Transcript Presentation Title

Company Presentation
“Supplying the infrastructure for Russian oil & gas expansion”
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Chelpipe today is the most modern Russian tube & pipe producer with a valueadd OFS platform
Pipe division
Pipeline
construction
solutions
TPS division
LDP
 Pipeline bends and hubs
OFS division
Oil & gas
extraction/
delivery
solutions
platform
OCTG
 Electric submersible pumps (ESP) & motors
 Range of OFS services
Note: LDP = Large diameter pipe, defined as Ø of 508-1,420 mm with one or 2 welded seams
OCTG = Oil country tubular goods, wide variety of Ø seamless pipe
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Chelpipe benefits from integrated facilities that are strategically located in the
industrial heartland of Russia
Chelpipe production and distribution network
State-of-the-art
new and
modernised
production
facilities
Scrap collection & processing,
Ural and Volga regions
OCTG & Industrial
pipe manufacturing,
Pervouralsk
 In-house scrap capacity up to
1.5 mil ton per year
 Over 25,000 types of tube & pipe
– Seamless capacity: 950 kt
– Welded capacity: 100 kt
 New Finishing Center
 New steel mini-mill
Distribution network,
12 regions
 Fully owned
warehouse and trading
house network
– 17 warehouses
– 12 trading houses
St-Petersburg
Dudinka
Usinsk
Russia
Moscow
Nyagan
Kogalym
Ukraine
Izhevsk
Almetyevsk
Burguslan
Magnitogorsk
Pervouralsk
Nizhnevartovsk
Strezhevoy
Chelyabinsk
Surgut
Nefteyugansk
Khanti-Mansiisk
LDP & Industrial
pipe manufacturing,
Chelyabinsk
 Over 3,600 types of tube & pipe
– Welded capacity: 1,000 kt
– Seamless capacity: 350 kt
 New LDP shop
– Capacity: 600 kt
Kazakhstan
OFS manufacturing,
Almetyevsk
 Electric submersible pumps and
motors
– ESP capacity: 6,900 units
– ESM capacity: 7,200 units
TPS manufacturing,
Chelyabinsk
 Pipeline bends
– Hot bends capacity:
7,500 t
Pipe: Production units
TPS: Production units
OFS: Production units
OFS: Drilling and geophysics
OFS: Service centers
(ALNAS Service)
Source: Company data
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Chelpipe — Russia’s most modern pipe mill and integrated tube & pipe service
provider for the oil & gas industry
1
Successfully completed
transformational modernisation and
acquisition strategy − state-of-the-art
asset base
2
Fast growing endmarkets and attractive
industry position
8
Experienced
management team
with modern
business practices
3
Widest product
platform with
unique capabilities
7
Unique platform of
pipe and OFS
products/services
4
Blue-chip
customer base
with focus on
Russian oil & gas
6
Strong future growth
trajectory
5
Low cost position supported
by strategic location
4
Well-invested asset base as a result of a comprehensive investment program
and a successful M&A strategy
Integrated pipe mill
with value-add OFS
offering
Modernisation and formation of Chelpipe Group
The Future…
Comprehensive investment program
2002
2002 to 2009 –
modernisation
2009 – OCTG
expansion
2010 – LDP
expansion
2010 – vertical
integration
Reconstruction of
existing shops
Commission new
state-of-the-art
Finishing Center at
PNTZ
Commission new,
state-of-the-art
0.6 mil ton LDP mill
at Chelpipe
Commission new
1 mil ton state-ofthe-art EAF
2011 to 2012 –
complete OFS
modernisation
and integration
Reconstruction and
expansion of ALNAS
facilities
Integration of OFS
platform into group
2011–2012
2002
 Chelyabinsk Pipe
2008
2006
2004
2009
2010
 Complete pipe, tube
Rolling Plant
 Start
transformation
with $50 mil
EBRD loan
2004 and 2006 –
OCTG segment
entry
2008 to 2009 –
vertical
integration
Acquisition of PNTZ
(2004 initial stake and
2006 remaining stake)
Acquisition of scrap
supplier
2008 – OFS
segment entry
Acquisition of ALNAS
pumps and other OFS
service providers
2010 – Bends
platform
consolidation
& OFS solutions
provider
 Vertically integrated,
quality & cost leader
Acquisition of TPS
division1
M&A growth strategy
Was acquired from an affiliate of Chelpipe and certain members of its Board of Directors and management were also members of Chelpipe’s management and Board of
Directors before the acquisition
1
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ChelPipe has invested about $1.8 billion to create Russia’s most modern and
integrated pipe and tube making complex
Strong revenue growth through new capacity and products with higher unit prices
 Most modern LDP shop in Russia with 18 key structural cost advantages designed
into the 600 kt mill
LDP mill
“Vysota 239”
 Entry into new 1.42 m Ø one seam segment with up to 18 m length and 45 mm wall
thickness
 Strategic agreement with MMK – high-quality steel plate supplier
 Employees follow “white coat metallurgy” practices
Finishing
Center –
Pervouralsk
 Upgraded and expanded our OCTG product range
 Full capabilities for quenching, tempering, threading, coupling production and
sealing of joints
 Capability to develop premium connections for growing Russian market
Significant cost reduction through backward integration for seamless pipe
 Own scrap network (+60 yards) with capacity up to 1 mil ton per year
Metal scrap
yard
 Creates cost advantage vs. market purchases of ~$100 per ton
 Own 1 mil ton electric arc furnace, casting high quality round billet for seamless
pipe production
1 mil ton EAF –
Pervouralsk
 Significant expected cost advantage vs. market purchase of over $100 per ton
 Running at world-standard labor efficiency with 318 employees
State-of-the-art pipe making in the 21st century
Note: Capital expenditure calculated with average FX rate of 1$=28.66RUB (2007-2010); total figure includes remainder of 5 bil RUB contracted for 2011 (exchange rate used 1$=31.10RUB)
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LDP “Vysota 239” shop – production of state-of-the-art LDP portfolio
New LDP “Vysota 239” shop in Chelyabinsk
Most modern
Russian LDP mill
 State-of-the-art technical configuration and production
facilities
– Capacity: 600,000 ton per year
– Employees: 1,000
 Expands product offering platform for Russia’s oil & gas
companies
– One of two LDP producers in Russia with all three
technical capabilities
Diameter up to 1,420 mm
Length up to 18 m
Wall thickness up to 45 mm
 Launch: July 2010; full ramp-up: 2011 (coating line to be
completed by 2012)
“Vysota 239”
benefits from 18
different cost
advantages that
ensure ability to
reduce mill costs
over time
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Finishing Center – high-margin, value-add product line expansion
New Finishing Center at PNTZ, Pervouralsk
Provides world
class OCTG
product quality
 State-of-the-art technical configuration
– Capacity: up to 115,000 ton per year (40,000 ton line
pipe for oilfield applications and 75,000 ton tubing
and casing)
– Employees: 625
 Modern, cost-efficient production facilities
 Expands product range – including high-margin, valueadd finishing, i.e. corrosion resistance, heat treating,
enhanced threading capabilities, couplings
– High margin products – ~ $1,1001 price per ton in H1
2010
 Launch: May 2009; full ramp-up: during 2010
Source: Company data
1 Converted into $ at average exchange rate of 1$=30.05RUR in H1 2010
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Steel mini-mill with 1 mil tons annual capacity – vertical integration and
production cost reduction
New steel mini-mill in Pervouralsk
State-of-the-art
technical
configuration and
production
facilities in line
with international
safety and
environmental
standards
 Low cost billet producer – minimal employee number compared to existing
Russian steel mini-mills
– Employees: 318
 Vertical integration of billet production supported by in-house scrap supply
capabilities
 Substantial raw material cost savings
 Launch: October 2010; full ramp-up: 2011
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We have the broadest product spectrum of all Russian mills with a range of
unique capabilities
Chelpipe pipe product range
Large-
 One seam LDP up to 45 mm wall
Ø1,420 mm
Pipe diameter
thickness, 18 m long
 High pressure and corrosion resistant
 Full product
 Inside and outside coated,
 Wide Ø for oil & gas applications
 Range of construction and bearing
 Unique boiler pipe for power
products
 Automotive
 Capital goods
Seamless
Russian market pipe demand breakdown
Other
11%
Other²
10%
Seamless industrial
7%
Power 4%
Oil & gas
56%
Equipment
manufacturing
15%
 Strong base in oil & gas
 Diversified exposure across manufacturing sectors
Source: Company data
plants
 Plane and spacecraft fuselage
 Unique helicopter blades
 Fluid tube for medical and
Welded
Chelpipe’s pipe end-market breakdown
Construction /
maintenance
12%
globally
aerospace/defense applications
Unique
hair-thin
Ø~0.3 mm
Chemical and
petrochemical sector 2%
range for utilities
Welded industrial
34%
Chelpipe
product range
90%
LDP
24%
OCTG¹
25%
 With new investments we can cover nearly all types of
pipe demanded in Russia
 Market share gains for Chelpipe in Russia
Source: Metal Bulletin Research, Russian Pipe Industry Development Fund
¹ Includes 7% of seamless line pipe for OCTG applications and 18% OCTG (casing and tubing)
² Includes drilling pipes, medium diameter welded pipes, cast iron pipes, cracking pipes
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We serve a blue-chip Russian customer base with over 50% exposure to
Russian oil & gas
National Russian oil and gas pipeline operators
Pipe customer breakdown by revenue
 Over 50 year relationships
Rosneft 17%
 We enjoy a strong market
Other 35%
reputation with 75% of pipelines
constructed in the Soviet Union
originating from our mills
Transneft 17%
Lukoil 3%
Tatneft 4%
Surgutneftegaz 8%
Gazprom 15%
Source: Company data
Russian oil and gas companies
Industrial and energy customers
 Power and
chemical industry
 Range of unique special
 Participate in most major programs
 Nuclear
 Full certifications for nuclear
 All currently produced pipe and OFS
 Aerospace
products are industry accredited and
approved by oil and gas companies
 Automotive
 Long-standing relationship with
Russian oil & gas sector
products
and power plant construction
 Utilities
Source: Company data
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Our TPS and OFS divisions provide extensive cross-selling opportunities in
high-margin products
TPS Overview
With our TPS
division we intend
to leverage the
strength of our
LDP products to
generate
additional high
margins
Strong potential growth factors
 High value-add pipe bend
produced in own shop
 High-price pieces, each to
unique specifications
 Capacity of 7,500 ton of hot
bends p.a.
OFS Overview
With our OFS
division we
leverage our oil &
gas pipe customer
base and build on
our strong historic
position
 Leverage knowledge of pipeline design to supply
high margin pieces specific to each project
 Significant growth prospects and strong position on
new pipeline projects
 Chelpipe has unique offering as only 3 close peers
exist in Russia for hot bends and hubs
Strong potential growth factors
 Historically largest Soviet
ESP manufacturer
 Strong brand reputation and
service business with 6,000
wells under management
 Strong capabilities to produce
wide power range of ESPs
(from 18m3 to over 500m³
daily output)
 Intention to grow market share in Ni-resist cast iron
pumps
– Full new casting production line for Ni-resist cast
iron pumps already arrived at plant
 Improved product mix and Ni-resist segment
expansion with well known brand and only 2 main
competitors
 Sales to current customers using existing sales
force
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6
Russian oil & gas production and economic recovery fuel strong pipe demand
Market CAGR
2009A – 2013E
ChelPipe pipe sales volume (kt)
OCTG1
LDP
943
Seamless industrial
Welded industrial
LDP
9.6%1,2
908
+19%
843
New pipeline construction
Renewal of existing pipelines
Future opportunities
717
631
601
+23%
530
Pipe2
(kt)
OCTG:
Oil production
357
5.3%1
Russian drilling activity
291
12.8%1
2007A
2008A
2009A
H1 2010A
CAPEX of oil majors
Q3 2010A
Hot bends
(kt)
4,595
3,823
2,845
2,403
1,357
ESP
(units)
5,508
5,681
4,596
2,053
971
Source: Company data
Note: Q3 2009 determined by subtracting H1 2009 from 9m 2009 and Q3 2010 determined by subtracting H1 2010
from 9m 2010
1 Tubing, casing and line pipe for OCTG applications
2 Pipe volume is not accounting for intercompany pipe sales between ChTPZ and PNTZ; Consolidated figures are
1,839 kt in 2007, 1,473 kt in 2008, 527 kt in H1 2009, 819 kt in 9m 2009, 291 in Q3 2009, 1,113 kt in 2009, 708 kt in
H1 2010, 1,065 kt in 9m 2010 and 357 kt in Q3 2010
8.1%1
Industrial seamless and
industrial welded
Macroeconomic drivers:
GDP, infrastructure
construction, industrial
production
Power generation capacity
construction
Source: 1 Metal Bulletin Research
2 CAGR 2010E-2013E – 9.6%, growth 2009A-2010E – 54.2%, CAGR 20092013E of 19.4%
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ChelPipe’s 9m 2010 results show strong improvement in performance
ChelPipe key financials, IFRS-consolidated ($mil)
Pipe volume (kt)1
Pipe volume % growth
2
Avg. pipe selling price
Avg. pipe selling price % growth
% margin
EBIT adjusted4
% margin
Capex
H1
2009A
9m
2009A
1,851
1,475
1,131
530
6.7% (20.3%) (23.3%) (53.2%)
11.5%
40.9%
3
EBITDA adjusted4
% margin
2009A
3,157
% growth2
EBITDA reported
2008A
1,441
2
Revenue
2007A
1,668
1,180
15.7% (29.3%)
1,169
2
H1
2010A
9m
2010A
Q3
2010
821
1,131
717
1,074
357
55.0%
37.7%
5
49.8%
-
1,233
1,180
1,501
1,551
1,651
5
2009A
19.2%
(0.9%)
5.5%
(4.3%)
3.3%
-
826
1,285
1,767
1,253
1,961
708
(3.7%) (41.9%) (53.2%)
55.5%
37.5%
33.2%5
3,040
1,767
30.1%
56.5%
-
457
(123)
153
51
136
153
305
440
135
14.5%
(4.0%)
8.6%
6.2%
10.6%
8.6%
24.3%
22.4%
19.0%
476
301
265
128
223
265
256
414
159
15.1%
9.9%
15.0%
15.5%
17.3%
15.0%
20.4%
21.1%
22.4%
421
220
191
94
170
191
213
349
136
13.3%
7.2%
10.8%
11.3%
13.2%
10.8%
17.0%
17.8%
19.3%
341
498
358
162
265
358
177
283
105
 2007 – expansion year when Russian pipe industry
reached peak production
 Until mid-2008 ChelPipe on track
 Growth resumed during 9m 2010
Source: IFRS accounts, Company data
Note: P&L items converted at average exchange rates of 1$=25.55RUB in 2007, 1$=24.87RUB in 2008, 1$=31.74RUB in 2009, 1$=33.27RUB in H1 2009, 1$=32.58RUB in 9m 2009, 1$=30.05RUB in H1 2010, 1$=30.18RUB in 9m 2010; Q3 2010 determined by subtracting H1 2010
from 9m 2010
1 Pipe volume is not accounting for intercompany pipe sales between ChTPZ and PNTZ; Consolidated figures are 1,839 kt in 2007, 1,473 kt in 2008, 527 kt in H1 2009, 819 kt in 9m 2009, 1,113 kt in 2009, 708 kt in H1 2010, 1,065 kt in 9m 2010 and 357 kt in Q3 2010
2 Growth in H1 2009 vs. FY 2009, 9m 2009 vs. H1 2009, FY 2009 vs. 9m 2009, 9m 2010 vs. H1 2010
3 EBITDA reported as defined by ChelPipe in IFRS accounts
4 EBITDA calculation adjusted for impairment of assets, losses/gains on disposal of assets and subsidiaries, excess in share of net assets acquired in a subsidiary over purchase consideration, foreign exchange loss, share of profit of associates, other financial income/costs; Adjusted
EBIT = Adjusted EBITDA – Depreciation & Amortisation
2007: Impairment of assets of $18 mil, loss on disposal of assets of $4 mil, excess in share of net assets acquired in a subsidiary over purchase consideration of $3 mil, foreign exchange gains of $0.5 mil, other fin. costs of $0.5 mil
2008: Impairment of assets of $372 mil, loss on disposal of assets of $7 mil, gain on disposal of subsidiary of $3 mil, excess in share of net assets acquired in a subsidiary over purchase consideration $4 mil, foreign exchange loss of $62 mil, share of profit of associates of $11 mil,
other financial costs of $0.3 mil
2009: Impairment of assets of $82 mil, loss on disposal of assets of $4 mil, gain on disposal of subsidiary of $3 mil, foreign exchange losses of $30 mil, share of profit of associates of $0.4 mil
H1 2009: Impairment of assets of $64 mil, gain on disposal of assets of $0.1 mil, foreign exchange losses of $13 mil, share of losses of associates of $0.02 mil
9m 2009: Impairment of assets of $72 mil, gain on disposal of subsidiary of $3 mil, foreign exchange losses of $12 mil, share of losses of associates of $0.01 mil
H1 2010: Impairment of assets of $(6) mil, loss on disposal of assets of $1 mil, gain on disposal of subsidiary of $2 mil, foreign exchange gains of $48 mil, share of losses of associates of $3 mil
9m 2010: Impairment of assets of $(10) mil, loss on disposal of assets of $2 mil, gain on disposal of subsidiary of $2 mil, foreign exchange gains of $21 mil, share of losses of associates of $3 mil
5 Growth in H1 2010 vs. H2 2009; H2 2009 determined by subtracting H1 2009 from FY 2009; Pipe volume for H2 2009 was 601kt, avg. pipe selling price $1,154 and revenue $940 mil
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Integrated cross selling product platform with leading market share and global
low cost position
Complementary product
platforms
LDP
&
OFS provides additional product entry into the
oil supply chain
TPS
+
OCTG
&
OFS
Target
 Complete pipe, tube
and OFS solutions
provider with a 25%
target share in
Russian oil & gas
markets
 Vertically integrated,
quality & cost leader
for future outsourcing trend – global cost pressure will require Russian
 Positioned
oil & gas companies to be more efficient and to seek outsourcing opportunities

 Prepared for new oil & gas environment requiring higher product quality

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