Open Joint Stock Company Chelyabinsk Pipe-Rolling Plant

Transcription

1 Open Joint Stock Company Chelyabinsk Pipe-Rolling Plant Unaudited Condensed Consolidated Interim Financial Statements For the Six Months Ended 30 June 2013

2 TABLE OF CONTENTS STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013: Unaudited condensed consolidated interim statement of financial position... 2 Unaudited condensed consolidated interim statement of comprehensive income... 3 Unaudited condensed consolidated interim statement of cash flows... 4 Unaudited condensed consolidated interim statement of changes in equity... 5 FINANCIAL STATEMENTS 1. General information Basis of preparation Adoption of new or revised standards and interpretations New accounting pronouncements Subsidiaries Business combinations and disposals Segment reporting Property, plant and equipment Inventory Loans receivable Trade and other receivables Borrowings Accounts payable and accrued expenses Revenue Cost of sales Distribution costs General and administrative expenses Impairment of assets Finance income and costs Income tax Earnings per share Balances and transactions with related parties Contingencies, commitments and operating risks Financial risk management Events after the reporting period... 29

3 STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONDENSED CONSOLIDATED INTERIM Management is responsible for the preparation of condensed consolidated interim financial statements that present fairly the financial position of Open Joint Stock Company Chelyabinsk Pipe-Rolling Plant and its subsidiaries (the Group ) at 30 June 2013, and the results of its operations, cash flows and changes in equity for the six months then ended, in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ). In preparing the consolidated financial statements, management is responsible for: properly selecting and applying accounting policies; presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; providing additional disclosures when compliance with the specific requirements in International Financial Reporting Standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group s condensed consolidated interim financial position and financial performance; and making an assessment of the Group s ability to continue as a going concern. Management is also responsible for: designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; maintaining adequate accounting records that are sufficient to show and explain the Group s transactions and disclose with reasonable accuracy at any time the condensed consolidated interim financial position of the Group, and which enable them to ensure that the condensed consolidated interim financial statements of the Group comply with IAS 34; maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions in which the Group operates; taking such steps as are reasonably available to them to safeguard the assets of the Group; and detecting and preventing fraud and other irregularities. The condensed consolidated interim financial statements for the six months ended 30 June 2013 were approved on 28 August 2013 by: On behalf of the management: Yaroslav Zhdan Andrey Chaykov Chief Executive Officer Head of finance department financial officer Chelyabinsk, Russia 28 August

4 UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AT 30 JUNE June December 2012 Notes (unaudited) (audited) ASSETS Non-current assets Property, plant and equipment 8 60,600,504 62,001,977 Advances for capital construction 938, ,285 Goodwill 6,328,601 6,293,263 Intangible assets 1,194,089 1,205,215 Investments in associates 38,954 38,954 Other financial assets 3,212,875 3,212,875 Deferred tax assets 374, ,645 Other non-current assets 149, ,325 Total non-current assets 72,838,410 74,056,539 Current assets Inventory 9 23,598,873 21,689,289 Trade and other receivables 11 25,950,003 23,634,765 Current income tax prepayment 355,195 76,497 Loans receivable , ,544 Cash and cash equivalents 3,155,381 5,585,974 Total current assets 53,939,053 51,745,069 TOTAL ASSETS 126,777, ,801,608 EQUITY DEFICIT AND LIABILITIES Share capital 2,498,261 2,498,261 Legal reserve 70,857 70,857 Translation reserve 51,630 (5,311) Treasury shares (18,044,001) (17,795,009) Retained earnings 3 5,848,932 6,103,952 Equity deficit attributable to owners of the Company (9,574,321) (9,127,250) Non-controlling interests 291, ,323 Total equity deficit (9,282,722) (8,818,927) Non-current liabilities Preferred shares 147, ,682 Borrowings 12 82,418,270 18,995,409 Accounts payable and accrued expenses ,863 Retirement benefit obligations 3 535, ,546 Deferred tax liabilities 3,646,907 3,817,077 Total non-current liabilities 86,987,327 23,507,714 Current liabilities Borrowings 12 20,541,400 83,987,664 Accounts payable and accrued expenses 13 23,988,835 21,036,470 Advances from customers 2,375,236 4,170,325 Income tax payable 17, ,052 Other taxes payable 2,150,191 1,666,310 Total current liabilities 49,072, ,112,821 Total liabilities 136,060, ,620,535 TOTAL EQUITY DEFICIT AND LIABILITIES 126,777, ,801,608 2

5 UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2013 Six months ended 30 June Notes (unaudited) (unaudited) Revenue 14 55,426,962 55,208,292 Cost of sales 15 (42,169,973) (41,739,618) Gross profit 13,256,989 13,468,674 Distribution costs 16 (3,342,274) (3,267,656) General and administrative expenses 17 (3,840,454) (3,873,077) (Loss) / gain on disposal of property, plant and equipment (49,036) 13,246 Impairment of assets 18 (72,551) (387,573) Operating profit 5,952,674 5,953,614 Finance income , ,619 Finance costs 19 (6,097,075) (6,056,373) Dividend income 71, ,737 Foreign exchange (loss) / gain, net (356,990) 663,989 Share of loss of associates (334) Gain on disposal of subsidiary 6 36,733 56,240 (Loss) / profit before income tax (283,922) 961,492 Income tax 20 (22,222) (480,398) (Loss) / profit for the period (306,144) 481,094 Items that will not be reclassified subsequently to profit or loss: Actuarial gains / (losses) on retirement benefits 34,400 (4,338) Items that may be reclassified subsequently to profit or loss: Exchange differences income / (expense) on translating of foreign operations 56,941 (7,409) Other comprehensive income / (loss) for the period 91,341 (11,747) Total comprehensive (loss) / income for the period (214,803) 469,347 (Loss) / profit for the period attributable to: Owners of the Company (289,420) 500,273 Non-controlling interests (16,724) (19,179) (306,144) 481,094 Total comprehensive (loss) / income for the period attributable to: Owners of the Company (198,079) 488,526 Non-controlling interests (16,724) (19,179) (214,803) 469,347 (Loss) / earnings per share attributable to owners of the Company, basic and diluted (Russian Roubles per share) 21 (0.93)

6 UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2013 Operating activities Six months ended 30 June Notes (unaudited) (unaudited) (Loss)/profit before income tax 3 (283,922) 961,492 Adjustments for: Depreciation and amortisation 15,16,17 3,581,039 3,298,944 Changes in pension and payroll accruals 55,047 97,931 Changes in inventory allowance 15 (130,452) (66,329) Impairment of assets 18 72, ,573 Loss/(gain) on disposals of property, plant and equipment 49,036 (13,246) Share of loss of associates 334 Gain on disposal of subsidiary (36,733) (56,240) Finance income 19 (109,368) (107,619) Finance costs 19 6,097,075 6,056,373 Dividend income (71,368) (236,737) Foreign exchange differences on non-operating items 453,066 (118,041) Other non-cash movements (2,306) Operating cash flows before working capital changes 9,675,971 10,202,129 Movements in working capital Increase in accounts receivable and prepayments (2,620,423) (7,781,943) (Increase)/decrease in inventories (1,777,651) 1,001,009 Increase in trade and other payables 753,184 15,208,019 Cash generated from operations 6,031,081 18,629,214 Income tax (paid)/ refunded (820,213) 1,103,719 Interest paid (4,758,841) (6,116,553) Interest received 60,500 69,458 Net cash generated from operating activities 512,527 13,685,838 Investing activities Purchase of property, plant and equipment (2,017,559) (2,044,586) Purchase of intangible assets (111,283) (89,323) Proceeds from sale of other current assets ,649 Purchase of other current assets 11 (156,993) (573) (Сash outflow from disposed)/proceeds from sale of property, plant and equipment (42,811) 270,453 Loans given (164,387) (2,518,050) Proceeds from loans repaid 51,020 20,139 Cash received with sale of subsidiary 129,975 93,483 Dividends received 18, ,592 Net cash used in investing activities (1,910,473) (4,131,865) Financing activities Proceeds from borrowings 83,956,241 19,670,377 Repayment of borrowings (84,643,065) (27,597,707) Cash paid to acquire treasury shares (248,992) Payment of finance lease obligations (96,831) (53,543) Acquisition of non-controlling interests (1,249) Net cash used in financing activities (1,032,647) (7,982,122) Net (decrease)/increase in cash and cash equivalents (2,430,593) 1,571,851 Cash and cash equivalents at the beginning of the period 5,585,974 2,458,435 Cash and cash equivalents at the end of the period 3,155,381 4,030,286 4

7 UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2013 Attributable to owners of the Company Share capital Legal reserve Retained earnings Treasury shares Translation reserve Total Noncontrolling interests Total (equity deficit) / equity Balance at 1 January 2012 (audited) 2,498,261 70,857 4,848,256 (17,795,009) 71,462 (10,306,173) 421,102 (9,885,071) Changes in accounting policy (application of IAS 19) 74,175 74,175 74,175 Balance at 1 January 2012 (restated) 2,498,261 70,857 4,922,431 (17,795,009) 71,462 (10,231,998) 421,102 (9,810,896) Profit / (loss) for the period 500, ,273 (19,179) 481,094 Other comprehensive loss (4,338) (7,409) (11,747) (11,747) Total comprehensive income/(loss) for the period 495,935 (7,409) 488,526 (19,179) 469,347 Purchase of non-controlling interests 93,904 93,904 (95,155) (1,251) Balance at 30 June 2012 (unaudited) 2,498,261 70,857 5,512,270 (17,795,009) 64,053 (9,649,568) 306,768 (9,342,800) Balance at 1 January 2013 (audited) 2,498,261 70,857 6,165,387 (17,795,009) (5,311) (9,065,815) 308,323 (8,757,492) Changes in accounting policy (application of IAS 19) (61,435) (61,435) (61,435) Balance at 1 January 2013 (restated) 2,498,261 70,857 6,103,952 (17,795,009) (5,311) (9,127,250) 308,323 (8,818,927) Loss for the period (289,420) (289,420) (16,724) (306,144) Other comprehensive income 34,400 56,941 91,341 91,341 Total comprehensive income/ (loss) for the period (255,020) 56,941 (198,079) (16,724) (214,803) Additions of treasury shares (248,992) (248,992) (248,992) Balance at 30 June 2013 (unaudited) 2,498,261 2,498,261 70,857 5,848,932 (18,044,001) 51,630 (9,574,321) 291,599 (9,282,722) 5

8 1. GENERAL INFORMATION Open Joint Stock Company Chelyabinsk Pipe-Rolling Plant (the Company or Chelpipe ) was established as a state owned enterprise in 1942 and was incorporated as an open joint stock company on 21 October 1992 as part of and in accordance with the Russian government s privatisation programme. The Company is domiciled in the Russian Federation. The Company s registered address is Russia, , Chelyabinsk, Mashinostroiteley str., 21. Hereinafter, the Company together with its subsidiaries are referred to as the Group. The immediate parent of the Company is Mountrise Limited, a company incorporated under the laws of Cyprus, which owns 52.42% of the Company s issued share capital. Mr. A.I. Komarov is the ultimate controlling party of the Group. The Group s principal activities include the production and distribution of pipes and pipe products for the oil and gas industry, housing and utilities infrastructure and industrial applications. The Group has three reportable segments, namely steel pipe production ( SPP ), oilfield services ( OFS ) and trunk pipeline systems ( TPS ). The Group is one of the largest pipe producers in Russia holding significant domestic market shares in welded large diameter pipes, oilfield tubular and stainless seamless pipes. The oilfield services segment manufactures and provides support services for oil well extraction equipment such as electric submersible pumps, sucker-rod drilling pumps and a number of other products and services for various stages of an oilfield s development. The Group s trunk pipeline systems segment produces highly customised components for the construction of oil and gas pipelines, including valves, hot-formed and cold-formed pipeline bends and hubs. The Group s principal manufacturing facilities are based in the Ural and West Siberia regions of Russia and in the Czech Republic. The Company s principal subsidiaries are disclosed in Note 5. All companies of the Group are incorporated under the laws of the Russian Federation, except ARKLEY (UK) LIMITED, which is incorporated under the laws of the United Kingdom, and MSA a.s. and its subsidiaries, which are incorporated in the Czech Republic. 2. BASIS OF PREPARATION Statement of compliance These unaudited condensed consolidated interim financial statements of the Group have been prepared in accordance with International Accounting Standard ( IAS ) 34 Interim Financial Reporting. The statement of financial position at 31 December 2012 has been derived from the statement of financial position included in the Group s audited consolidated financial statements for the year ended 31 December These unaudited condensed consolidated interim financial statements should be read in conjunction with the Group s annual consolidated financial statements for the year ended 31 December 2012, which have been prepared in accordance with IFRS. The same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial statements as were applied in the preparation of the Group s consolidated financial statements for the year ended 31 December 2012, except for the impact of the adoption of the Standards and Interpretations described below. 6

9 Financial condition and going concern These unaudited condensed consolidated interim financial statements of the Group have been prepared by management on the assumption that the Group will continue as a going concern, which presumes that the Group will, for the foreseeable future, be able to realise its assets and discharge its liabilities in the normal course of business. The continued weakness of the Group s financial position reflecting an equity deficit at 30 June 2013 indicates the existence of a material uncertainty which may cast doubt on the Group s ability to continue as a going concern. Were the Group unable to continue as a going concern, adjustments would have to be made to the classification and carrying value of assets and liabilities and accruals would be made for other liabilities that might arise. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Group s operating performance was negatively affected during the reporting period by economic and industry conditions and by other financial and business factors, many of which were beyond the control of the Group. During the six months ended 30 June 2013 the Group suffered losses in the amount of 306,144, although the Group generated positive operating net cash flows, which comprised 512,527. In October 2012, the Group signed a syndicated loan agreement totaling 86,464,245 with a syndicate of fourteen banks. The Group received its first draw down on the syndicated loan in the amount of 70,310,399 in February 2013 and re-financed existing loans of the banks represented in the syndicated loan facility except loans of OJSC Gazprombank, which will be re-financed utilizing the second tranche in The state guarantee secures Group s obligation in the event of a default in the total amount of 43,280,000 and expires in January Additionally, the Company successfully issued bonds in February 2013 in the amount of 8,225,000 the proceeds of which were entirely used to repay the borrowings of the following banks: OJSC Promsvyazbank, OJSC Bank Soyuz, OJSC Bank Otkrytie, OJSC Chelindbank and OJSC Ural Bank for Reconstruction and Development. As a result of restructuring of debt, at 30 June 2013 the Group s current assets exceeded its current liabilities in the amount of 4,866,195 (31 December 2012: current liabilities exceeded current assets in the amount of 59,367,752). The Group has in place a recovery plan focused on returning the Group to profitability primarily through cost cutting and productivity gains. During 2013, the Group is considering the following actions to continue to improve its trading performance and financial position: Introduction of new services and products in its oilfield services division (RIMERA business segment); Continued focus on cost optimization, in particular raw material costs and product mix, outside service, optimization of labour compensation costs and a reduction of investment in working capital; Forming a strategic alliance with a key raw material supplier with the objective of reducing raw material input costs and searching for strategic partners; Optimisation of business process by designing and implementing systems of risk management, project management and performance management on the basis of non-financial indicators 7

10 Presentation and functional currency All amounts in these consolidated financial statements are presented in thousands of Russian Roubles ( RUB ), unless otherwise stated. The functional currency of the Company s subsidiaries located in the Russian Federation is the Russian Rouble. The functional currency of ARKLEY (UK) LIMITED located in the United Kingdom is the US Dollar ( USD ). The functional currency of MSA a.s. located in Czech Republic is the Czech Koruna. At the reporting date, the assets and liabilities of the subsidiaries with a functional currency other than Russian Rouble are translated into the presentation currency at the rate of exchange effective at the reporting date, and their statements of comprehensive income are translated at the weighted average exchange rates for the year, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. The exchange differences arising on translation are taken directly to a separate component of other comprehensive income and accumulated in equity. On disposal of a subsidiary with a functional currency other than Russian Rouble, the deferred cumulative amount recognised in other comprehensive income relating to that particular subsidiary is recognised in profit or loss. 3. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS The following new standards, amendments to standards or interpretations were adopted by the Group in these condensed consolidated interim financial statements during the current period: IFRS 10 Consolidated Financial Statements (as revised in 2012) replaced the parts of IAS 27 Consolidated and Separate Financial Statements ; IFRS 11 Joint Arrangements (issued in May 2011); IFRS 12 Disclosure of Interest in Other Entities (issued in May 2011); IFRS 13 Fair Value Measurement (issued in May 2011); IAS 1 Presentation of Financial Statements ( with amendments in June 2011) presentation of Items of Other Comprehensive Income; IAS 27 Separate Financial Statements (as revised in 2011); IAS 28 Investments in Associates and Joint Ventures (as revised in 2011). The first time application of the aforementioned amendments to standards and interpretations from 1 January 2013 had no material effect on the unaudited condensed consolidated interim financial statements of the Group. IAS 19 Employee Benefits (as revised in 2011) In the current year, the Group has applied IAS 19 Employee Benefits (as revised in 2011) and the related consequential amendments for the first time. IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefit. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence accelerate the recognition of past service costs. All actuarial gains and losses are recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net interest amount under IAS 19 (as revised in 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts recognised in profit and other comprehensive income in prior years (see the tables below for details). 8

11 Impact of the application of the revised IAS 19 Employee benefits on liabilities and equity as at 1 January 2012 was as follows: Statement of financial position line item As previously reported Adjustment As restated Retirement benefit obligations (516,363) (74,175) (590,538) Total non-current liabilities (20,872,777) (74,175) (20,946,952) Retained earnings (4,848,256) 74,175 (4,774,081) Total equity deficit 9,885,071 74,175 9,959,246 Impact of the application of the revised IAS 19 Employee benefits on liabilities and equity as at 31 December 2012 was as follows: Statement of financial position line item As previously reported Adjustment As restated Retirement benefit obligations (486,111) (61,435) (547,546) Total non-current liabilities (23,446,777) (61,435) (23,508,212) Retained earnings (6,165,387) 61,435 (6,103,952) Total equity deficit 8,757,492 61,435 8,818,927 Impact of the application of the revised IAS 19 Employee benefits on profit and other comprehensive income for the six months ended 30 June 2012 was as follows: Statement of comprehensive income line item As previously reported Adjustment As restated Cost of sales (41,751,636) 12,018 (41,739,618) Profit for the period 469,076 12, ,094 Actuarial losses (4,338) (4,338) Other comprehensive loss (7,409) (4,338) (11,747) Total comprehensive income for the period 461,667 7, ,347 Profit for the period attributable to: Owners of the Company 488,255 12, ,273 Total comprehensive income for the period attributable to: Owners of the Company 480,846 7, ,526 Impact of the application of the revised IAS 19 Employee benefits on net cash flows from operating activities for the six months ended at 30 June 2012 was as follows: Statement of cash flows line item As previously reported Adjustment As restated Profit before income tax 949,474 12, ,492 Adjustments for: Changes in pension and payroll accruals 109,949 (12,018) 97,931 Net cash generated from operating activities 13,685,838 13,685,838 The impact of the application of the revised IAS 19 on basic earnings per share is disclosed in Note 21. 9

12 4. NEW ACCOUNTING PRONOUNCEMENTS At the date of approval of the Group s unaudited condensed consolidated interim financial statements, the following new and revised Standards and Interpretations have been issued, but are not effective for the reporting period: Effective for annual periods beginning on or after IFRS 7 Financial Instruments: Disclosures - amendments requiring disclosures about the initial application of IFRS 9 1 January 2015 IFRS 9 Financial Instruments the effective date was deferred in December January 2015 IFRS 10 Consolidated Financial Statements new standard published in May January 2014 IAS 32 Financial Instruments: Presentation amendments to offsetting financial assets and financial liabilities 1 January 2014 IFRS 9 Financial Instruments The Group s management anticipates that the applications of IFRS 9 may have an impact on amounts reported in respect of the Group s financial assets. The Group has equity investments in unlisted shares that do not have a quoted market price and that are currently classified as availablefor-sale. Equity investments will have to be measured at their fair value at the end of subsequent accounting periods. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed. IAS 32 Financial Instruments: Presentation The amendments to IAS 32 clarify the requirements to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of currently has a legally enforceable right of set-off and simultaneous realisation and settlement. The directors of the Company do not anticipate that the application of these amendments to IAS 32 will have a significant impact on the Group s condensed consolidated interim financial statements as the Group does not have any financial assets and financial liabilities that qualify for offset. The impact of the adoption of other Standards and Interpretations in the preparation of the consolidated financial statements in future periods is currently being assessed by the Group s management, however, no material effect on the Group s financial position or results of its operations is anticipated. 10

13 5. SUBSIDIARIES The Company s effective ownership interest of principal subsidiaries, including the Company s ownership interest through its subsidiaries, is as follows: Effective ownership, % Subsidiary Country of incorporation Activities Operating segment 30 June December 2012 OJSC Pervouralsk New Pipe Plant (PNTZ) Russia Pipe manufacturing SPP % % CJSC Uraltrubostal Trade House (UTS) Russia Pipe distribution SPP % % ARKLEY (UK) LIMITED United Kingdom Pipe distribution SPP % % LLC Meta Russia Scrap procurement SPP % % OJSC Samaravtormet Russia Scrap procurement SPP 98.05% 98.05% OJSC UNP Vtorchermet Russia Scrap procurement SPP % % LLC Meta-Invest Russia Rent of property SPP % % Manufacturing and distribution of trunk pipeline CJSC Pipeline Bends (SOT) Russia bends TPS % % Manufacturing and distribution of MSA a.s. Czech Republic pipeline valves TPS % % Distribution of pipeline valves TPS % % CJSC RIMERA Russia OJSC ALNAS (ALNAS) Russia Oilfield service OFS % % Uganskneftegazgeofizika Ltd. (UNGGF) Russia Oilfield service OFS % % OJSC Izhneftemash (INM) Russia Oilfield service OFS 73.14% 73.14% LLC Noyabrskaya centralnaya trubnaya baza (NCTB) Russia Oilfield service OFS % % LLC RIMERA-Service Russia Oilfield service OFS % % Total loss for the six months ended 30 June 2013 attributable to non-controlling interests is 16,724, of which 16,701 relates to OJSC Izhneftemash. The accumulated non-controlling interest in OJSC Izhneftemash is 290,660 at 30 June The non-controlling interest in OJSC Samaravtormet is not material. 11

14 6. BUSINESS COMBINATIONS AND DISPOSALS Disposals for the six months ended 30 June 2013 Disposal of non-performing subsidiary of SPP operating segment In March 2013, the Group finalised disposal to third party of its full controlling interest in nonperforming subsidiary of SPP operating segment - OJSC Baza materialno-tehnicheskogo snabgeniya. The carrying amounts of the major classes of disposed assets and liabilities were as follows: Notes Carrying value at the date of disposal Accounts receivable 3,718 Deferred tax assets 8,078 Property, plant and equipment 8 86,776 Cash and cash equivalents 1,525 Inventories 560 Trade and other payables (5,890) Net assets disposed of 94,767 Consideration (131,500) Gain on disposal (36,733) Consideration received in cash 131,500 Less cash and cash equivalents of subsidiary disposed of (1,525) Net inflow of cash and cash equivalents on disposal 129,975 Disposals for the six months ended 30 June 2012 Disposal of a number of non-performing subsidiaries of CJSC RIMERA In February and June 2012, the Group finalised disposals to third parties of its full controlling interests in a number of non-performing subsidiaries of CJSC RIMERA, as follows: LLC Almetevsk-Alnas-Service, LLC Alnas-Еlektronika, LLC Tajmyrskaja Burovaja Company. The carrying amounts of the major classes of disposed assets and liabilities were as follows: Notes Carrying value at the date of disposal Loans receivable 68,283 Accounts receivable 24,673 Intangible assets 15,896 Deferred tax assets 14,788 Property, plant and equipment 8 3,063 Cash and cash equivalents 2,527 Inventories 43 Trade and other payables (100,377) Borrowings (32,815) Net liabilities disposed of (3,919) Impairment of receivables due to disposals 10,11 43,689 Consideration (96,010) Gain on disposal (56,240) 12

15 7. SEGMENT REPORTING The Group has identified the following segments based upon the reports used by chief operating decision maker ( CODM ): Steel pipe production ( SPP ) representing manufacturing and distribution of pipes and other related products, including activities related to the procurement of scrap and its further utilisation as raw materials in manufacturing of steel billets used in seamless pipe production; Oilfield services ( OFS ) representing equipment manufacturing and support services for oil well extraction equipment such as electric submersible pumps, sucker-rod drilling pumps and a number of other products and services for various stages of an oilfield s development; and Trunk pipeline systems ( TPS ) representing production of highly customised components for the construction of oil and gas pipelines, including valves, hot-formed and cold-formed pipeline bends and hubs. Segment assets consist of current and non-current assets. Segment liabilities comprise current and non-current liabilities. Impairment loss provisions relate only to those charges made against allocated assets. The CODM assesses the performance of the operating segments based on a measure of segment earnings before interest, tax, depreciation and amortization, foreign exchange gain/(loss), gain/(loss) on disposal of subsidiaries and excess of the Group s share in provisional value of net assets acquired over the cost of acquisition ( Segment EBITDA ). Since this term is not defined in IFRS the Group s definition of Segment EBITDA may differ from that of other companies. The segment information presented is based on information reviewed by the CODM, which differs from IFRS. Reconciliations are provided for the differences between this information and the information included in the consolidated financial statements. The adjustments between the information reviewed by the CODM and IFRS financial information (included in the Adjustment column in the following tables) include the following: Scope of consolidation entities consolidated into the Group for IFRS are not consistent with those included for management reporting purposes; Reclassifications the CODM reviews information classified and presented in conformity with Russian statutory accounting which includes recording amounts gross versus net, and aggregating and reclassifying some line items for purpose of making decisions about resources allocation to a segment and assessing its performance; and Other adjustments other adjustments arise due to differences between IFRS and statutory accounting and they are primarily related to adjustments for impairment of property, plant and equipment; intangible assets and promissory notes; discounting of borrowings; and recalculation of deferred taxes. 13

16 Segment information related to the Group s unaudited condensed consolidated interim statement of comprehensive income for the six months ended 30 June 2013 was as follows: Steel pipe production Segment information as reviewed by CODM Oilfield services Trunk pipeline systems Total as per IFRS unaudited condensed consolidated interim financial Adjustments Eliminations statements Revenue from external customers 46,396,204 4,825,208 4,202,336 3,214 55,426,962 Inter-segment revenue 191,435 2,137 23,244 (216,816) Cost of sales (35,212,411) (4,214,688) (2,724,882) (235,397) 217,405 (42,169,973) Distribution costs (2,735,042) (138,722) (393,281) (75,537) 307 (3,342,274) General and administrative expenses (2,637,380) (776,240) (529,223) 103,286 (897) (3,840,454) Reversal of impairment/(impairment) of assets 50,864 (14,014) (1,394) (108,007) (72,551) (Loss)/gain on disposal of property, plant and equipment (53,767) 1,162 (466) 4,035 (49,036) Dividend income 71,368 71,368 Less: depreciation and amortisation 2,640, , ,569 29,402 3,581,039 Segment EBITDA 8,711, , ,903 (279,004) 9,605,081 Depreciation and amortisation (2,640,059) (796,009) (115,569) (29,402) (3,581,039) Finance income 267,781 15, ,058 1,350 (368,362) 109,368 Finance costs (6,027,462) (270,555) (205,176) 37, ,362 (6,097,075) Foreign exchange (loss) /gain, net (359,737) 31,060 (26,415) (1,898) (356,990) Gain on disposal of subsidiary 36,733 36,733 Income tax (expense)/benefit (39,028) 46,401 (94,482) 64,887 (22,222) (Loss)/profit for the period (50,442) (492,710) 443,319 (206,311) (306,144) Segment information related to the Group s unaudited condensed consolidated interim statement of financial position at 30 June 2013 was as follows: Steel pipe production Segment information as reviewed by CODM Oilfield services Trunk pipeline systems Adjustments Total as per IFRS unaudited condensed consolidated interim financial statements Current assets 51,839,469 1,255,431 6,809,481 (5,965,328) 53,939,053 Non-current assets 84,880,159 6,984,020 3,485,825 (22,511,594) 72,838,410 Total assets 136,719,628 8,239,451 10,295,306 (28,476,922) 126,777,463 Current liabilities 42,205,557 2,900,897 3,119, ,834 49,072,858 Non-current liabilities 92,035,149 1,983,954 3,235,390 (10,267,166) 86,987,327 Total liabilities 134,240,706 4,884,851 6,354,960 (9,420,332) 136,060,185 The information analysed by the CODM is reconciled to the IFRS unaudited condensed consolidated interim statement of financial position at 30 June 2013 as follows: Current assets Non-current assets Current liabilities Non-current liabilities As reviewed by CODM 59,904,381 95,350,004 48,226,024 97,254,493 Scope of consolidation 49,455 (464,811) 76,884 32,888 Reclassifications (5,945,086) (3,425,863) 561,772 (9,932,721) Other adjustments (69,697) (18,620,920) 208,178 (367,333) As per IFRS unaudited condensed consolidated interim financial statements 53,939,053 72,838,410 49,072,858 86,987,327 14

17 Segment information related to the Group s unaudited condensed consolidated interim statement of comprehensive income for the six months ended 30 June 2012 was as follows: Steel pipe production Segment information as reviewed by CODM Oilfield services Trunk pipeline systems Total as per IFRS unaudited condensed consolidated interim financial Adjustments Eliminations statements Revenue from external customers 46,704,859 5,758,086 3,293,592 (548,245) 55,208,292 Inter-segment revenue 333, ,716 (351,039) Cost of sales (35,576,400) (4,617,906) (2,250,342) 357, ,144 (41,739, 618) Distribution costs (2,742,870) (144,834) (176,273) (203,893) 214 (3,267,656) General and administrative expenses (2,868,315) (834,734) (360,151) 186,442 3,681 (3,873,077) (Impairment)/reversal of impairment of assets (284,869) 21,332 38,348 (162,384) (387,573) Gain/(loss) on disposal of property, plant and equipment 12,145 (2,142) 342 2,901 13,246 Dividend income 136,591 1,068 99, ,737 Share of profits of associates (334) (334) Other (expense)/income, net (46,591) 46,591 Less: depreciation and amortisation 2,458, ,330 76, ,414 3,298,944 Segment EBITDA 8,126, , ,863 (104,544) 9,488,961 Depreciation and amortisation (2,458,569) (646,330) (76,631) (117,414) (3,298,944) Finance income 137,413 50,252 54,869 (6,086) (128,829) 107,619 Finance costs (5,767,752) (390,839) (19,219) (7,392) 128,829 (6,056,373) Foreign exchange gain/(loss), net 655,378 (9,636) (54) 18, ,989 (Loss)/gain on disposal of subsidiary (26,278) 82,518 56,240 Income tax (expense)/benefit (159,524) 33,901 (108,693) (246,082) (480,398) Profit/(loss) for the period 533,573 (160,915) 489,135 (380,699) 481,094 Segment information related to the Group s consolidated statement of financial position at 31 December 2012 was as follows: Steel pipe production Segment information as reviewed by CODM Oilfield services Trunk pipeline systems Total as per IFRS consolidated financial Adjustments statements Current assets 50,848,984 2,721,494 6,251,445 (8,076,854) 51,745,069 Non-current assets 84,307,732 8,861,789 2,224,302 (21,337,284) 74,056,539 Total assets 135,156,716 11,583,283 8,475,747 (29,414,138) 125,801,608 Current liabilities 91,306,048 4,783,246 2,226,561 12,796, ,112,821 Non-current liabilities 40,123,664 3,025, ,545 (20,420,550) 23,507,714 Total liabilities 131,429,712 7,808,301 3,006,106 (7,623,584) 134,620,535 The information analysed by the CODM is reconciled to the IFRS consolidated financial statements at 31 December 2012 as follows: Current assets Non-current assets Current liabilities Non-current liabilities As reviewed by CODM 59,821,923 95,393,823 98,315,855 43,928,264 Scope of consolidation 48,568 (456,964) 169,315 36,850 Reclassifications (6,401,985) 94,367 12,378,001 (18,685,620) Other adjustments (1,723,437) (20,974,687) 249,650 (1,771,780) As per IFRS consolidated financial statements 51,745,069 74,056, ,112,821 23,507,714 15

18 Group s revenue: geographical segments The Group operates in three main geographical areas. Sales are based on the country in which the customer is located, while total assets and capital expenditures are based on where the assets are located. Nearly all of the Group s assets and capital expenditures are located in Russia with the exception of MSA a.s., which is located in the Czech Republic. The geographical segments of the Group s sales are presented in the table below: Revenue for the six months ended 30 June Russian Federation Commonwealth of Independent States Other foreign countries ,862,301 7,716, ,287 55,426, ,798,091 5,926,768 3,483,433 55,208,292 Total Group s revenue: major customers The Group s sales to major customers for the six months ended 30 June 2013 and 2012 are set out in the table below: Six months ended 30 June Customer 1 7,449,791 9,619,695 Customer 2 5,817,817 5,117,783 Customer 3 5,203,340 5,116,271 Total revenue (all attributable to steel pipe production) 18,470,948 19,853,749 16

19 FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE PROPERTY, PLANT AND EQUIPMENT Movements in the carrying amount of property, plant and equipment were as follows: Notes Land Buildings Infrastructure Plant and equipment Other Construction in progress Cost or valuation at 31 December ,278 27,655,297 4,768,150 53,587,485 3,312,790 5,130,811 94,937,811 Accumulated depreciation at 31 December 2011 (7,660,713) (1,653,491) (20,802,602) (1,217,562) (31,334,368) Accumulated impairment at 31 December 2011 (71,948) (43,653) (389,328) (4,145) (182,217) (691,291) Carrying amount at 31 December ,278 19,922,636 3,071,006 32,395,555 2,091,083 4,948,594 62,912,152 Additions and transfers 6,624 1,066,025 (259,863) 1,217, , ,070 3,355,035 Disposals (cost) (1,376) (20,697) (4,314) (444,308) (38,770) (13,610) (523,075) Effect of foreign currency exchange differences (cost) (64) (1,515) (977) (6) (306) (2,868) Disposals (accumulated depreciation) 6,561 3, ,761 24, ,255 Disposals (accumulated impairment) 1, ,644 5,412 Depreciation charge (365,689) (112,242) (2,542,303) (174,938) (3,195,172) Effect of foreign currency exchange differences (depreciation) (98) Impairment recognised 18 (77,874) (16,434) (141,821) (625) (34) (236,788) Impairment reversed 18 79,294 3,660 1,463 84,417 Disposals of subsidiaries (cost) 6 (4) (987) (4,885) (1,005) (6,881) Disposals of subsidiaries (accumulated depreciation) ,659 1,079 3,818 Reclassification cost (232,882) 254,641 (69,707) 47,948 Reclassification depreciation 162,805 (191,119) 110,216 (81,902) Reclassification impairment 1,999 (3,776) 1, Cost or valuation at 30 June ,458 28,465,241 4,758,614 54,284,863 3,653,881 6,108,965 97,760,022 Accumulated depreciation at 30 June 2012 (7,857,054) (1,953,268) (23,013,622) (1,448,955) (34,272,899) Accumulated impairment at 30 June 2012 (68,529) (63,863) (524,609) (4,105) (177,144) (838,250) Carrying amount at 30 June ,458 20,539,658 2,741,483 30,746,632 2,200,821 5,931,821 62,648,873 Cost or valuation at 31 December ,997 29,336,376 4,371,630 55,318,331 4,440,179 6,158, ,114,557 Accumulated depreciation at 31 December 2012 (8,243,106) (1,978,985) (25,297,554) (1,697,741) (37,217,386) Accumulated impairment at 31 December 2012 (144,000) (68,525) (506,856) (4,090) (171,723) (895,194) Carrying amount at 31 December ,997 20,949,270 2,324,120 29,513,921 2,738,348 5,986,321 62,001,977 Additions and transfers ,645 28,987 1,567, ,244 (362,426) 2,173,078 Disposals (cost) (7) (13,229) (536) (1,834,775) (15,791) (3,957) (1,868,295) Effect of foreign currency exchange differences (cost) ,401 7,833 1,901 1,781 22,304 Disposals (accumulated depreciation) 11, ,721,053 12,926 1,746,174 Disposals (accumulated impairment) , , ,936 Depreciation charge (328,564) (113,744) (2,791,921) (233,994) (3,468,223) Effect of foreign currency exchange differences (depreciation) (1,347) (6,198) (1,124) (8,669) Impairment recognised 18 (34,268) (20) (7,601) (7) (46,956) (88,852) Impairment reversed 18 44, , ,006 65,850 Disposals of subsidiaries (cost) 6 (5,968) (102,652) (8,527) (10,387) (1,716) (5,979) (135,229) Disposals of subsidiaries (accumulated depreciation) 6 33,946 6,535 6,518 1,454 48,453 Reclassification (cost) (961) 645,703 (311,888) 129,411 (474,249) 11,984 Reclassification (depreciation) (116,210) 29,201 15,114 71,895 Cost or valuation at 30 June ,687 30,706,244 4,079,666 55,177,803 4,059,568 5,799, ,306,415 Accumulated depreciation at 30 June 2013 (8,643,440) (2,056,639) (26,352,988) (1,846,584) (38,899,651) Accumulated impairment at 30 June 2013 (132,817) (67,817) (395,381) (3,638) (206,607) (806,260) Carrying amount at 30 June ,687 21,929,987 1,955,210 28,429,434 2,209,346 5,592,840 60,600,504 Total 17

20 At 30 June 2013, a number of capital works-in-progress that in management s opinion will not be continued in the foreseeable future are shown net of an impairment provision in amount of 206,608 (31 December 2012: 171,723). Additionally, at 30 June 2013, the Group has 461,702 of plant and equipment under finance leases (31 December 2012: 388,520). The entire amount guarantees the related finance lease obligation as discussed in Note INVENTORY 30 June December 2012 Raw materials 14,735,402 14,349,748 Finished goods and goods for resale 5,305,514 4,726,692 Work in progress 4,290,052 3,471,022 Allowance for obsolete and slow-moving inventory (732,095) (858,173) Total inventory 23,598,873 21,689, LOANS RECEIVABLE 30 June December 2012 Loans receivable from related parties at interest rates as follows - Interest free 31,005 31,307-2% p.a. 48,177 54,155-12% to 15% p.a. 111, ,000 Loans receivable from third parties at interest rates as follows - Interest free 61,321 65, % p.a. 99,328 - Mosprime 1M + 5.7% p.a. 359, ,335-3% to 6% p. a. 92,823 94,551-7% to 10% p.a. 42,542 20,423-12% to 14.5 % p.a. 705, , % to 18 % p.a. 3,600 32,815 Allowance for impairment of loans receivable (675,470) (708,191) Total loans receivable 879, ,544 Movements in the allowance for impairment of loans receivable are as follows: Notes At 1 January (708,191) (700,935) Allowance recorded 18 (493) Allowance reversed 18 1,029 20,005 Impairment of loans receivable disposed in a subsidiary 6 (32,815) Loans receivable written-off during the year as uncollectible 32,185 At 30 June (675,740) (713,745) The accrual and reversal of allowance for impaired loans receivable were included in the consolidated statement of comprehensive income (Note 18). Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. 18

21 11. TRADE AND OTHER RECEIVABLES 30 June December 2012 Trade receivables 22,809,495 21,337, 436 Interest receivable 428, ,122 Receivables for other current assets * 382,649 Other receivables 807, ,782 Allowance for impairment of trade and other receivables (1,846,556) (1,881,724) Total financial assets 22,199,607 20,864,265 VAT and other taxes recoverable 2,262,846 1,487,892 Allowance for impairment of VAT and other taxes receivable (31,692) (32,105) Advances and prepayments 1,727,373 1,488,382 Allowance for impairment of advances and prepayments (208,131) (173,669) Total non-financial assets 3,750,396 2,770,500 Total trade and other receivables 25,950,003 23,634,765 * Receivables for other current assets at 31 December 2012 represent the remaining amount due for construction of the industrial gas station, which the Group initially intended to use in its operating activities in OJSC Pervouralsk New Pipe Plant. In the reporting period the receivables were fully settled as well as the accounts payable related to construction of the station. Cash movements related to these operations were reported in the unaudited condensed consolidated interim financial statement of cash flows for the six months ended 30 June 2013 under the following lines: Proceeds from sale of other current assets and Purchase of other current assets. No accounts receivable were renegotiated during the six months ended 30 June 2013 (the six months ended 30 June 2012: nil). The Group usually provides customers with an average of days credit. For major customers the Group can provide an average credit of days. The ageing analysis of unimpaired trade, interest and other receivables (except advances and prepayments), based on maturity date is as follows: 30 June December 2012 Less than 3 months 21,965,477 20,512, months 58, ,993 More than 6 months 29,644 64,623 Trade, interest and other receivables not impaired 22,053,371 20,816,760 The Group identified trade, interest and other receivables of 1,992,792 (31 December 2012: 1,929,228) that were subject to individual impairment reviews. Of this amount, the Group has recognised allowance of 1,846,556 at 30 June 2013 (31 December 2012: 1,881,724). Individually impaired receivables are identified for customers that are in unexpectedly difficult economic situations or balances with long periods of settlement. The ageing of these receivables identified for individual impairment, based on maturity date is as follows: 30 June December months 292,472 95,008 More than 6 months 1,700,320 1,834,220 Total gross amount of fully and partially impaired trade, interest and other receivables 1,992,792 1,929,228 19

22 Movements in the allowance for impairment of trade, interest and other receivables and advances are as follows: Notes Trade, interest and other receivables Advances and prepayments At 1 January (1,881,724) (3,695,544) (173,669) (201,060) Allowance recorded 18 (261,656) (280,185) (57,269) (49,010) Allowance reversed ,268 45,447 22,572 28,541 Expense of foreign currency exchange differences (413) 122 Impairment of receivables due to disposals 6 (10,874) Receivables written-off during the year as uncollectible 50,887 21, Disposal of subsidiaries 82 10, At 30 June (1,846,556) (3,909,792) (208,131) (220,369) The accrual and reversal of allowance for impaired receivables was included in the consolidated statement of comprehensive income (Note 18). Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. 12. BORROWINGS Non-current 30 June December 2012 Term loans with fixed rates 246, ,301 Term loans with floating rates 148,826 Credit lines with fixed rates 5,436,065 16,061,149 Credit lines with floating rates 1,646,738 Syndicated loan 70,303,833 Bonds payable 6,222,015 Promissory notes issued 4,859 4,631 Finance lease liabilities 205, ,764 Total non-current borrowings 82,418,270 18,995,409 Current Term loans with fixed rates 450,608 8,844,749 Term loans with floating rates 5,010,667 12,648,241 Credit lines with fixed rates 10,749,108 40,820,685 Credit lines with floating rates 2,171,825 21,522,629 Bonds payable 2,000,000 3,149 Finance lease liabilities 159, ,211 Total current borrowings 20,541,400 83,987,664 Total borrowings 102,959, ,983,073 Bonds payable The bonds payable represent bonds issued by the Company at various times, as described below. In April 2008, the Company issued 8,000,000 bonds at par value of 1 per bond ( Bond 03 ). The bonds are repayable beginning 21 April 2015, the 2,548-th day following the date of placement. The interest yield on the bonds amounts to 8.0% p.a. As a result of various buy-back transactions with the bonds Bond 03 during the period from 2008 to 2012 the Company repurchased 7,996,851 bonds. The carrying value of Bond 03 at 30 June 2013 was 3,149 (31 December 2012: 3,149). 20