 #2 in the LDP segment #2 in the OCTG segment Revenue composition Others 2% ChelPipe ChelPipe 8% Seamless 13% 10% 18% OFS & 24% pipes OMK TMK 3% 14% trunk pipeline LDP 36% 15% ITZ 17% OMK 49% Other welded ZTZ Others 62% pipes TMK 29% 17% Seamless 30% 52% pipes LDP Others Market: 2.9 mn t 1 Market: 2.5 mn t 1 RUB 178.8 bn Total: 1.9 mn t Source: Company’s data (1) Company estimates for 2018, market size is provided exclusively for LDP & OCTG pipe segments, incl. exports/imports from/to Russia 4 (2) Including only pipe division shipment volumes, incl. export sales OFS – oilfield services division (Rimera group of companies) (3)
MARKET UPDATE 1. In 2018, LDP demand increased significantly in the domestic market (+492 th tonnes, +30% y-o-y). Due to completion of Nord Stream supplies total export decreased (-324 th tonnes, -30% y-o-y) 2. The main projects in 2018 were: LDP o Northern European pipeline (underwater and terrestrial sections of Nord Stream 2) o Turkish Stream o Oil and gas field infrastructure development (Rosneft, Novatek) 1. In 2018, OCTG market in Russian remained flat y-o-y at 2,304 th tonnes 2. Dynamics of key indicators of the oil and gas industry in Russia y-o-y: drilling volumes were down 0,5%, launch of new wells were OCTG down by 239, total well count increased by 2,124. This dynamics results from obligations of Russia to decrease oil production following OPEK agreement 1. The SRP* market significantly decreased (17% y-o-y) due to intensive shift of well count from SRP to ESP** at Lukoil West Siberia, Surgutneftegaz, Rosneft and Bashneft Oilfield services 2. Growth of sinking by boring at technical drilling by 2% y-o-y resulted in increase of well count with ESP and increase of ESP independent service market by 1% y-o-y 1. In 2018, demand for pipeline fittings significantly increased in CIS as well as in Russia (+8.46 th tonnes, +26% y-o-y) 2. The main projects in 2018 were: o Northern-European pipeline o Construction of compressor facilities on the Ukhta-Torzhok pipeline (second thread) Trunk pipeline equipment o Construction of Amursky gas processing plant o Outfitting of Zapolyarny OGCF o Outfitting of oil deposits in the Vankor cluster (Rosneft) o Construction of the third round of the Yamal SPG project (Novatek) * Sucker-rod pump 5 ** Electric submersible pump
SEGMENTAL PERFORMANCE DYNAMICS REVENUE 1 EBITDA 2 154.1 RUB bn 21.1% 137.6 15.6% 15.6% 122.7 25.9 24.1 21.4 Pipe segment* 2016 2017 2018 2016 2017 2018 20.0% 16.1% 2.7 13.1% 13.5 12.2 12.4 Oilfield Services 2.0 1.6 2016 2017 2018 2016 2017 2018 16.9% 10.2% 1.1 6.8% Trunk Pipeline 6.5 Equipment 5.9 4.9 0.5 0.4 2016 2017 2018 2016 2017 2018 (1) Including inter-segment revenue. *2016Y incl. financials of Meta Group (scrap) as a part of Pipe division = EBITDA margin 6 (2) EBITDA figures exclude adjustments and eliminations and hence differ from consolidated group EBITDA
MARKET OVERVIEW & COMPANY STRATEGY 7
CHELPIPE RANKS AMONG THE TOP GLOBAL STEEL PIPE PRODUCERS Total sales EBITDA margin* Sales in Russia mn tonnes ТМК 2.4 2.4 4.0 13.7% ОМК 1.4 1.4 2.0 No data Chelpipe 1.4 1.4 1.9 15.8% Severstal 1.0 1.0 1.2 No data Zagorsk 0.5 0.5 No data 3.6 20.1% Tenaris No data 2.5 TPCO 3.8% 2.4 Vallourec ** 0.8 12.4% US Steel *Data for the Group as defined at IFRS reporting Source: Company’s data and publicly available figures for FY2018 8 ** Calculated as Adj. EBITDA/Net Sales
DIVERSIFIED SALES CHANNELS AND LOW CLIENT CONCENTRATION IN INDUSTRIAL SECTOR Oil segment Industrial sector Revenue mix Rosneft in the pipe segment Surgutneftegaz TOP-7 clients* 10% 9% 10% Others 6.0% Gazprom neft 13% LUKOIL 36% 94.0% 32% Transneft 26% RUB 36% *Including: LLC Bolwerk, Engineering company" Others (Small CIS oil 151.2 bn* AEM-technologies" , Production private unitary companies and EPC enterprise "Runak" , Kamaz, Nipigaspererabotka, contractors) Krasniy Kotelshik, PJSC "Machine-building plant "ZiO-Podolsk" 28% Gas segment Pipe shipments Nord Stream 10% Total: Gazprom 39% 1.9 mn tonnes 16% 43% NOVATEK Domestic sales 74% 12% 6% Nord Stream 2 Other exports Others Source: Company’s data * Revenue from external customers 9
STABLE OIL AND GAS CAPEX SUPPORTS LDP AND OCTG DEMAND DECREASE IN NEW LDP PROJECT DEMAND IS PARTIALLY OFFSET BY INCREASE STABLE INCREASE IN DRILLING IN RUSSIA IN MAINTENANCE LDP DEMAND th tonnes -3% 35 70% 3,626 CAGR 3,513 +6.7% 28.8 28.7 30 60% 24.7 25 50% 22.6 -10% 20.4 48% 20 40% 39% 1,698 15 30% 1,517 33% +34% 30% 27% 10 20% 632 472 5 10% 0 0% 2014 2015 2016 2017 2018 New pipeline Renewal of existing Consumption of oil construction(LDP) pipelines (LDP) & gas industry (OCTG and line pipe) 2017 2018 Drilling volume (km's) Share of horisontal drilling Source: Company data, CDU TEK, public sources 10
HORIZONTAL DRILLING VOLUMES GREW WHILE PRODUCTION CUTS HAD A NEGATIVE EFFECT ON NUMBER OF NEW WELLS HORIZONTAL DRILLING IN RUSSIA RUSSIAN OIL PRODUCTION Kilometers mmbpd +20% 13,901 11,17 11,232 10,98 10,97 10,91 10,84 8,145 6,954 5,557 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 NUMBER OF NEW WELLS COMPLETED IN RUSSIA NUMBER OF TOTAL RUNNING WELLS IN RUSSIA +1% 155,046 +6% 8,184 151,470 7,946 150,770 148,658 146,282 7,146 6,261 6,065 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Source: Oil and Gas Vertical 2016, BP Statistical Review of Energy 2016 11
CHELPIPE MAINTAINS A HIGH LEVEL OF CLIENT DIVERSIFICATION OUTSIDE OF OIL & GAS 44% 45% 51% 54% Other producers Chelpipe market share 56% in 2018 55% 49% 46% Machinery Energy Chemicals/Petrochemicals General use • • • • The growth of industrial According to the program In 2019, the development The increase of investments production in 2019 is of development of the of the chemical industry in in capital facilities of Russian for key industries expecting to be 1.4%* unified energy system in Russia will be determined economy (not related to 2019 forecast 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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