NEWS RELEASE. ChelPipe Announces Reviewed IFRS Results For The Six Months Ended June 30, 2010

Transcription

1 NEWS RELEASE For Immediate Release 2 December, 2010 ChelPipe Announces Reviewed IFRS Results For The Six Months Ended June 30, 2010 Chelyabinsk, Russia 2 December, 2010 Joint Stock Company Chelyabinsk Tube-Rolling Plant ( ChelPipe ), a leading Russian producer of welded and seamless steel pipes and tubes, and supplier of integrated solutions for the Russian oil & gas industry and a variety of other industries in Russia, is pleased to announce its reviewed IFRS financial results for the six months ended June 30, H 2010 HIGHLIGHTS Revenue for the fist six months of 2010 totaled RUB 37,646 million compared to RUB 27,494 million for the same period last year. 1H 2010 EBITDA amounted to RUB 9,163 million and was equivalent to 24% of revenue, compared to EBITDA of RUB 1,695 million for 1H 2009, equivalent to 6% of revenue. Net profit for the first six months of 2010 was RUB 3,011 million compared to a RUB 2,840 million net loss for the first six months of The increases in revenue, EBITDA and net profit in 1H 2010 are primarily a result of the recovery in demand for pipe products from oil and gas companies, construction and power generation sectors and improvement of average steel pipe prices. Commenting on the Company s 1H 2010 results, Mr. Sergei Moiseyev, Chairman and CFO of ChelPipe stated: We are pleased with our 1H 2010 performance. There have been positive developments in both volume and pricing and we hope to benefit from a strong market outlook across our product portfolio. Our investment and M&A program, aimed at becoming a leading supplier of integrated solutions for oil and gas production and distribution in Russia is largely completed. We modernized our existing shops and commissioned the most modern and technologically advanced production facilities: LDP shop, Finishing Center and EAF with continuous caster. Concurrently, ChelPipe increased its borrowings to fund its modernisation program. In today's environment our focus remains on profit and cash flow maximization to further strengthen our balance sheet.

2 Consolidated interim financial results for the six months ended 30 June In millions of Russian Roubles Change Revenue 37,646 27,494 37% Gross profit 11,791 7,494 57% Gross margin 31% 27% EBITDA 9,163 1, % EBITDA margin 24% 6% Profit/(loss) before income tax 4,372 (2,894) n/a Net income/(loss) 3,011 (2,840) n/a Net profit margin 8% n/a Reconciliation of net income/(loss) to EBITDA is as follows for the periods indicated: Six months ended June 30 In millions of Russian Roubles Net income/(loss) 3,011 (2,840) Add: Depreciation and amortization 1,292 1,148 Interest income (793) (1,029) Interest expense 4,291 4,470 Income tax expense 1,361 (54) EBITDA 9,163 1,695 PRODUCTION AND SALES January through June 2010, ChelPipe produced 723 thousand tonnes of steel pipes, an increase of 36% as compared to the same period of 2009 (532 thousand tonnes). ChelPipe steel pipe sales for the period reached 717 thousand tonnes, 35% more than the equivalent period last year (530 thousand tonnes). 89% (635 thousand tonnes) of steel pipes were supplied to the domestic market. Export totaled 82 thousand tonnes or 11% of ChelPipe steel pipe sales in 1H 2010 (1H 2009: domestic market 455 thousand tonnes, export 75 thousand tonnes of steel pipes, accordingly) The table below shows the sales volumes for ChelPipe s five principal steel pipe products. thousands of tonnes 1H H 2009 LDP OCTG Line pipe for oil & gas applications Seamless industrial Welded industrial Total sales

3 In line with its strategy of expanding the scope of its operations beyond its core steel pipe business with the aim to become a leading supplier of integrated solutions for oil and gas production and distribution in Russia, in 2008 ChelPipe acquired several oilfield services ( OFS ) businesses which produce oil well extraction equipment and provide a number of other products and services for various stages of oilfield s development. On 31 May, 2010 ChelPipe acquired two trunk pipeline systems businesses that produce customized components for pipeline construction. ChelPipe manufactures, sells and rents oil well extraction equipment such as electric submersible pump ( ESP ) systems, provides installation and maintenance services in respect of ESP systems and provides additional products and services for various stages of an oilfield s development. As of 30 June 2010 ChelPipe serviced 5,741 oil wells in Russia. The table below shows the sales volumes of ChelPipe s OFS business core products and services (1) : number of units 1H H 2009 Units sold Grey Cast Iron ESPs Ni-resist Iron ESPs ESMs Units rented Grey Cast Iron ESPs Ni-resist Iron ESPs Wells under service (1) Electric submersible pump (ESP) systems are sophisticated systems used to extract oil from wells, whose primary components are ESPs and electric submersible motors ( ESMs ). ChelPipe produces two types of ESPs: grey cast iron ESPs and corrosion resistant Ni-resist cast iron ESPs. Sucker rod pumps ( SRPs ) are used for shallow wells with slower flow rates. Wells under service are wells where ChelPipe provides ongoing operational and maintenance services for ESP systems and SRPs REVENUE Revenues for the six months ended 30 June 2010 were RUR 37,646 million, a 37% increase compared to RUR 27,494 million for the six months ended 30 June The increase in revenues was primarily due to an increase in steel pipe products revenue as a result of increased sales volumes and average selling prices for ChelPipe s LDP and increase in sales volume for OCTG and seamless industrial steel pipe products. Steel Pipe Production Revenues from the sale of steel pipe products and processed scrap for the six months ended 30 June 2010 were RUR 32,308 million, a 49% increase compared to RUR 21,711 million for the six months ended 30 June The increase in revenues was due to increased sales volumes and average selling prices for LDP and an increase in sales volumes for OCTG and seamless industrial pipe during the first six months of 2010 compared to the first six months of 2009.

4 For the six month period ended 30 June 2010 sales volumes for LDP increased 59% compared to the six months ended 30 June Increase in sales volume for LDP was primarily due to gradual increases in pipeline construction activities of the Russian oil and gas industry during the first six months of 2010, including Transneft s construction of the ESPO 2 Pipeline, which commenced in December 2009, Baltic Pipeline System-2 and the Russky Island Pipeline project. OCTG sales volumes for the six month period ended 30 June 2010 increased 40% compared to the six months ended 30 June Increase in sales volume for OCTG was largely due to increase in demand for OCTG casing pipe in line with a gradual increase in oil and gas well drilling activities by the Russian oil and gas industry during the first six months of For the six month period ended 30 June 2010 sales volume for seamless industrial pipe increased 41% compared to the six months ended 30 June 2009, primarily due to gradual increases in demand from the power generation, particularly atomic power, and construction industries. Oilfield Services Revenues from the sale of oilfield service products and services for the six months ended 30 June 2010 were RUR 3,738 million, a 5.2% increase compared to RUR 3,554 million for the six months ended 30 June The increase in revenues was primarily due to higher average sales prices for ESPs and ESMs during the first six months of 2010 compared to the first six months of 2009, which was partially offset by decreases in sales volumes for ESPs and ESMs during the first six months of 2010 compared to the first six months of For the six month period ended 30 June 2010 sales volumes for ESPs and ESMs decreased by 23.1% and 12.2%, respectively, compared to the six months ended 30 June The decreases in sales volumes were primarily due to a continuation of depressed levels of newly developed producing oil and gas wells in Russia and the surrounding regions, primarily as a result of the global financial crisis that began during the second half of COST OF SALES In millions of Russian Roubles 1H H 2009 Change Raw materials 17,998 12,343 46% Salaries and salary taxes 3,044 2,598 17% Cost of goods for resale 1,788 2,303-22% Energy and utilities 1,295 1,041 24% Deprecation and amortization 1, % Production overheads and repairs % Changes in balances of work in (144) % progress and finished goods Change in inventory allowance (121) (865) -86% Total cost of sales 25,854 20,000 29% The cost of sales for the six months ended 30 June 2010 was RUR 25,854 million, a 29% increase compared to RUR 20,000 million for the six months ended 30 June The increase in cost of sales was primarily due to increases in sales volumes and raw material expenses during the first six months of 2010 compared to the first six months of 2009.

5 Raw materials Raw material expenses for the six months ended 30 June 2010 were RUR 17,998 million, a 46% increase compared to RUR 12,342 million for the six months ended 30 June The increase in raw material expenses was primarily due to increases in steel pipe sales volumes during the first six months of 2010 compared to the first six months of 2009, as well as increases in the average prices per tonne of steel plate and steel billet during the first six months of 2010 compared to the first six months of 2009 (1H 2010 average purchased prices: steel plate RUR 24,039, steel billet RUR 21,707; 1H 2009 average purchased prices: steel plate RUR 20,305, steel billet RUR 17,583) Salaries and salary taxes Salaries and salary taxes accounted for about 17% of the total cost of sales for the six months ended 30 June 2010, as compared to 21% for the same period of previous year. Salary and salary taxes expenses for the six months ended 30 June 2010 were RUR 3,044 million, a 17.1% increase compared to RUR 2,598 million for six months ended 30 June The increase was due to the reversal during the six months ended 30 June 2009 of certain staff and wage reductions at production facilities, which was part of cost cutting measures implemented during the 2009 in order to improve operating performance. As at 30 June 2010, ChelPipe employed 25,010 people (30 June 2009: 26,318) Cost of goods for resale ChelPipe s cost of goods for resale consists mainly of the cost of steel pipes purchased by ChelPipe s 12 trading houses from third party suppliers in order to service their spot market customers and the costs of CHTPZ KTS, Rimera's trading subsidary, a complete products supplier for pipeline construction and repairs and distributer of the products of ChelPipe s trunk pipeline systems business (bends producer - SOT, short-radius elbows producer - MZMZ and Czech valves producer MSA). The cost of goods for resale for the six months ended 30 June 2010 were RUR 1,788 million, a 22% decrease compared to RUR 2,303 million for the six months ended 30 June The decrease was due to a decline in CHTPZ KTS purchases of valves produced by MSA as a result of the reduction of MSA sales to Russia driven by changes in sales structure. Energy and utilities Energy and utilities expenses for the six months ended 30 June 2010 were RUR 1,295 million, a 24% increase compared to RUR 1,041 million for the six months ended 30 June The increase was due to production volumes growth and an increase in average electricity and natural gas prices by 21.4% and 13.3%, respectively, for the six months ended 30 June 2010, compared to the six months ended 30 June GROSS MARGIN Gross margin for the six months ended 30 June 2010 was 31% compared to 27% for the six months ended 30 June The change was primarily due to a larger proportion of sales from higher margin steel pipe products and oilfield services during the six months ended 30 June 2010 compared to the same period of last year, which was partially offset by the aforementioned increases in raw material costs, which ChelPipe was unable to fully reflect in its sales prices to customers.

6 DISTRIBUTION COSTS Distribution costs for the six months ended 30 June 2010 were RUR 3,092 million, a 81% increase compared to RUR 1,711 million for the six months ended 30 June The increase was primarily due to increase in transportation and customs expenses during the first six months of 2010 compared to the first six months of Transportation and customs expenses for the six months ended 30 June 2010 two-and-a-half times higher than for the same period of the previous year (1H RUR 2,241 million, 1H RUR 898 million). The increase was due to steel pipe products sales growth, including sales of LDP to the far east of Russia for the ESPO-2 Pipeline and the Russky Island Pipeline, export sales and increase in railroad tariff. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the six months ended 30 June 2010 were RUR 2,137 million, a 13% decrease compared to RUR 2,459 million for the six months ended 30 June The decrease was due to declines in other income and expenses, which are mostly influenced by amounts of fines and penalties incurred by the company and salaries and salary taxes expenses during the first six months of 2010 compared to the first six months of 2009, which was partially offset by an increase in non-production overheads and repair costs during the first six months of 2010 compared to the first six months of Non-production overheads and repair costs for the six months ended 30 June 2010 were RUR 557 million, a 59% increase compared to RUR 350 million for the six months ended 30 June The increase was due to increases in maintenance and repair expenses that were delayed in 2009 as a part of the cost cutting measures implemented by the Company in response to the global recession. REVERSAL OF IMPAIRMENT/(IMPAIRMENT) OF ASSETS For the six months ended 30 June 2010 reversals of impairments of assets amounted to RUR 180 million compared to impairments of assets that amounted to RUR 2,123 million for the six months ended 30 June The difference was primarily due to trade and other receivables impairments relating to doubtful accounts with certain customers during the first six months of 2009 that amounted to RUR 1,952 million, primarily with respect to sales of LDP products to the Uzbek conglomerate, Zeromax-Arch Energy Ltd. OPERATING MARGIN Operating margin for the six months ended 30 June 2010 was 17% compared to 4% for the six months ended 30 June The change was primarily due to the aforementioned trade and other receivable impairments during the first six months of 2009, which was partially offset by the aforementioned increases in distribution expenses during the first six months of 2010 compared to the first six months of 2009 PROFIT (LOSS) FOR THE PERIOD For the reasons discussed above, profit for the six months ended 30 June 2010 was RUR 3,011 million, compared to a loss of RUR 2,835 million for the six months ended 30 June 2009.

7 BORROWINGS Historically, ChelPipe has relied on a combination of cash from its operating activities and external financing as its main sources of liquidity. However, ChelPipe s results of operations were significantly affected by the global financial crisis which started in the second half of 2008 and ChelPipe s significant increases in borrowings to fund its recent modernisation program. As of 30 June 2010, ChelPipe s total outstanding borrowings were RUR 74,537 million, of which RUR 38,416 million were current borrowings. ChelPipe s current borrowings as of 30 June 2010 included RUR 17,391 million in borrowings that were reclassified from non-current to current borrowings as a result of breaches of covenants in certain of ChelPipe s financing agreements as of 31 December 2009 and 30 June As of 30 June 2010, RUR 58,677 million of ChelPipe s borrowings were denominated in roubles, and RUR 15,336 million of ChelPipe s debt was denominated in US dollars or Euros. About Chelyabinsk Tube-Rolling Plant Joint Stock Company Chelyabinsk Tube-Rolling Plant ( ChelPipe ) is a leading Russian producer of welded and seamless steel tubes & pipes for the Russian oil & gas industry and a variety of other industries in Russia. ChelPipe s overall strategic objectives are to strengthen its leading position as a steel pipe producer for the Russian market and to become a leading supplier of integrated solutions for oil and gas distribution and production in Russia. In line with these overall strategic objectives, since 2003 ChelPipe has modernized all of its major steel pipe production facilities and it has recently constructed state of the art LDP production and OCTG and line pipe finishing facilities, as well as a new state of the art electric arc furnace mini-mill for the production of steel billet used in seamless pipe production. ChelPipe has also acquired several oilfield services businesses which produce oil well extraction equipment and provide a number of other products and services for various stages of an oilfield s development and several trunk pipeline equipment businesses that produce highly customised components for the construction of oil and gas pipelines. According to consolidated IFRS accounts, revenue for the six months ended 30 June 2010, ChelPipe had consolidated revenue of RUR 37,646 million, EBITDA totaled RUR 9,163 million and net profit amounted RUR 3,014 million. As of 30 June 2010, ChelPipe and its subsidiaries had 25,010 employees Ordinary shares of ChelPipe are traded on the MICEX exchange under ticker CHEP. Investor and Media Contacts: Sergei Rybak, PR Director, Sergey.Rybak@chtpz-group.ru Telephone: +7 (351) Tatyana Krasnousova, IR, Tatyana.Krasnousova@chtpz.ru Telephone: +7 (495) This announcement includes forward-looking statements. ChelPipe s actual results may differ materially from those made in or suggested by the forward-looking statements contained in this announcement. By their nature, forwarding-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. Even if the actual results are consistent with the forward-looking statements contained in this announcement, those results may not be indicative of results or developments in future periods. ChelPipe does not undertake any obligation to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this announcement.