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ChelPipe Group announces financial results as of year-end 2016 in accordance with IFRS

27.03.2017
Chelyabinsk Pipe-Rolling Plant Public Joint-Stock Company (ChelPipe PJSC), a leading Russian manufacturer of pipe products and provider of integrated solutions for companies of the fuel and energy complex, announces its consolidated financial results for the year ending December 31, 2016, in accordance with International Financial Reporting Standards (IFRS).

Financial results as of year-end 2016

(in millions of Russian rubles,
 unless otherwise stated)

2016

2015

%

Revenue

135,456

148,367

-9%

Volume of pipe sales, thousand tonnes

1,735

2,058

-16%

Gross profit

39,914

42,441

-6%

Operating profit

19, 671

21,396

-8%

 Net profit

6,357

6,041

5%

EBITDA (adjusted*)

27,900

28,901

-3%

EBITDA margin

20.6%

19.5%

Operating cash flow

13,410

12,024

Net debt, bn rubles

76.2

86.1

12%

Capital investments

(4,658)

(6,941)

-11%

Amount of assets

142,052

136,960

4%

* Adjusted EBITDA (hereinafter EBITDA) represents the amount of net profit for the accounting period before the deduction of financial expenses and financial incomes, income tax expenses, depreciation of fixed assets and intangible assets, exchange rate differences, changes in the fair value of derivative financial instruments, loss/(profit) on disposal of subsidiaries, negative goodwill.

Sales:

  • The volume of pipe sales decreased by 16% compared to the same period in 2015 and amounted to 1,735 tonnes. The share of ChelPipe Group in the total shipments of the Russian pipe producers amounted to 16.5%. The decrease was due to the change of shipment schedules for Gazprom PJSC projects and the reduced demand in the domestic and foreign markets. At the same time, ChelPipe Group increased its share in the segment of high-margin products — the company has increased the shipments of pipes with Premium threads by 10% and strengthened its position in the market of industrial pipes.
  •  Supplies of ChelPipe Group in the Russian market at year-end 2016 decreased by 20% to 1,450,000 tonnes, the volume of export shipments of the company increased by 31% to 263,000 tonnes. The increase in export became possible thanks to the participation in the Nord Stream 2 international project, as well as the expanded presence in the markets of the MENA region (Middle East and North Africa). The company also enlarged the share of deliveries to the markets of the United States, Belarus, Kazakhstan and Uzbekistan.
  • ChelPipe Groups took part in major pipeline projects of the fuel and energy industry, such as Nord Stream 2, The Power of Siberia, Ukhta-Torzhok 2, 'Gryazovets–Vyborg'.
  • Over 15,000 tonnes of pipe fittings were sold in the previous year.

Financial results:

  • The revenue decreased by 9% compared to 2015, and amounted to 135,456 million rubles. 
  • The gross profit decreased by 6% and amounted to 39,914 million rubles, while EBITDA decreased by 3% to 27,900 million rubles. The EBIDTA indicator was positively impacted by the change in the structure of sales in favor of high-margin products and the increase in efficiency of the company's activity. The EBITDA margin increased by 1,1 % and amounted to 20.6%. 
  • The net profit increased by 5% to 6,357 million rubles. 

Debt obligations

  • At year-end 2016, the company's net debt decreased by 11% to 76.2 bn rubles. The majority of loans are denominated in Russian rubles.
  • The net debt / EBITDA ratio decreased from 3.0x to 2.7x as of December 31, 2016.
  • At the end of 2016, ChelPipe Group signed loan agreements with Sberbank, VTB and Gazprombank for a total amount of 78,9 bn rubles. The funds received enabled the company in early 2017 to refinance the debt on the syndicated loan raised in 2013.
  • ChelPipe Group returned to the market of public borrowings, placing in November 2016 a five-year exchange bonds program with a total volume of 50 billion rubles, which allowed to diversify its loan portfolio and improve its lending terms.

Key events:

  • Chelyabinsk Pipe-Rolling Plant was assigned credit ratings: "Ba3" (Moody's Investors Service) and "BB-" (Fitch ratings), with a Stable outlook. This evaluation confirms the position of ChelPipe Group as one of the leading manufacturers of pipe products in Russia and around the world.
  • In March 2016, ChelPipe Group won a tender for the supply of 599,000 tonnes of large-diameter pipes for the construction of the Nord Stream 2 pipeline. The first deliveries to the Nord Stream AG 2 project operator began in September 2016.
  • In December 2016, the plant ETERNO (a joint project of RUSNANO and ChelPipe Group) launched a new production of import-substituting products, unique for the Russian market, using nanotechnologies. The ETERNO split tees allow to repair major pipelines and put them into operation without interrupting the pumping of hydrocarbons. The plant is planning to launch up to 150 units of new products. President of Russia Vladimir Putin personally participated in the launch and expressed his appreciation of the production.
  • The company supplied pipes for the production of units of the first stage of Long Phu 1 Power Plant (Vietnam).
  • In 2016, ChelPipe developed OCTG pipes with new types of highly hermetic threaded joints of Premium class were put into production; new brands of ceramic flux for welding and surfacing of stainless steels were also realized.
  • Gazprom PJSC and ChelPipe Group signed a roadmap for mastering the production of new generation pipes. The company will develop technological solutions to meet the needs of Gazprom, for the production of large diameter pipes and fittings using laser welding. This is the world's first batch large diameter pipe manufacturing project based on such technology. 
  • ChelPipe Group and Gazprom PJSC signed an agreement on a formula-based pricing for large-diameter pipes and pipeline fittings (PF).
  • ChelPipe Group and Magnitogorsk Iron and Steel Works (abbreviated MMK) signed an agreement on the formula pricing of hot-rolled sheet metal products from the mill 5,000 of MMK.
  • The Izhneftemash plant entered the Brazilian market, shipping a batch of sucker rod pumps to PETROBRAS.
  • The Alnas plant launched a new high-tech production line of operative parts of centrifugal pumps.
Events after the reporting date 
  • Refinancing of syndicated loans raised in January 2013 in the aggregate volume of 78,9 bn rubles allowed to optimize the schedule of the principal debt repayment, to reduce interest costs and to repay the guarantee of the Ministry of Finance, pledged as collateral for the loan.  
  • For the first time ever, ChelPipe Group shipped large diameter pipes to the African continent. The company delivered over 2,000 meters of LDP for the implementation of the Ain Sukhna Product Hub liquefied gas transportation and storage project in Egypt. 
  • The company developed a new type of pipes with the highly hermetic threaded joint ChT-2C of the Premium class. Industrial supply will start in the second half of 2017. Additionally, the company will ship over 3.2 thousand tonnes of LDP to the Nord Stream AG 2 project operator, as well as 12 adapters and 499 buckle arrestors as part of the existing contract. 
  • ChelPipe Group made two issuances of bonds totaling 10 bn rubles. The company became the first corporate issuer in the BB- rating segment, which placed bonds for seven years. 
Forecast for 2017 
  • In 2017, ChelPipe Group intends to maintain the production volume at the level of 2016. The strategic goals of the company are to increase the export supply with the aim of regional diversification of sales in the conditions of falling demand and increasing competition in the domestic market. The company will develop its presence in the Middle East, North and South Americas. 
  • ChelPipe Group plans to increase its market share of PF and seamless pipes for the oil and gas industry and of general purpose, continuing to increase the volume of high-margin products in the structure of shipments. 
  •  In 2017, ChelPipe Group will continue to work on the system management of its loan portfolio and the reduction of its cost.

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