Financial Presentation 4Q and FY 2013 IFRS Results - TMK · PDF file · 2015-03-19Dhabi Company for Offshore Oil Operations (ADCO) to supply oilfield services. ... In 4Q 2013, the

PROPRIETARY & CONFIDENTIAL

Financial Presentation

4Q and FY 2013 IFRS Results

TMK

2

Disclaimer

No representation or warranty (express or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or

completeness of the information contained herein and, accordingly, none of the Company, or any of its shareholders or

subsidiaries or any of such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the

use of this presentation.

This presentation contains certain forward-looking statements that involve known and unknown risks, uncertainties and other

factors which may cause the Company's actual results, performance or achievements to be materially different from any future

results, performance or achievements expressed or implied by such forward-looking statements. OAO TMK does not undertake

any responsibility to update these forward-looking statements, whether as a result of new information, future events or

otherwise.

This presentation contains statistics and other data on OAO TMK’s industry, including market share information, that have been

derived from both third party sources and from internal sources. Market statistics and industry data are subject to uncertainty

and are not necessarily reflective of market conditions. Market statistics and industry data that are derived from third party

sources have not been independently verified by OAO TMK. Market statistics and industry data that have been derived in whole

or in part from internal sources have not been verified by third party sources and OAO TMK cannot guarantee that a third party

would obtain or generate the same results.

3

4Q Summary Financial Highlights

Sales increased QoQ mainly due to the growth of

OCTG and line pipe sales in Russia

Adjusted EBITDA grew QoQ due to higher sales of

seamless pipe in the Russian division and better

product mix of welded pipe in the Russian and

American divisions

Revenue increased QoQ mainly due to higher sales

in the Russian and American divisions

Net income increased QoQ mostly due to the

growth of gross profit

7% QoQ

36% QoQ 59% QoQ

Source: TMK data

6% QoQ

1,022 1,090

0

300

600

900

1,200

3Q2013 4Q2013

Thousand t

onnes

182

247

12%

16%

0%

4%

8%

12%

16%

20%

0

50

100

150

200

250

3Q2013 4Q2013

EBIT

DA

Ma

rgin

, %

U.S

.$ m

ln

1,487 1,571

0

300

600

900

1,200

1,500

1,800

3Q2013 4Q2013

U.S

.$ m

ln

35

55

0

8

16

24

32

40

48

56

64

3Q2013 4Q2013

U.S

.$ m

ln

4

FY 2013 Summary Financial Highlights

Sales increased YoY mainly due to higher volumes

of welded OCTG pipe

Adjusted EBITDA declined negatively affected by

unfavorable market conditions in the U.S. and

Europe

Revenue declined YoY mainly due to lower sales of

seamless pipe in the Russian division and a

negative effect of currency translation

Net income declined YoY negatively affected by

foreign exchange loss in the amount of $49 million

Source: TMK data

1% YoY -4% YoY

-7% YoY -23% YoY

4,238 4,287

0

900

1,800

2,700

3,600

4,500

FY2012 FY2013

Thousand t

onnes

6,688 6,432

0

1,800

3,600

5,400

7,200

FY2012 FY2013

U.S

.$ m

ln

1,028 952

15% 15%

0%

4%

8%

12%

16%

20%

0

300

600

900

1,200

FY2012 FY2013

EBIT

DA

Ma

rgin

, %

U.S

.$ m

ln

278

215

0

50

100

150

200

250

300

FY2012 FY2013

U.S

.$ m

ln

5

Recent Developments

Qualification and certification

In February 2014, TMK's service and support center in Abu-Dhabi was certified by Abu

Dhabi Company for Offshore Oil Operations (ADCO) to supply oilfield services.

In February 2014, TMK received official confirmation that its pipes made of the

Company’s Russian-produced billets are eligible for use by Iraq's South Oil Company

(SOC).

In March 2014, TAGMET was qualified by Kuwait Oil Company (KOC), one of the

Middle East oil majors, as an approved supplier of ТМК UP PF and ТМК UP PF ET

premium connections.

Premium connections

In November 2013, TMK united its two premium connections families TMK Premium

and ULTRA under a single brand – TMK Ultra Premium (TMK UP). Bringing the two

premium connections lines under the single brand will help expand bidding

opportunities for the Company's premium tubular products worldwide, unify its portfolio

of global packaged product offering, and raise global awareness of TMK’s premium

solutions.

Contracts awarded

In January 2014, TMK IPSCO was awarded two three-year contracts to provide both oil

country tubular goods and line pipe to Shell for onshore and offshore applications. Five

of TMK IPSCO’s plants are currently providing pipe to Shell under the OCTG contract,

TMK’s Volzhsky and Sinarsky mills in Russia will provide line pipe under Shell’s

specification.

Prices Increase

In March 2014, TMK announced a 5-10% increase in prices for some of its tubular

products under new contracts starting from April 1, 2014.

12% 11% 11%10%

11%12%

14%

21%

0%

5%

10%

15%

20%

25%

2006 2007 2008 2009 2010 2011 2012 2013

%

Share of horizontal wells, %

25.7

18.921.3

27.0

30.8 31.133.1

34.7

39.4

0

10

20

30

40

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

U.S

.$ b

n

LUKoil Rosneft Gazprom Neft SurgutNG

TNK-BP Tatneft Bashneft

Russian Market Overview

6

Share of Horizontal Drilling is Growing

Oil Companies’ Upstream Capex is Expected to Increase

Source: Companies data, Citi equity research

Key Considerations

In 4Q 2013, the Russian pipe market decreased by 5%

from the prior quarter mainly as a result of a seasonal

decline of industrial pipe market. For 2013, the Russian

pipe market increased by 4% YoY largely due to higher

consumption of oil and gas pipe grades.

Demand for seamless OCTG and line pipe increased in

4Q 2013 over the prior period by 4% and 20%

respectively in majority due to seasonally higher

consumption of oil and gas grades.

For the full year 2013, share of horizontal drilling

increased to 21% of total oil well footage compared to

14% for the full year 2012.

The LD pipe market in Russia in 4Q 2013 increased by

32% compared to the prior quarter mainly as a result of

the start of shipments to Gazprom’s South Corridor

project. For 2013, LD pipe market in Russia slightly

declined by 1% YoY.

In 4Q 2013, seamless and welded industrial pipe market

in Russia dropped by 24% and 19% over the prior

quarter respectively, impacted by seasonally lower

demand during the period. For 2013, seamless

industrial pipe market declined by 3% YoY due to

weaker consumption in the machinery industry, while

welded industrial pipe market increased by 4%

compared to 2012.

Source: Citi equity research

4.714.98 5.07 4.92 5.00

5.27 5.31 5.34

0

1

2

3

4

5

6

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013E

We

lls / R

ig

0

300

600

900

1,200

1,500

1,800

2,100

Mar-09 Dec-09 Aug-10 Apr-11 Jan-12 Sep-12 Jun-13 Feb-14

US

Rig

Co

un

t US Market Overview

7

Growing Oil Drilling Activity Supported by Steadily High

Crude Oil Prices

Premium Tubular Content Increasing with Unconventional

Drilling Activity

US Oil and Gas Rigs by Type of Drilling

US Oil and Gas Rig Count

Source: Baker Hughes

Source: Baker Hughes

Source: Baker Hughes, OCTG Situation Report

Directional – 11%

Gas – 19%

Oil – 81%

Key Considerations

In 2013, the U.S. rig count averaged 1,761 compared to 1,919

in 2012. In 4Q 2013, average rig count remained relatively flat

compared to the prior quarter, with a slight decrease in the

natural gas rig count of 2.5%.

Decrease in rig count was partially offset by the growth in

drilling efficiencies. The average number of wells per rig

increased by 6.5% year-on-year from 4.92 in 2012 to 5.24 in

2013.

Though the rig count declined, more pipe per rig was used as

operators trend toward more horizontal and directional drilling,

which accounted for 75% of total drilling for FY 2013.

According to Pipe Logix, in 2013, average OCTG welded

prices decreased by 10% compared to 2012, and seamless

prices decreased by 9% year-on-year.

However, prices for 4Q 2013 remained relatively flat compared

to the prior quarter, as the market awaited the preliminary

decision of the U.S. Department of Commerce regarding the

OCTG trade case.

In February 2014, the U.S. DoC took a preliminary decision not

to impose duties on south Koreans duties. 12% of total imports

received duties of around 10%+. The final decision will be

taken on July 7, 2014.

534 488

617

473

0

100

200

300

400

500

600

700

Seamless Welded

3Q2013 4Q2013

719

263 41

760

281 49

0

120

240

360

480

600

720

840

Russia America Europe

3Q2013 4Q2013

8

4Q 2013 Sales by Division and Group of Product

Source: TMK data

4Q 2013 Sales by Division

4Q 2013 Sales by Group of Product

Th

ou

sa

nd

to

nn

es

Th

ou

sa

nd

to

nn

es

21%

7%

Russian division sales increased QoQ mainly due to higher

seamless OCTG and line pipe volumes.

American division sales grew QoQ due to higher welded

OCTG and line pipe volumes.

European division sales increased QoQ due to higher

seamless pipe volumes.

Seamless pipe sales increased QoQ as a result of higher

seamless OCTG and line pipe sales due to seasonally higher

demand from oil and gas producers.

Welded pipe sales declined QoQ mostly due to lower welded

industrial and large diameter pipe (LDP) volumes.

Total OCTG sales grew up by 19% QoQ due to increased

volumes in the Russian division.

-3%

6%

15%

1,389

1,621 1,549 1,374

1,627 1,430

0

300

600

900

1,200

1,500

1,800


3Q2013 4Q2013

998

426

63

1,044

457

70

0

200

400

600

800

1,000

1,200


3Q2013 4Q2013

9

4Q 2013 Revenue by Division

4Q 2013 Revenue 4Q 2013 Revenue per Tonne*

U.S

.$ m

ln

U.S

.$ / t

on

ne

Source: Consolidated IFRS Financial Statements, TMK data

Revenue for the Russian division increased largely due to an

increase in seamless pipe sales.

Revenue for the American division increased, primarily driven by

higher welded OCTG and line pipe volumes and improved product

mix of seamless pipe.

Revenue for the European division increased mainly due to sales

growth of seamless pipe.

Russian division revenue per tonne slightly decreased QoQ

due to unfavorable sales mix of seamless pipe.

American division revenue per tonne remained almost flat

QoQ as the market awaited the preliminary decision of the

U.S. Department of Commerce regarding the OCTG trade

case.

European division revenue per tonne declined due to lower

pricing.

* Revenue per tonne for all three divisions includes other revenue

** Revenue for the European Division includes revenue from steel billets sales

Note:

Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums.

7%

**

5%

12%

-1%

-8% 0.4%

13%

10% 11%

18%

11%

14%

0%

5%

10%

15%

20%

Russia America Europe3Q2013 4Q2013

134

42

7

188

50

10

0

30

60

90

120

150

180

210


3Q2013 4Q2013

10

4Q 2013 Adjusted EBITDA 4Q 2013 Adjusted EBITDA Margin

U.S

.$ m

ln

4Q 2013 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

41%

20%

Note:


%

Russian division Adjusted EBITDA grew mainly due to improved

welded pipe sales mix as a result of increased share of high

margin LD pipe.

American division Adjusted EBITDA increased mostly due to a

favorable sales mix of seamless and welded pipe.

European division Adjusted EBITDA increased largely due to an

increase in seamless pipe sales.

Russian division Adjusted EBITDA margin increased QoQ

mainly as a result of improved sales mix of welded pipe.

American division Adjusted EBITDA margin slightly

improved mainly due to a favorable sales mix.

European division Adjusted EBITDA margin increased due

to favorable sales mix.

45%

2,495

1,743

2,422

1,866

0

500

1,000

1,500

2,000

2,500

Seamless Welded

FY2012 FY2013

3,159

903 176

3,085

1,027 175

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200


FY2012 FY2013

11

FY 2013 Sales by Division and Group of Product

Source: TMK data

FY 2013 Sales by Division

FY 2013 Sales by Group of Product

Th

ou

sa

nd

to

nn

es

Th

ou

sa

nd

to

nn

es

-3%

14%

Russian division sales declined YoY mostly due to lower

OCTG and line pipe volumes.

American division sales increased YoY due to higher welded

and seamless OCTG pipe volumes.

European division sales remained almost flat YoY.

Seamless pipe decreased YoY due to lower line pipe volumes

in the Russian division.

Welded pipe sales increased YoY largely as a result of higher

volumes of welded OCTG and LD pipe.

Total OCTG sales increased YoY mainly due to higher

volumes in the American division.

7%

-0.3%

-2%

1,492

1,827 1,840

1,453 1,621 1,620

0

400

800

1,200

1,600

2,000


FY2012 FY2013

4,714

1,650

324

4,483

1,665

284

0

900

1,800

2,700

3,600

4,500


FY2012 FY2013

12

FY 2013 Revenue by Division

FY 2013 Revenue FY 2013 Revenue per Tonne*

U.S

.$ m

ln

U.S

.$ / t

on

ne


Revenue for the Russian division decreased mainly due to lower

seamless pipe sales and a negative effect of currency

translation.

Revenue for the American division increased mainly on the back

of higher sales of seamless and welded pipe and better

seamless product mix, which was partially offset by lower market

prices affected by high imports.

Revenue for the European division decreased primarily due to

weaker pipe pricing and lower sales of steel billets.

Russian division revenue per tonne decreased YoY as a

result of unfavorable sales mix and a negative effect of

currency translation.

American division revenue per tonne declined as a result

of weaker pricing.

European division revenue per tonne declined as a result

of lower pricing.

* Revenue per tonne for all three divisions includes other revenue

** Revenue for the European Division includes revenue from steel billets sales

Note:


**

1%

-12%

-3%

-12% -11%

-5%

759

218

52

776

145 31

0

200

400

600

800

Russia America EuropeFY2012 FY2013

13

FY 2013 Adjusted EBITDA FY 2013 Adjusted EBITDA Margin

U.S

.$ m

ln

FY 2013 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

-34%

2%

Note:


%

Russian division Adjusted EBITDA increased due to a decrease

in selling, administrative and other operating expenses.

American division Adjusted EBITDA decreased primarily due to

unfavorable market conditions resulted in weaker pricing in

welded and seamless pipe.

European division Adjusted EBITDA declined affected by the

unstable situation on the European market.

Russian division Adjusted EBITDA margin improved largely

due to lower SG&A as a percentage of revenue.

American division Adjusted EBITDA margin fell mainly due

to weaker pricing across all product lines.

European division Adjusted EBITDA margin declined due

to low average selling prices.

-40%

16%

13%

16%

17%

9%

11%

0%

4%

8%

12%

16%

20%


FY2012 FY2013

14

Seamless – Core to Profitability


Sales of seamless pipe generated

62% of total Revenue in 4Q 2013

and 62% for FY 2013.

Gross Profit from seamless pipe

sales represented 72% of 4Q 2013

total Gross Profit and 79% for FY

2013 total Gross Profit.

Gross Profit Margin from seamless

pipe sales amounted to 26% in 4Q

2013 and 27% for FY 2013.

Note:


Seamless 79%

Welded 18%

Other operations

3%

FY 2013 Gross Profit Breakdown U.S.$ mln(unless stated otherwise)

4Q 2013QoQ,

%FY 2013

YoY,

%

Volumes- Pipes, kt 617 15% 2,422 -3%

Revenue 978 12% 3,960 -4%

Gross Profit 251 8% 1,077 -1%

Margin, % 26% 27%

Avg Revenue / Tonne (U.S.$) 1,586 -3% 1,635 -1%

Avg Gross Profit / Tonne

(U.S.$)407 -7% 445 2%

Volumes- Pipes, kt 473 -3% 1,866 7%

Revenue 527 -5% 2,201 -2%

Gross Profit 85 104% 246 -28%

Margin, % 16% 11%

Avg Revenue / Tonne (U.S.$) 1,113 -2% 1,180 -9%

Avg Gross Profit / Tonne

(U.S.$)179 110% 132 -33%

SE

AM

LE

SS

WE

LD

ED

15

Working Capital Position for FY 2013

Inventories (Days)

Accounts Receivable (Days)

Accounts Payable (Days)

Cash Conversion Cycle (days)

Source: TMK data

132

91 90 97 96

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013

107

75

64 73 73

0

20

40

60

80

100

120

2009 2010 2011 2012 2013

94

56 50

56 63

0

20

40

60

80

100

2009 2010 2011 2012 2013

119

72 76 80 86

0

20

40

60

80

100

120

2009 2010 2011 2012 2013

16

Debt Maturity Profile as of December 31, 2013

As of December 31, 2013, total

financial debt amounted to

U.S.$3,694 mln

89% of total financial debt is long-

term

Weighted average nominal interest

rate totalled 6.72%

As of December 31, 2013,

borrowings with a floating interest

rate represented U.S.$579 million,

or 16%, borrowings with a fixed

interest rate – U.S.$3,063 million, or

84%

Credit Ratings:

– S&P: B+, Stable;

– Moody’s: B1, Stable.

Note: TMK management accounts. Figures above are based on non-IFRS measures, estimates from TMK

management

359

493561

494

15

287

0

413

500 500

359

906

561

494515

287

500

0

200

400

600

800

1,000

2014 2015 2016 2017 2018 2019 2020

U.S

.$ m

ln

Bank Loans Bonds

17

Debt Profile as of December 31, 2013

Debt Breakdown by Source of Borrowings

Debt Breakdown by Currency

More than U.S.$1,6 bn of Undrawn Committed Credit Lines to

Cover Short-term Debt

Just 13% of Debt is Secured with Assets and Mortgages

Source: TMK data

Note: TMK management accounts. Figures above are based on non-IFRS

measures, estimates from TMK management.

Note: TMK management accounts. Figures above are based on non-IFRS

measures, estimates from TMK management.

Bank Loans 61%

Bonds 39%

USD; 64%

RUR; 32%

EUR; 4%

Secured 13%

Unsecured 87%

0

200

400

600

800

1,000

1,200

1,400

2014 2015 2016 Unlimited

U.S

.$ m

ln

Utilized Credit Facilities

Unutilized CreditFacilities

18

Outlook

For the full year 2014, the Company observes an increase of the pipe market in Russia

mainly due to higher consumption of oil and gas pipe grades. In particular, as a results of

horizontal drilling growth and further development of unconventional oil and gas reserves,

the Company expects increasing demand for high quality TMK Ultra Premium (TMK UP)

connections, uniquely designed to meet specific drilling applications.

In the U.S. TMK expects further improvements in drilling speeds and horizontal lengths

throughout 2014, as well as in the percentage of horizontal and directional rigs relative to

total rig count, which as of the end of 2013 amounted to 75% of total rig count. Both trends

combined with the recent uptick in average rig count, point towards slight gains in OCTG

consumption during 2014. Given the preliminary decision of the U.S. Department of

Commerce concerning the OCTG trade case, the Company does not anticipate an

improvement in OCTG prices during 2014.

The environment in the European pipe market, which is going through a lasting recession,

will remain largely unchanged in 2014 compared to 2013.

Appendix – Summary Financial Accounts

19

20

Income Statement

Source: Consolidated IFRS Financial Statements

Note:


US$ mln 2013 2012 2011 2010 2009

Revenue 6,432 6,688 6,754 5,579 3,461

Cost of Sales (5,074) (5,209) (5,307) (4,285) (2,905)

Gross Profit 1,358 1,479 1,446 1,293 556

Selling and Distribution Expenses (379) (433) (411) (403) (313)

General and Administrative Expenses (317) (293) (283) (232) (204)

Advertising and Promotion Expenses (12) (11) (9) (11) (5)

Research and Development Expenses (13) (17) (19) (13) (10)

Other Operating Expenses, Net (34) (57) (40) (34) (17)

Foreign Exchange Gain / (Loss), Net (49) 23 (1) 10 14

Finance Costs, Net (245) (275) (271) (412) (404)

Other 5 (16) 132 (12) (46)

Income / (Loss) before Tax 312 400 544 185 (427)

Income Tax (Expense) / Benefit (98) (123) (159) (81) 103

Net Income / (Loss) 215 278 385 104 (324)

21

Statement of Financial Position


Note:


US$ mln 2013 2012 2011 2010 2009

ASSETS

Cash and Bank Deposits 93 225 231 158 244

Accounts Receivable 995 914 772 720 580

Inventories 1,324 1,346 1,418 1,208 926

Prepayments 148 180 200 172 223

Other Financial Assets 0 4 4 4 4

Total Current Assets 2,561 2,670 2,625 2,262 1,977

Assets Classified as Held for Sale - - 8 -

Total Non-current Assets 4,857 4,934 4,507 4,592 4,704

Total Assets 7,419 7,603 7,132 6,862 6,681

LIABILITIES AND EQUITY

Accounts Payable 1,105 1,132 1,053 878 1,057

ST Debt 398 1,068 599 702 1,537

Dividends 6 - - - -

Other Liabilities 62 74 53 94 27

Total Current Liabilities 1,571 2,275 1,705 1,674 2,622

LT Debt 3,296 2,817 3,188 3,170 2,214

Deferred Tax Liability 298 302 305 300 272

Other Liabilities 125 125 111 111 85

Total Non-current Liabilities 3,718 3,244 3,603 3,581 2,571

Equity 2,130 2,084 1,823 1,606 1,488

Including Non-Controlling Interest 96 99 92 94 74

Total Liabilities and Equity 7,419 7,603 7,132 6,862 6,681

Net Debt 3,600 3,656 3,552 3,710 3,503

22

Cash Flow


Note:


US$ mln 2013 2012 2011 2010 2009

Profit / (Loss) before Income Tax 312 400 544 185 (427)

Adjustments for:

Depreciation and Amortisation 326 326 336 301 313

Net Interest Expense 245 275 271 412 406

Others 61 39 (101) 45 36

Working Capital Changes (159) (34) (156) (527) 558

Cash Generated from Operations 786 1,006 894 415 886

Income Tax Paid (82) (77) (107) (29) (33)

Net Cash from Operating Activities 703 929 787 386 852

Capex (397) (445) (402) (314) (395)

Acquisitions (38) (33) - - (510)

Others 12 23 25 43 14

Net Cash Used in Investing Activities (423) (455) (377) (271) (891)

Net Change in Borrowings (93) (148) 4 103 582

Others (313) (341) (339) (289) (447)

Net Cash Used in Financing Activities (407) (489) (335) (186) 135

Net Foreign Exchange Difference (5) 10 (2) (15) 4

Cash and Cash Equivalents at January 1 225 231 158 244 143

Cash and Cash Equivalents at YE 93 225 231 158 244

Thank You

TMK Investor Relations

40/2a, Pokrovka Street, Moscow, 105062, Russia

+7 (495) 775-7600

[email protected]

23

Documents

Financial Presentation 4Q and FY 2013 IFRS Results - TMK · PDF file · 2015-03-19Dhabi Company for Offshore Oil Operations (ADCO) to supply oilfield services. ... In 4Q 2013, the