Dear MRC Global Shareholders,
In 2017 our revenue grew 20 percent, a result that comes as no surprise given the steps we took in recent years to strengthen our company and prepare for the recovery. Since the downturn began, MRC Global has continually made the necessary tactical adjustments to control costs and keep our foundation strong, while never wavering from our long-term strategies. As customer confidence rises and the recovery gains momentum, we see indications that our resolve is now yielding results. In 2017 we increased our book of contract wins, gained market share, strengthened our leadership position and achieved higher levels of profitability.
Preparing for continued growth
MRC Global ended 2017 on a decisively positive note. We began to move into our new Houston regional distribution center in La Porte, Texas. The 415,000-square-foot facility allowed us to combine the resources of four older facilities and exit those locations. The new Houston RDC is situated at the center of rapidly growing downstream capital project activity up and down the Texas and Louisiana Gulf Coast. It supports our strategy to always be where our customers need us, and it allows us to serve their needs much more efficiently.
The facility also supports our strategy to evolve our product mix away from commodity PVF items to higher-margin specialty offerings. The Houston RDC is home to our new 40,000-square-foot, state-of-the-art valve and engineering center, which greatly expands our development and testing capabilities, and gives customers the impetus to look to MRC Global to supply their critical valve automation applications. Furthermore, the facility gives us much greater indoor storage capacity to house the specialty stainless steel and higher alloy products used primarily in downstream and offshore applications.
In 2017 MRC Global also continued to structure its international business for future growth and profitability. We completed an SAP implementation across the international segment, putting all international entities on one ERP system to standardize processes and drive efficiencies across the business. We also took steps to further reduce overall operating costs, and we believe our international business is well positioned for 2018 and beyond. Our international strategy has always been to build scale and to leverage U.S. relationships to support our customers anywhere in the world where they have operations. This is an important differentiator for MRC Global, and we continue to see it as a driver for long-term growth.
We also continue to invest in ecommerce, specifically MRCGO™, the company’s online catalog that allows existing contract customers to search for and order products remotely. In 2017 we implemented MRCGO™ in Europe and expanded and enhanced our offering in North America. We have found this to be an important tool for elevating the customer experience and strengthening customer loyalty.
Winning work and extending relationships
A number of factors contributed to our increased 2017 revenue, as well as our positive outlook for 2018 and beyond. We renewed our multi-year global framework agreements with Chevron and Shell and signed a new agreement with ExxonMobil. With these momentous wins, we hold our industry’s only global PVF contracts with IOCs. These agreements are a powerful demonstration of MRC Global’s commitment to its customers’ worldwide endeavors and their confidence in our capabilities.
In 2017 we reached a number of key project milestones for customers. MRC Global began to deliver product to support Chevron’s Tengizchevroil (TCO) project in Kazakhstan, the largest capital project in Chevron’s history and the largest valve order our company has ever won.
We added new scope to an existing contract with LyondellBasell, a company pursuing an aggressive growth strategy in the downstream U.S. Gulf Coast market, including the building of a $2 billion propylene oxide and tertiary butyl alcohol facility near our new Houston RDC. We continue to support Shell in the building of a major ethylene cracker and polyethylene derivatives petrochemical complex near our Pittsburgh, Pennsylvania RDC.
We renewed and added scope to our contract with independent refiner PBF Energy. They bought new facilities in 2017, furthering two MRC Global strategies to grow in step with our customers and increase our downstream market share. We also delivered our largest international pipe order ever, totaling 33,190 lengths of pipe earning revenue of approximately $50 million. This project for Jemena took place in one of the most remote areas of Australia, thus establishing our capability to support large pipeline projects anywhere in the region, under the most challenging conditions.
On the supplier side of our business, MRC Global continued to build the vital relationships that drive our strategically differentiated offering. In 2017 we successfully expanded our higher margin product offering under the global enterprise distribution program agreement we have with Cameron, a Schlumberger company, to distribute their extensive line of valves. This expanded our role as a top-tier distributor for Cameron, a Schlumberger company, which in 2016 also named MRC Global as the exclusive distributor for its measurement product line in North America.
Gaining financial momentum
In 2017 we continued to control our costs, prudently manage our working capital and strengthen an already solid balance sheet. In 2015 and 2016 we made the hard cost-control decisions necessary to keep our company strong and best serve our customers. For 2017 those measures largely remained in place, and our selling, general and administrative (SG&A) expenses held relatively steady from the previous year, while at the same time, our revenue increased 20 percent. We are encouraged that the vigilant level setting we implemented in recent years has laid the foundation on which to build consistent profitability and growth.
In 2017 we opportunistically restructured MRC Global’s debt. We negotiated better terms, lower interest rates and extended the maturities out to the years 2022 and 2024, which gives us the capacity and flexibility we need to finance our strategies over the next several years and saves us interest costs.
I am pleased to report that MRC Global enters 2018 with considerable momentum. The past year produced strong results and customers have given indications that the steadily improving environment will continue. One salient example is ExxonMobil, which has publicly stated that it plans to spend $50 billion in the U.S. in the next five years, $20 billion on 11 different downstream facilities along the U.S. Gulf Coast by 2025 and an additional $2 billion in the upstream Permian region. Companies across the energy vertical are unlocking capital projects, and they are demanding certainty, consistency and stability in their supply chain partners. MRC Global provides these assurances in ways only the market leader can. We see opportunities ahead, and we have the resources, agility and strength to pursue them.
Supporting our company, customers and communities
The past year certainly had its challenges, one of the largest being a hurricane season of historic proportions. Hurricane Harvey hit us at the heart of our operation, and like all of Houston and surrounding areas, we came back strong. More than 50 MRC Global employees suffered damage to their homes, and we supported them as they dealt with this devastating disruption to their lives. Still, while many of our people were directly impacted, everyone on the MRC Global team pulled together to bring our facilities back online quickly, serving our customers. MRC Global also donated $150,000 to local charities for relief support.
I conclude by welcoming a new member to our Board of Directors, Deborah Adams. Deborah is an accomplished executive who brings more than 33 years of energy industry experience and adds a strong downstream focus to our Board. She understands MRC Global’s business and how key customers look to partner with their suppliers. Her input and influence will be valuable to furthering our strategies.
Finally, I would like to thank every individual who makes up the MRC Global family. I appreciate your resolve over the last few years, and we are stronger today because of your efforts. I thank our suppliers for being a vital link in our offering and our customers for their ongoing confidence in our company. I also thank our shareholders for their continued support and investment in MRC Global.
Andrew R. Lane
President and CEO