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Open Joint Stock Company

Chelyabinsk Pipe-Rolling

Plant Unaudited Condensed Consolidated Interim

Financial Statements For the Six Months Ended 30 June 2013

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT

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 2013 ........................................................................................ 1 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

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. General information ................................................................................................................................. 6 2. Basis of preparation ................................................................................................................................ 6 3. Adoption of new or revised standards and interpretations ...................................................................... 8 4. New accounting pronouncements ......................................................................................................... 10 5. Subsidiaries ........................................................................................................................................... 11 6. Business combinations and disposals .................................................................................................. 12 7. Segment reporting ................................................................................................................................. 13 8. Property, plant and equipment .............................................................................................................. 17 9. Inventory ................................................................................................................................................ 18 10. Loans receivable ................................................................................................................................... 18 11. Trade and other receivables ................................................................................................................. 19 12. Borrowings ............................................................................................................................................ 20 13. Accounts payable and accrued expenses ............................................................................................ 23 14. Revenue ................................................................................................................................................ 23 15. Cost of sales ......................................................................................................................................... 23 16. Distribution costs................................................................................................................................... 24 17. General and administrative expenses .................................................................................................. 24 18. Impairment of assets............................................................................................................................. 24 19. Finance income and costs .................................................................................................................... 24 20. Income tax ............................................................................................................................................ 25 21. Earnings per share................................................................................................................................ 25 22. Balances and transactions with related parties .................................................................................... 25 23. Contingencies, commitments and operating risks ................................................................................ 27 24. Financial risk management ................................................................................................................... 28 25. Events after the reporting period .......................................................................................................... 29

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

1

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 2013

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013 (thousands of Russian Roubles, unless otherwise stated)

2

Notes

30 June 2013

31 December

2012

(unaudited) (audited) ASSETS

Non-current assets Property, plant and equipment 8 60,600,504 62,001,977

Advances for capital construction 938,804 885,285 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 374,642 268,645 Other non-current assets 149,941 150,325

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 10 879,601 758,544 Cash and cash equivalents 3,155,381 5,585,974

Total current assets 53,939,053 51,745,069

TOTAL ASSETS 126,777,463 125,801,608

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 291,599 308,323

Total equity deficit (9,282,722) (8,818,927)

Non-current liabilities

Preferred shares 147,682 147,682 Borrowings 12 82,418,270 18,995,409 Accounts payable and accrued expenses 13 238,863 – Retirement benefit obligations 3 535,605 547,546 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 17,196 252,052 Other taxes payable 2,150,191 1,666,310

Total current liabilities 49,072,858 111,112,821

Total liabilities 136,060,185 134,620,535

TOTAL EQUITY DEFICIT AND LIABILITIES 126,777,463 125,801,608

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2013 (thousands of Russian Roubles, unless otherwise stated)

3

Six months ended 30 June

Notes 2013 2012

(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 19 109,368

107,619

Finance costs 19 (6,097,075)

(6,056,373) Dividend income 71,368

236,737

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) 1.58

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2013 (thousands of Russian Roubles, unless otherwise stated)

4


Notes 2013

2012

(unaudited) (unaudited) Operating activities

(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 72,551

387,573 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 11 382,649

–

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

18,916

136,592

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

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2013 (thousands of Russian Roubles, unless otherwise stated)

5

Attributable to owners of the Company

Share capital

Legal reserve

Retained earnings

Treasury shares

Translation reserve

Total

Non-

controlling 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 – – 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)

OPEN JOINT STOCK COMPANY CHELYABINSK PIPE-ROLLING PLANT NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2013 (thousands of Russian Roubles, unless otherwise stated)

6

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, 454129, 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 2012. 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.


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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 2014. 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 2020. 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


8

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).


9

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


Cost of sales (41,751,636) 12,018 (41,739,618) Profit for the period 469,076 12,018 481,094

Actuarial losses – (4,338) (4,338) Other comprehensive loss (7,409) (4,338) (11,747)

Total comprehensive income for the period 461,667 7,680 469,347

Profit for the period attributable to: Owners of the Company 488,255 12,018 500,273

Total comprehensive income for the period attributable to:

Owners of the Company 480,846 7,680 488,526

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


Profit before income tax 949,474 12,018 961,492 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.


10

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 2011 1 January 2015 IFRS 10 “Consolidated Financial Statements” – new standard published in May 2011 1 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 available-for-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.


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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

2013 31 December

2012

OJSC Pervouralsk

New Pipe Plant (PNTZ) Russia Pipe manufacturing SPP 100.00% 100.00% CJSC Uraltrubostal

Trade House (UTS) Russia Pipe distribution SPP 100.00% 100.00% ARKLEY (UK) LIMITED United Kingdom Pipe distribution SPP 100.00% 100.00% LLC Meta Russia Scrap procurement SPP 100.00% 100.00% OJSC Samaravtormet Russia Scrap procurement SPP 98.05% 98.05% OJSC UNP Vtorchermet Russia Scrap procurement SPP 100.00% 100.00% LLC Meta-Invest Russia Rent of property SPP 100.00% 100.00%

CJSC Pipeline Bends (SOT) Russia

Manufacturing and distribution of trunk pipeline bends TPS 100.00% 100.00%

MSA a.s. Czech Republic

Manufacturing and distribution of pipeline valves TPS 100.00% 100.00%

CJSC RIMERA Russia Distribution of

pipeline valves TPS 100.00% 100.00% OJSC ALNAS (ALNAS) Russia Oilfield service OFS 100.00% 100.00% Uganskneftegazgeofizika Ltd.

(UNGGF) Russia Oilfield service OFS 100.00% 100.00% OJSC Izhneftemash (INM) Russia Oilfield service OFS 73.14% 73.14% LLC Noyabrskaya

centralnaya trubnaya baza (NCTB) Russia Oilfield service OFS 100.00% 100.00%

LLC RIMERA-Service Russia Oilfield service OFS 100.00% 100.00%

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 2013. The non-controlling interest in OJSC Samaravtormet is not material.


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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 non-performing 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)


13

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.


14

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:

Segment information as reviewed by CODM

Total as per IFRS

Steel pipe production

Oilfield services

Trunk pipeline systems Adjustments Eliminations

unaudited condensed

consolidated interim

financial 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 2,640,059 796,009 115,569 29,402 ─ 3,581,039

Segment EBITDA 8,711,330 480,852 691,903 (279,004) ─ 9,605,081

Depreciation and amortisation (2,640,059) (796,009) (115,569) (29,402) ─ (3,581,039) Finance income 267,781 15,541 193,058 1,350 (368,362) 109,368 Finance costs (6,027,462) (270,555) (205,176) 37,756 368,362 (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:


Total as per IFRS

Steel pipe

production Oilfield

services

Trunk pipeline systems Adjustments

unaudited condensed



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 3,119,570 846,834 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


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


15

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:


Total as per IFRS

Steel pipe production

Oilfield services

Trunk pipeline systems Adjustments Eliminations

unaudited condensed



Revenue from external customers 46,704,859 5,758,086 3,293,592 (548,245) ─ 55,208,292 Inter-segment revenue 333,508 815 16,716 ─ (351,039) ─

Cost of sales (35,576,400) (4,617,906) (2,250,342) 357,886 347,144 (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 ─ 99,078 ─ 236,737 Share of profits of associates ─ ─ ─ (334) ─ (334) Other (expense)/income, net (46,591) ─ ─ 46,591 ─ ─ Less: depreciation and amortisation 2,458,569 646,330 76,631 117,414 ─ 3,298,944

Segment EBITDA 8,126,627 828,015 638,863 (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) 18,301 ─ 663,989 (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:


Total as per IFRS

Steel pipe

production Oilfield

services

Trunk pipeline systems Adjustments

consolidated financial

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 12,796,966 111,112,821 Non-current liabilities 40,123,664 3,025,055 779,545 (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


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 74,056,539 111,112,821 23,507,714


16

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

Total

2013

46,862,301

7,716,374

848,287

55,426,962 2012

45,798,091

5,926,768

3,483,433

55,208,292

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

2013 2012

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


17

8. 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

Total

Cost or valuation at 31 December 2011

483,278

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 2011

483,278

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)

1,217,255

332,924

992,070

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

3,584

217,761

24,349

–

252,255

Disposals (accumulated impairment)

–

–

–

1,758

10

3,644

5,412 Depreciation charge –

(365,689)

(112,242)

(2,542,303)

(174,938)

–

(3,195,172)

Effect of foreign currency exchange differences (depreciation)

–

(98)

–

647

19

–

568 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) 6 –

80

–

2,659

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)

1,122

655

–

–

Cost or valuation at 30 June 2012 488,458

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 2012 488,458

20,539,658

2,741,483

30,746,632

2,200,821

5,931,821

62,648,873

Cost or valuation at 31 December 2012 489,997

29,336,376

4,371,630

55,318,331

4,440,179

6,158,044

100,114,557 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 2012

489,997

20,949,270

2,324,120

29,513,921

2,738,348

5,986,321

62,001,977

Additions and transfers

238

829,645

28,987

1,567,390

109,244

(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) 388

10,401

–

7,833

1,901

1,781

22,304 Disposals (accumulated depreciation) –

11,841

354

1,721,053

12,926

–

1,746,174

Disposals (accumulated impairment) –

698

–

108,714

458

2,066

111,936 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 –

44,753

728

10,362

1

10,006

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 2013 483,687

30,706,244

4,079,666

55,177,803

4,059,568

5,799,447

100,306,415 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 2013

483,687

21,929,987

1,955,210

28,429,434

2,209,346

5,592,840

60,600,504


18

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 12.

9. INVENTORY

30 June 2013

31 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

21,689,289

10. LOANS RECEIVABLE

30 June 2013

31 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. 111,717 104,000 Loans receivable from third parties at interest rates as follows - Interest free 61,321 65,163 - 0.01% p.a. 99,328 – - Mosprime 1M + 5.7% p.a. 359,335 359,335 - 3% to 6% p. a. 92,823 94,551 - 7% to 10% p.a. 42,542 20,423 - 12% to 14.5 % p.a. 705,223 704,986 - 17.5% to 18 % p.a. 3,600 32,815 Allowance for impairment of loans receivable (675,470) (708,191)

Total loans receivable 879,601 758,544

Movements in the allowance for impairment of loans receivable are as follows: Notes 2013 2012

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.


19

11. TRADE AND OTHER RECEIVABLES

30 June 2013

31 December 2012

Trade receivables 22,809,495 21,337, 436 Interest receivable 428,953 397,122 Receivables for other current assets * – 382,649 Other receivables 807,715 628,782 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 25-60 days credit. For major customers the Group can provide an average credit of 90-120 days. The ageing analysis of unimpaired trade, interest and other receivables (except advances and prepayments), based on maturity date is as follows: 30 June

2013 31 December

2012

Less than 3 months 21,965,477 20,512,144 3-6 months 58,250 239,993 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

2013 31 December

2012

3-6 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


20

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

2013 2012 2013 2012

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 18 246,268 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 21,177 235 275 Disposal of subsidiaries 82 10,065 – 885

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

30 June 2013

31 December 2012

Non-current

Term loans with fixed rates 246,031

942,301

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 205,467

191,764

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 159,192

148,211

Total current borrowings 20,541,400

83,987,664

Total borrowings 102,959,670

102,983,073

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).


21

In February 2013, the Company issued 8,225,000 bonds: BO 02, BO 03 and BO 04, at par value, the proceeds of which were used entirely 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. The bonds were issued under the following conditions: BO 02

BO 03

BO 04

Quantity, units 2,000,000

5,000,000

1,225,000

Bonds par value 1

1

1

Total amount 2,000,000

5,000,000

1,225,000

Bonds expiry date 50% of par value

at 182-th day from

the date of

placement,

50% of par value

at 364-th day from

the date of placement

50% of par value

at 546-th day from

the date of

placement,

50% of par value

at 728-th day from


100% of par value

at 910-th day from


Coupon rate, % per annum 6

8

10

Coupon yield payment period quarterly

quarterly

quarterly

Carrying value at 30 June 2013 2,000,000

4,995,126

1,223,740

Term loans and credit lines The Group has various borrowing agreements with lenders including term loans, revolving credit facilities and letter of credit facilities. During the period, the Group did not enter into additional borrowing facilities. At 30 June 2013, the Group had available undrawn amounts under credit lines totaling 22,985 denominated in Russian Roubles. The non-current borrowings maturity schedule, excluding the present value of minimum lease payments, is as follows:

30 June 2013

31 December 2012

1 to 2 years 10,642,022

17,621,204 2 to 3 years 1,262,090

470,119

3 to 4 years 1,692,984

471,307 4 to 5 years 6,922,672

236,384

More than 5 years 61,693,035

4,631


18,803,645

Certain of the loan agreements contain debt covenants that impose restrictions on the purposes for which the loans may be utilised, covenants with respect to disposal of assets, incurring of additional liabilities, issuance of loans or guarantees, obligations under any future reorganisation procedures or bankruptcy of borrowers and also require that the respective Group entities maintain pledged assets. In addition, these agreements contain financial covenants which include compliance with several financial ratios and clauses regarding the acceleration of payment upon default, including cross-default provisions. At 30 June 2013, the Group was not in compliance with financial covenants contained in lending agreements with BNP Paribas S.A. and UniCredit Bank AG (Munich). Such breaches took place in respect of non-current borrowings in the amount of 7,182,491 at 30 June 2013, as a result the long term portion of these borrowings in the amount of 5,975,729 was reclassified as a current obligation at 30 June 2013.


22

The original maturity of the portion of breached long-term borrowings recorded as current is as follows:

30 June 2013

31 December 2012

1 to 2 years 1,208,678

10,052,995 2 to 3 years 1,210,581

2,876,074

3 to 4 years 1,212,514

1,378,646 4 to 5 years 668,735

629,421

More than 5 years 1,675,221

1,892,845


16,829,981

Syndicated loan In October 2012 OJSC Chelyabinsk Pipe-Rolling Plant and OJSC Pervouralsk New Pipe Plant signed a syndicated loan agreement (the “Syndicated loan”) in the total amount of 86,464,245 with a syndicate of fourteen banks: OJSC Gazprombank, OJSC Bank of Moscow, CJSC Raiffeisenbank, OJSC Nomos bank, CJSC UniCredit Bank, OJSC Alfa-Bank, OJSC Bank Uralsib, OJSC Interregional commercial bank of development of communication and informatics, OJSC MTS-Bank, OJSC Transkreditbank, OJSC Chelindbank, OJSC AK BARS Bank, CJSC Surgutneftegasbank and OJSC Sberbank acting as an agent. The syndicated loan bears an effective interest rate of 13.0% per annum payable quarterly with the principal payable in semi-annual installments from June 2015 to October 2019. The Group received its first draw down on the syndicated loan in the amount of 70,310,399 in February 2013. The loan proceeds were fully used to re-finance existing loans of the individual banks represented in the syndicated loan facility. The remaining amount will be drawn in 2014. The syndicated loan is secured by the state guarantee in the event of a default in the total amount of 43,280,000 expiring in January 2020. In addition, the syndicated loan facility is secured by the pledge of controlling interests in the Company (Note 23), controlling interests in its subsidiaries as well as its fixed assets. Finance leases Minimum lease payments under finance leases and their present values are as follows:

Minimum lease payments Present value of

minimum lease payments

30 June

2013 31 December

2012 30 June

2013 31 December

2012

Due within 1 year 212,803 202,419 159,192 148,211 Due between 1 and 5 years 242,285 229,873 205,467 191,764

Total 455,088 432,292 364,659 339,975

All finance lease liabilities are effectively collateralised by the leased equipment as the right to the asset reverts to the lessor if the Group defaults on the lease.


23

13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 30 June

2013 31 December

2012

Non-current

Interest payable 238,863 –

Total non-current accounts payable and accrued expenses 238,863 –

Current

Trade payables 21,114,591 19,131,748 Interest payable 1,106,780 166,554 Accrued liabilities and other creditors 467,746 359,926 Wages and salaries payable* 1,299,718 1,378,242

Total current accounts payable and accrued expenses 23,988,835 21,036,470

Total accounts payable and accrued expenses 24,227,698 21,036,470

*Non-financial liabilities

The major part of interest payable represents interest payable by the Group according to the terms of the syndicated loan agreement (Note 12).

14. REVENUE


2013 2012

Domestic sales of pipes 35,949,093 36,260,870 Domestic sales of oilfield services 8,590,924 7,590,474 Domestic sales of scrap 2,178,139 1,696,604 Domestic sales of other goods 144,145 250,143 Export of pipes 8,388,540 8,661,664 Export of oilfield services 176,121 726,544 Export of scrap – 21,993

Total revenue 55,426,962 55,208,292

15. COST OF SALES


2013 2012

Raw materials 27,314,818 28,856,327 Salaries and salary taxes 5,153,994 5,043,339 Depreciation and amortisation 3,269,771 3,047,440 Production overheads and repairs 2,995,237 2,531,785 Energy and utilities 1,999,770 2,071,369 Cost of goods for resale 3,111,414 1,080,679 Changes in balances of work in progress and finished goods (1,544,579) (824,992) Changes in inventory allowance (130,452) (66,329)

Total cost of sales 42,169,973 41,739,618


24

16. DISTRIBUTION COSTS


2013 2012

Transportation and customs expenses 1,705,609 1,877,947 Salaries and salary taxes 609,579 649,016 Packing, storage and handling 299,632 340,766 Advertising and marketing expenses 426,451 91,595 Office expenditure 78,374 75,613 Operating lease expenses 55,174 68,667 Depreciation and amortisation 43,541 51,038 Commission 38,846 69,696 Other 85,068 43,318

Total distribution costs 3,342,274 3,267,656

17. GENERAL AND ADMINISTRATIVE EXPENSES Six months ended 30 June

2013 2012

Salaries and salary taxes 1,557,151 1,625,313 Non-production overheads and repairs 979,657 963,201 Taxes other than income tax 694,729 664,595 Depreciation and amortisation 267,727 200,466 Consultancy, insurance, audit and legal services 181,399 202,314 Operating lease expenses 66,768 85,445

Other 93,023 131,743

Total general and administrative expenses 3,840,454 3,873,077

For the six months ended 30 June 2013, total staff cost in cost of sales, distribution costs and general and administrative expenses amounted to 7,320,724 (for the six months ended 30 June 2012: 7,317,668).

18. IMPAIRMENT OF ASSETS Notes Six months ended 30 June

2013 2012

Trade and other receivables 11 50,085 255,207 Property, plant and equipment 8 23,002 152,371

Loans receivable 10 (536) (20,005)

Total impairment of assets 72,551 387,573

19. FINANCE INCOME AND COSTS Six months ended 30 June

2013 2012

Interest income on term deposits and loans receivable 109,368 107,619

Total finance income 109,368 107,619

Interest cost on borrowings 6,047,233 5,999,184 Finance charges under finance lease 31,730 33,181 Interest on employee benefits liabilities 18,112 24,008

Total finance costs 6,097,075 6,056,373


25

20. INCOME TAX Income tax comprises the following:


2013

2012

Current tax 306,660 (2,700,130) Deferred tax (284,438) 3,180,528

Income tax expense 22,222 480,398

21. EARNINGS PER SHARE

For the six months ended 30 June 2013, basic earnings per share is calculated by dividing the loss attributable to shareholders of the parent company in the amount of 289,420 (the six months ended 30 June 2012: profit 500,273, Note 3) by the weighted average number of ordinary shares outstanding during the six months ended 30 June 2013, which comprised 312,178,894 shares (the six months ended 30 June 2012: 316,802,147 shares), excluding treasury shares. Changes in the Group’s accounting policies during the period are described in Note 3. To the same extent that those changes have had an impact on the financial results of the Group for the six months ended 30 June 2013 and 2012, they have had an impact on the amounts of earnings per share. The total effect of the changes in the accounting policies on basic earnings per share was as follows:

Increase in (loss) / profit attributable to

the owners of the Company

Increase in basic (loss) / earnings per

share, RUB per share

for the six months ended 30 June

for the six months ended 30 June

2013 2012

2013 2012

Changes in accounting policies relating to:

Application of IAS 19 (as revised in 2011) (26,720)

12,018

(0.09)

0.04

(26,720)

12,018

(0.09)

0.04

The Company has no potentially dilutive ordinary shares; accordingly diluted earnings per share is the same as the basic earnings per share.

22. BALANCES AND TRANSACTIONS WITH RELATED PARTIES Generally parties are considered to be related if one party has the ability to control the other party, is under common control or can exercise significant influence over, or is under significant influence of the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. Related parties of the Group predominantly comprise parties under the control of the Group’s controlling shareholders.


26

The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding at 30 June 2013 are detailed below:

Associates

Entities controlled by

the Group’s controlling

shareholder

Entities under significant

influence of the Group’s

controlling shareholder

Gross amount of trade and other receivables 36,000 206,784 66,486 Originated loans – 86,899 104,000 Trade and other payables – (319,361) (78)

Income and expense items with related parties as well as purchases for the six months ended 30 June 2013 were as follows:



shareholder


influence of the Group’s controlling

shareholder

Revenue 9,487 –

Purchases (158,059) (61) Distribution costs

(13,532)

–

General and administrative expenses (292,205) 6,679 Finance costs, net (36) –

At 30 June 2013, no guarantees were issued/received by the Group on behalf of related parties. Transactional cash flows with related parties for the six months ended 30 June 2013 were as follows:



shareholder



shareholder

Operating activities (586,741) (116) Financing activities (23) –

The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding at 31 December 2012, outstanding balances with related parties were as follows:

Associates



shareholder


influence of the Group’s

controlling shareholder

Gross amount of trade and other receivables 36,000

225,401

59,807 Originated loans –

85,462

104,000

Trade and other payables –

(344,988)

(122)


27

Income and expense items with related parties for the six months ended 30 June 2012 were as follows:

Associates



shareholder



shareholder

Revenue 81

14,369

–

Purchases (53)

(109,894)

(3,133) Distribution costs –

(2,986)

–

General and administrative expenses –

(264,544)

(199) Finance income, net –

7,406

–

Transactional cash flows with related parties parties for the six months ended 30 June 2012 were as follows:

Associates



shareholder



shareholder

Operating activities 96

(393,876)

(2,672) Investing activities –

(2,516,500)

–

Directors’ and key management remuneration At 30 June 2013, the Board of Directors comprised 7 directors (31 December 2012: 7 directors). During the six months ended 30 June 2013, compensation of the Board of Directors amounted to 14,035 and was included in general and administrative expenses (the six months ended 30 June 2012: 12,873). During the six months ended 30 June 2013, aggregate remuneration of executives amounted to 63,464 and was included in general and administrative expenses (the six months ended 30 June 2012: 65,508). Non-controlling interest At 30 June 2013, 10,927 of a non-controlling interest of 1.01% of the net assets of OJSC Izhneftemash was attributable to an entity controlled by the Group’s key management personnel (31 December 2012: 11,555, non-controlling interest of 1.01%).

23. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS Legal proceedings The Group is involved in a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which could have a material effect on the results of operations or financial position of the Group. Tax legislation Management estimates that the Group has other possible obligations from exposure to other than remote tax risks of 186,553 at 30 June 2013 (31 December 2012: 186,553) which relate primarily to VAT and corporate profit tax. There is no liability recorded for this exposure as management does not believe payment is probable.


28

Capital expenditure commitments At 30 June 2013, the Group had contractual capital expenditure commitments to acquire equipment and works of capital nature totaling 2,611,269 (31 December 2012: 2,579,898). Shares pledged and restricted At 30 June 2013, the following Group’s shares were pledged as collateral:

Pledger

Company Pledgee Year Percent of

share capital

Secondary pledge of

shares to OJSC Sberbank*

Group’s shareholders Chelpipe OJSC Gazprombank 2010 50% + 1 share 50% + 1 share** Group’s shareholders Chelpipe OJSC Sberbank* 2012 2.00% – Poweredge Holdings Ltd Chelpipe OJSC Sberbank* 2012 4.30% – The Group Chelpipe OJSC Sberbank* 2012 32.94% – The Group PNTZ OJSC Sberbank* 2012 100.00% – The Group SOT OJSC Sberbank* 2012 100.00% – The Group CJSC RIMERA OJSC Sberbank* 2012 99.99% – The Group ALNAS ordinary shares OJSC Sberbank* 2012 100.00% – The Group ALNAS preferred shares OJSC Sberbank* 2012 100.00% – The Group INM ordinary shares OJSC Sberbank* 2012 73.14% – The Group INM preferred shares OJSC Sberbank* 2012 1.36% – The Group UNGGF OJSC Bank Saint Petersburg 2012 100.00% 100.00% The Group LLC Meta-Invest OJSC Sberbank* 2012 100.00% – The Group LLC Meta OJSC Sberbank* 2012 100.00% – The Group UTS OJSC Bank of Moscow 2010 99.00% – The Group CJSC SKS Metris OJSC Bank of Moscow 2010 100.00% –

* OJSC Sberbank is the syndicated loan agent that acts on behalf of itself and following banks:

OJSC Gazprombank, OJSC Bank of Moscow, CJSC Raiffeisenbank, OJSC Nomos-bank, CJSC UniCredit Bank, OJSC Alfa-Bank, OJSC Bank Uralsib, OJSC Interregional commercial bank of development of communication and informatics, OJSC MTS-Bank, OJSC Transkreditbank, OJSC Chelindbank, OJSC AK BARS Bank, CJSC Surgutneftegasbank (Note 12).

** In February 2013, the Group’s shareholders signed a share pledge agreement according to the terms of the syndicated loan and re-pledged 236,191,441 shares of the Company (or 50%+1 share of registered capital) as security for the syndicated loan.

24. FINANCIAL RISK MANAGEMENT Interest rate risk As the Group has no significant assets bearing interest at floating rates, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from borrowings. Borrowings issued at floating rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. At 30 June 2013 the Group’s borrowings comprised mostly fixed interest rate loans, the significant amount of which is represented by the syndicated loan (Note 12). Floating interest rate loans account for only 7% of the total amount of the Group’s borrowings. The Group analyses its interest rate risk exposure on a dynamic basis and calculates the impact of a defined interest rate shift on profit and loss. In the sensitivity analysis the same interest rate shift is used for all currencies. The scenarios are generated only for liabilities that represent major interest-bearing positions and include all types of loan agreements with floating and fixed rates. According to the scenario analysis performed for the six months ended 30 June 2013, the impact of a 100 basis points shift in interest rate on post-tax profit would be an increase/decrease of it by 444,796 (the six months ended 30 June 2012: the impact on post-tax profit would have been an increase/decrease of it by 432,566).


29

Fair value measurements

The carrying amounts of financial instruments such as trade and other receivables, cash and cash equivalents, syndicated loan, promissory notes issued, bonds payable, accounts payable and accrued expenses, finance lease liabilities approximate their fair values. The fair values and carrying values of the Group’s financial assets and liabilities are disclosed in the table below: 30 June 2013

31 December 2012

Notes Carrying amount

Fair value

Carrying amount

Fair value

Financial assets

Loans and receivables 23,079,208

23,072,071 21,622,809 21,614,642 Trade and other receivables 11 22,199,607 22,199,607 20,864,265 20,864,265 Loans receivable 10 879,601 872,464 758,544 750,377

Cash and cash equivalents 3,155,381 3,155,381 5,585,974 5,585,974

Total financial assets 26,234,589

26,227,452

27,208,783

27,200,616

Financial liabilities

Financial liabilities held at amortised cost 125,522,991 124,860,579 122,301,326 121,717,812

Term loans and credit lines 12 24,064,304

23,401,892

102,635,318

102,051,804 Syndicated loan 12 70,303,833

70,303,833

–

–

Promissory notes issued 12 4,859

4,859

4,631

4,631 Bonds payable 12 8,222,015

8,222,015

3,149

3,149

Accounts payable and accrued expenses 13 22,927,980

22,927,980

19,658,228

19,658,228

Finance lease liabilities 12 364,659 364,659 339,975 339,975

Total financial liabilities 125,887,650

125,225,238

122,641,301

122,057,787

The fair values of loans receivable, term loans and credit lines were calculated based on the present value of future principal and interest cash flows, discounted at market discount rate that reflects the credit risk of counterparties.

25. EVENTS AFTER THE REPORTING PERIOD In July 2013 the Group finalised disposal to third parties of its full controlling interest in LLC MSA-KTS, the non-performing subsidiary of CJSC RIMERA, for total consideration of 10 payable in cash.

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