tmk · 2015-08-24 · 6 145 28 12 0 30 60 90 120 150 180 russia america europe u. mln 4q20141q2015...

PROPRIETARY & CONFIDENTIAL

Financial Presentation

1Q 2015 IFRS Results

TMK

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.

2

3

1Q 2015 vs 4Q 2014 Summary Financial Highlights

Sales decreased QoQ mainly due to the lower volumes across

all pipe segments

Adjusted EBITDA decreased QoQ mainly due to a negative effect

of currency translation coupled with weaker sales in the Russian

and American divisions

Revenue fell QoQ as a result of lower pipe sales and a

negative effect of currency translation

Net profit was $30 million as compared to a net loss for

4Q2014, which had resulted mostly from a foreign exchange

loss of $198 million

-19% QoQ

-19% QoQ

Source: TMK data

-24% QoQ

1,2371,004

0

250

500

750

1,000

1,250

4Q2014 1Q2015

Thousand t

onnes

1,500

1,134

0

400

800

1,200

1,600

4Q2014 1Q2015

U.S

.$ m

ln227

185

15%16%

0%

3%

6%

9%

12%

15%

18%

0

50

100

150

200

250

4Q2014 1Q2015

EB

ITD

A M

arg

in,

%

U.S

.$ m

ln

-254

30

-40

-20

0

20

40

4Q2014 1Q2015

U.S

.$ m

ln

1Q 2015 vs 1Q 2014 Summary Financial Highlights

Sales declined YoY mostly as a result of lower

volumes of OCTG and industrial pipe

Adjusted EBITDA remained relatively flat YoY

Revenue fell YoY mainly as a result of a negative

effect of currency translation

Net profit was $30 million as compared to a net loss

for 1Q 2014

Source: TMK data

-2% YoY -23% YoY

Relatively flat YoY

1,026 1,004

0

300

600

900

1,200

1Q2014 1Q2015

Thousand t

onnes

1,466

1,134

0

300

600

900

1,200

1,500

1Q2014 1Q2015

U.S

.$ m

ln184 185

13%

16%

0%

3%

6%

9%

12%

15%

18%

0

50

100

150

200

1Q2014 1Q2015

EB

ITD

A M

arg

in,

%

U.S

.$ m

ln

-16

30

-20

-10

0

10

20

30

40

1Q2014 1Q2015

U.S

.$ m

ln

4

Recent Developments

Contracts awarded

In March 2015, TMK and Gazprom Burenie, one of Russia’s largest drilling

companies, signed a strategic three-year contract, under which TMK acts

as a leading supplier of drill pipe to the company.

Shipments

In March 2015, TMK shipped high-tech casing pipe, including TMK UP

premium connections, for Tatneft to produce super-viscous oil at the

Ashalchinskoye field in Tatarstan.

In April 2015, TMK supplied high-tech super chrome (13Cr) steel premium

pipe to Rospan International, one of the Rosneft's subsidiaries and

operator of Vostochno-Urengoiskoe and Novo-Urengoiskoe gas

condensate fields.

In April 2015, TMK started LD pipe deliveries for Power of Siberia gas

transmission system by Gazprom. Throughout 2015 and beginning of

2016, the Company plans to deliver more than 150 thousand tonnes of LD

pipe for the project.

5

Launching new production

In March 2015, TMK launched production of billets for drill pipe joints with

annual capacity of around 150 thousand billets.

11%12%

14%

21%

29%31%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 1Q 2015

%

0

1

2

3

4

5

6

7

8

9

10

11

12

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15E

20

16E

20

17E

Mln

tonnes

Russian Market Overview

Share of horizontal drilling is growing

Growing oil drilling market in Russia

Source: Companies data, Citi equity research

Key considerations

In 1Q2015, the Russian pipe market decreased by 15%

compared to the prior quarter, mainly as a result of stock

adjustments made by the majority of consumers on the

back of uncertain economic situation. At the same time,

the market increased by 7% YoY due to higher LD pipe

consumption.

Even though demand for OCTG pipe decreased by 3%

QoQ and by 5% YoY, drilling in Russia increased by 3%

over the prior quarter and by 14% compared to 1Q2014.

Line pipe market fell by 12% over the prior quarter and

increased by 3% YoY. Consumption of pipe for oil and gas

industry was negatively affected by customers’ inventory

adjustments.

Industrial pipe market declined by 24% QoQ and by 17%

YoY.

The LD pipe market in Russia decreased by 10% QoQ,

mainly due to higher volumes for Power of Siberia project

along with significant demand for maintenance needs of

Transneft supplied in 4Q2014. The YoY growth of 76%

was driven by increasing consumption for projects like

Bovanenkovo-Ukhta, South Corridor and Power of Siberia

as well as maintenance needs of Gazprom and Transneft.

Source: Citi equity research, TMK data

Non-Energy

Energy

6

0

20

40

60

80

100

120

0

400

800

1,200

1,600

2,000

2,400

Jan-09 Jan-10 Feb-11 Mar-12 Mar-13 Apr-14 May-15

Cru

de

Oil

Pri

ce

($

/Bb

l)

US

Rig

Cou

nt

Oil Gas Crude Oil WTI Spot

U.S. Market Overview

Drop in rig count followed drop in oil prices

OCTG inventories, at 8.4 months of consumption in March

2015, are expected to continue rising in 2Q 2015

Source: Preston Pipe & Tube Report

Source: Baker Hughes, Bloomberg

Key Considerations

In 1Q2015, drilling activity both for oil and natural gas was

significantly affected by the drop in energy commodity prices.

According to Baker Hughes rig count, the average number of

oil rigs decreased by 29% compared to the prior quarter and

by 22% YoY. At the same time, the average number of gas

rigs decreased by 15% over the prior quarter and by 16% YoY.

Lower drilling activity during the quarter resulted in reduced

overall OCTG consumption. According to Preston Pipe

Report, OCTG consumption decreased by 25% QoQ and by

16% YoY.

At the same time shipments continued to grow during 1Q2015

driven mainly by imports (particularly from Korea) which

caused an oversupply in the OCTG market. This resulted in an

increase in inventory levels, which grew to 8.4 during 1Q2015

compared to 4.5 months during the previous quarter.

The growth in OCTG imports combined with weaker

consumption led to price deterioration. According to Pipe

Logix, in 1Q2015, both welded and seamless OCTG prices

decreased by 8% QoQ. YoY, welded OCTG prices increased

by slightly more than 1%, while seamless OCTG prices were

down less than 1%. Line pipe shipments and prices followed

similar trends.

7

3

6

9

12

15

18

1.8

2.2

2.6

3.0

3.4

3.8

Jan-09 Jan-10 Feb-11 Feb-12 Feb-13 Mar-14 Mar-15

Mo

nth

s o

f In

ve

nto

ry

Ab

so

lute

In

ve

nto

ry, m

ln to

nn

es

Monthly Absolute Inventory Months of Inventory

702

534630

374

0

150

300

450

600

750

Seamless Welded

Thousand t

onnes

4Q2014 1Q2015

912

27747

770

184 50

0

200

400

600

800

1,000

Russia America Europe

Thousand t

onnes

4Q2014 1Q2015

1Q 2015 vs 4Q 2014 Sales by Division and Group of Product

Source: TMK data

Sales by Division

4%

-34%

Russian division sales decreased QoQ mainly due to lower

industrial and line pipe volumes.

American division sales fell QoQ due to lower OCTG and line

pipe volumes.

European division sales increased QoQ due to higher seamless

industrial pipe volumes.

Seamless pipe sales declined QoQ mainly as a result of weaker

industrial and line pipe volumes in the Russian division, as well

as lower OCTG pipe sales in the American division.

Welded pipe sales fell QoQ mostly due to lower sales of OCTG

in the American division and welded industrial pipe in the

Russian division.

Total OCTG sales decreased by 17% QoQ due to lower

volumes in the American division.

-30%

-16%

-10%

Sales by Group of Product

8

1,040

1,775

1,240

971

1,778

1,180

0

400

800

1,200

1,600

2,000


U.S

.$ /

tonne

4Q2014 1Q2015

948

492

60

748

327

59

0

200

400

600

800

1,000


U.S

.$ m

ln

4Q2014 1Q2015

1Q 2015 vs 4Q 2014 Revenue by Division

Revenue Revenue per Tonne*

Source: Consolidated IFRS Financial Statements, TMK data

Revenue for the Russian division decreased due to a negative effect of

currency translation.

Revenue for the American division dropped mainly due to a significant

decrease in volumes, particularly of OCTG pipe, on the back of lower

drilling activity and reduced exploration and production spending.

Revenue for the European division remained relatively flat as a negative

effect of currency translation was offset by the growth resulting from

higher sales of seamless pipe and a favorable product mix.

Russian division revenue per tonne decreased QoQ due to a

negative effect of currency translation, which was not offset by

higher RUB prices.

American division revenue per tonne remained relatively flat QoQ.

European division revenue per tonne declined QoQ due to a

negative effect of currency translation.

* Revenue /tonne for the Russian and American divisions is calculated as total

revenue divided by pipe sales. Revenue for the European division is calculated as

total revenue divided by (pipe+billet 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.

-34%

-21%

-2%

-7%

-5%

0.1%

9

162

59

6

145

2812

0

30

60

90

120

150

180


U.S

.$ m

ln

4Q2014 1Q2015

Adjusted EBITDA Adjusted EBITDA Margin

1Q 2015 vs 4Q 2014 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

-11%

-52%

Note:


Russian division Adjusted EBITDA fell as a growth resulting from

a better pricing and product mix of welded and seamless pipe

was offset by a negative effect of currency translation and lower

volumes.

American division Adjusted EBITDA dropped, affected by

unfavorable market conditions, which resulted in lower volumes

and weaker pricing for welded and seamless pipe.

European division Adjusted EBITDA increased largely due to a

better sales mix as a result of growing share of seamless pipe in

total sales.

Russian division Adjusted EBITDA margin increased QoQ

mainly due to favorable pipe product mix and higher prices.

American division Adjusted EBITDA margin fell due weaker

pricing for welded and seamless pipe.

European division Adjusted EBITDA margin increased due

to better product mix.

83%

17%

12%

11%

19%

9%

20%

0%

3%

6%

9%

12%

15%

18%

21%


%

4Q2014 1Q2015

10

640

386

630

374

0

100

200

300

400

500

600

700

Seamless Welded

Thousand t

onnes

1Q2014 1Q2015

727

25148

770

184 50

0

120

240

360

480

600

720

840


Thousand t

onnes

1Q2014 1Q2015

1Q 2015 vs 1Q 2014 Sales by Division and Group of Product

Source: TMK data

Sales by Division

Sales by Group of Product

-2%

-27%

Russian division sales increased YoY mostly due to higher LDP

volumes, as well as stronger sales of seamless line pipe.

American division sales fell YoY due to lower volumes across all

pipe segments.

European division sales grew YoY due to higher seamless

industrial pipe volumes.

Seamless and welded pipe sales declined YoY mostly due to

lower volumes in the American division.

Total OCTG sales fell by 13% YoY mainly due to lower volumes

in the American and Russian divisions.

-3%

4%

6%

11

1,350

1,665

1,297

971

1,778

1,180

0

400

800

1,200

1,600

2,000


U.S

.$ /

tonne

1Q2014 1Q2015

981

418

67

748

327

59

0

200

400

600

800

1,000


U.S

.$ m

ln

1Q2014 1Q2015

12

1Q 2015 vs 1Q 2014 Revenue by Division

Revenue Revenue per Tonne*

Source: Consolidated IFRS Financial Statements, TMK data\

Revenue for the Russian division fell due to a negative effect of


Revenue for the American division decreased due to lower sales

of seamless and welded pipe with the most significant fall in

welded OCTG volumes.

Revenue for the European division fell due to a negative effect of


Russian division revenue per tonne decreased YoY as a

result a negative effect of currency translation.

American division revenue per tonne increased due to a

better pricing and sales mix.

European division revenue per tonne fell due to a

negative effect of currency translation.

* Revenue/tonne for the Russian and American divisions is calculated as total

revenue divided by pipe sales. Revenue for the European Division is calculated as

total revenue divided by (pipe+billet sales)

Note:


-22%

-12%

-28% -9%

7%

-24%

153

24 7

145

2812

0

40

80

120

160


U.S

.$ m

ln

1Q2014 1Q2015

Adjusted EBITDA Adjusted EBITDA Margin

1Q 2015 vs 1Q 2014 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

15%

-5%

Note:


Russian division Adjusted EBITDA decreased, as a growth

resulting from more favorable pricing and product mix was offset

by a negative effect of currency translation. The decrease was

also partially offset by lower selling, general and administrative

expenses.

American division Adjusted EBITDA increased mainly due to

lower selling, general and administrative expenses.

European division Adjusted EBITDA grew due to higher

seamless pipe volumes coupled with lower selling, general and

administrative expenses.

Russian division Adjusted EBITDA margin increased

largely due to favorable pricing and sales mix.

American division Adjusted EBITDA margin increased due

to better pricing and sales mix.

European division Adjusted EBITDA margin grew as a

result of favorable sales mix and higher prices.

56%

16%

6%

11%

19%

9%

20%

0%

3%

6%

9%

12%

15%

18%

21%


%

1Q2014 1Q2015

13

Seamless – Core to Profitability

Source: Consolidated IFRS Financial Statements, TMK data

Sales of seamless pipe generated

61% of total Revenue in 1Q 2015.

Gross Profit from seamless pipe

sales represented 75% of 1Q 2015

total Gross Profit.

Gross Profit Margin from seamless

pipe sales amounted to 27% in 1Q

2015.

Note:


1Q 2015 Gross Profit Breakdown

14

Seamless75%

Welded23%

Other operations

2%

U.S.$ mln(unless stated otherwise)

1Q 2015QoQ,

%

YoY,

%

Volumes- Pipe, kt 630 -10% -2%

Revenue 697 -21% -29%

Gross Profit 189 -7% -20%

Margin, % 27%

Avg Revenue / Tonne (U.S.$) 1,107 -12% -28%

Avg Gross Profit / Tonne

(U.S.$)300 3% -19%

Volumes- Pipe, kt 374 -30% -3%

Revenue 384 -32% -9%

Gross Profit 57 -43% 48%

Margin, % 15%

Avg Revenue / Tonne (U.S.$) 1,027 -3% -7%

Avg Gross Profit / Tonne

(U.S.$)153 -19% 53%

SE

AM

LE

SS

WE

LD

ED

Working Capital Position as of March 31, 2015

Inventories (Days)

Accounts Receivable (Days)

Accounts Payable (Days)

Cash Conversion Cycle (Days)

Source: TMK data

7276

8086 83

97

0

20

40

60

80

100

2010 2011 2012 2013 2014 1Q 2015

15

91 9097 96

89

105

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 1Q 2015

75

64

73 7366

77

0

20

40

60

80

100

2010 2011 2012 2013 2014 1Q 2015

5650

56

6360

69

0

20

40

60

80

2010 2011 2012 2013 2014 1Q 2015

Debt Maturity Profile as of March 31, 2015

As of March 31, 2015, total financial

debt amounted to U.S.$3,087 mln

84% of total financial debt is long-

term

Weighted average nominal interest

rate totalled 9.04%

As of March 31, 2015, borrowings

with a floating interest rate

represented U.S.$487 million, or

16%, borrowings with a fixed

interest rate – U.S.$2,549 million, or

84%

Credit Ratings:

– S&P: B+, Negative;

– Moody’s: B1, Negative.

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

management

399

688

527

15

385

500500

0

100

200

300

400

500

600

700

2015 2016 2017 2018 2019 2020

U.S

.$ m

ln

Bank Loans Bonds

16

Debt Profile as of March 31, 2015

Debt Breakdown by Source of Borrowings

Debt Breakdown by Currency

More than U.S.$600 mln of undrawn committed credit lines to

cover short-term debt

Just 14% 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 Loans67%

Bonds33%

USD 65%

RUR 32%

EUR 3%

Source: TMK data

17

Secured14%

Unsecured86%

0

100

200

300

400

500

600

Year 2015 Year 2016 Year 2017 Year 2020 Unlim

U.S

.$ m

ln

Utilized Credit Facilities

Unutilized Credit Facilities

Outlook

For the full year of 2015, TMK expects demand for LD pipe to be the main driver in the

Russian pipe market offsetting lower consumption in other market segments. The

Company expects the Russian OCTG pipe market to remain relatively stable throughout

2015 and TMK’s OCTG market share in Russia to grow.

In the U.S., TMK expects the rig count to bottom-out during the second quarter of 2015

followed by a moderate increase in drilling activity during the second half of the year.

Although demand for OCTG will improve, higher level of distributor inventory will initially

delay increases in demand for new production and shipments. As such, TMK expects

demand from oil and gas companies to initially recover in the fourth quarter of the year, at

which point a recovery in prices should follow.

The environment in the European market for the second quarter of 2015 and for the rest of

2015 will remain challenging due to high competition, especially from the Eastern European

producers.

In 2015, the Company expects to maintain volumes and the margin at the level of 2014.

18

Thank You

TMK Investor Relations

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

+7 (495) 775-7600

[email protected]

19

tmk · 2015-08-24 · 6 145 28 12 0 30 60 90 120 150 180 russia america europe u. mln 4q20141q2015...

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