financial presentation 4q and fy 2014 ifrs results€¦ · 4q 2014 rig 0 300 600 900 1,500 1,800...

PROPRIETARY & CONFIDENTIAL

Financial Presentation

4Q and FY 2014 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 as a result of higher LDP volumes

along with stronger sales of seamless pipe in the

Russian division

Adjusted EBITDA went up QoQ largely as a result of

stronger sales of LDP, seamless OCTG and line pipe in

the Russian division, as well as higher volumes of welded

OCTG pipe in the American division

Revenue decreased QoQ mainly due to a negative effect

of currency translation

Net loss was $254 million in 4Q mainly as a result of a

foreign exchange loss and an impairment loss

+16% QoQ

+13% QoQ

Source: TMK data

-2% QoQ

1,065 1,237

0

250

500

750

1,000

1,250

3Q2014 4Q2014

Thousand t

onnes

1,526 1,500

0

400

800

1,200

1,600

3Q2014 4Q2014

U.S

.$ m

ln

202 227

13%

15%

0%

3%

6%

9%

12%

15%

18%

0

50

100

150

200

250

3Q2014 4Q2014

EBIT

DA

Ma

rgin

, %

U.S

.$ m

ln

-7

-254 -15

-12

-9

-6

-3

0

3Q2014 4Q2014

U.S

.$ m

ln

4

FY 2014 Summary Financial Highlights

Sales increased YoY as a result of stronger sales of

seamless OCTG and line pipe

Adjusted EBITDA dropped YoY mainly due to a negative

effect of currency translation and higher raw materials

prices in the Russian division

Revenue fell YoY mainly due to a negative effect of

currency translation

Net loss was $217 million for FY 2014, negatively affected

by a foreign exchange loss and an impairment loss

Source: TMK data

+3% YoY -7% YoY

-16% YoY

4,287 4,402

0

900

1,800

2,700

3,600

4,500

FY2013 FY2014

Thousand t

onnes

6,432 6,009

0

1,100

2,200

3,300

4,400

5,500

6,600

FY2013 FY2014

U.S

.$ m

ln

952

804

15% 13%

0%

3%

6%

9%

12%

15%

18%

0

250

500

750

1,000

FY2013 FY2014

EBIT

DA

Ma

rgin

, %

U.S

.$ m

ln 215

-217

-250

-150

-50

50

150

250

FY2013 FY2014

U.S

.$ m

ln

5

Recent Developments

M&A

In February 2015, TMK acquired a 100% interest in ChermetServis-Snabzhenie for a total amount of around RUB2.73 billion. ChS-Snabzhenie had been the main scrap supplier to TMK steel mills for the last several years and fully covered the Company’s needs in scrap.

Dividends

In December 2014, the extraordinary general shareholders’ meeting approved an interim dividend payment for the first six months of 2014 in the amount of RUB 393,786,159.48 ($7 million at the exchange rate as of the date of approval).

Contracts and cooperation

In November 2014, TMK supplied a complete set of high-tech tubular products and equipment to Surgutneftegaz, which will be used in a drill column of about 5,000 meters.

In December 2014, TMK won Transneft's LDP tender for a total volume of more than 31,583 thousand tonnes, to be supplied within January-April 2015.

Share capital increase

In December 2014, TMK closed the public offering of additional shares, raising total proceeds of RUB 5.5 bln, which represents a 5.476% share in the Company.

Bonds redemption

In February 2015, TMK redeemed its 5.25% Convertible Bonds due 2015 convertible into GDRs each representing four ordinary shares of TMK. To redeem the bonds TMK used cash accumulated from operating and financial activities, including a four-year USD denominated credit facility from one of the leading Russian commercial banks. TMK has no more international public debt maturing before 2018.

Seamless capacity addition

In October 2014, TMK put into operation a new FQM pipe rolling mill at Seversky pipe plant with a total production capacity of around 600 thousand tonnes. As a result, incremental increase of the Company’s total seamless pipe capacity will amount to around 250 thousand tonnes.

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

11% 12%

14%

21%

29%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014

%

Russian Market Overview

6

Share of horizontal drilling is growing

Growing oil drilling market in Russia

Source: Companies data, Citi equity research

Key considerations

In 4Q2014, the Russian pipe market increased by 5%

QoQ. For FY2014, the Russian pipe market rose by 9%

YoY. Such growth in both periods was mainly the result of

higher consumption of LD pipe.

In 4Q2014, the seamless OCTG market increased by 8%

QoQ, largely as a result of seasonally stronger demand.

For FY2014, seamless OCTG consumption decreased by

6% YoY, due to a 5% decline in drilling activity.

4Q2014 LD pipe market rose by 44% QoQ. Average

growth for FY2014 was similar to that and also amounted

to 44%. Such a strong increase for both periods was

largely driven by higher demand from Gazprom and

Transneft projects.

In 4Q2014, the seamless line pipe market increased by

16% QoQ, while the welded line pipe market decreased

by 17% for the same period. For FY2014, both seamless

and welded line pipe markets grew by 5% and 9% YoY

respectively. Demand for line pipe was mainly driven by

higher pipeline construction activity in Russia.

In 4Q2014, the seamless and welded industrial pipe

market decreased by 19% and 14% QoQ respectively,

partially due to seasonally lower demand from the

construction sector. For FY2014, seamless industrial pipe

consumption declined by 4% YoY, while welded industrial

pipe market grew by 4% over the same period.

Source: Citi equity research, TMK data

No

n-E

ne

rgy

Ene

rgy

US Market Overview

7

Growing oil drilling activity

Premium tubular content increasing with unconventional

drilling activity

Wells per Rig

US Oil and Gas Rig Count

Source: Baker Hughes

Source: Baker Hughes

Directional – 11%

Key considerations

According to Baker Hughes, in 4Q2014, the average

rig count remained relatively flat QoQ. For FY2014, the

average rig count increased by 6% YoY from 1,761 for

FY2013 to 1,862 for FY2014, due to an increase in oil

drilling activity.

Further to an increase in rig count, more pipe per rig

was used, as operators continued to drill more

horizontal wells, which typically consume more pipe.

YoY, the combined horizontal and directional rig count

grew from 75% of total rigs for FY2013 to 80% for

FY2014.

Line pipe shipments in 4Q2014 were down by 2%

QoQ, while FY2014 shipments decreased by 7% YoY,

due to reductions in 2014 pipeline construction

projects.

According to Pipe Logix, 4Q2014 average welded and

seamless OCTG prices increased by 2% each, while

yearly average prices rose by 2% and 1% respectively

for FY2014 compared to FY2013.

Line pipe market prices were both slightly down for

4Q2014 compared to 3Q2014, and for FY2014

compared to FY2013.

4.71 4.98 5.07 4.92 5.00

5.27 5.31 5.35 5.20 5.27 5.18 5.14

1

2

3

4

5

6

1Q2012

2Q2012

3Q2012

4Q2012

1Q2013

2Q2013

3Q2013

4Q2013

1Q2014

2Q2014

3Q2014

4Q2014

We

lls / R

ig

0

300

600

900

1,200

1,500

1,800

2,100

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

US

Rig

Cou

nt

Gas

Oil

Gas – 22%

Oil – 78%

585 480

702

534

0

90

180

270

360

450

540

630

720

Seamless Welded

3Q2014 4Q2014

772

249 44

912

277 47

0

115

230

345

460

575

690

805

920

Russia America Europe

3Q2014 4Q2014

8

4Q 2014 Sales by Division and Group of Product

Source: TMK data

Sales by division

Sales by group of product

Th

ou

sa

nd

to

nn

es

Th

ou

sa

nd

to

nn

es

8%

11%

Russian division sales increased QoQ as a result of stronger

seamless OCTG and line pipe sales, as well as higher LD

pipe volumes.

American division sales grew QoQ due to higher volumes of

seamless and welded OCTG.

European division sales rose QoQ due to stronger seamless

pipe volumes.

Seamless pipe sales increased QoQ as a result of higher

seamless OCTG and line pipe sales in the Russian division,

following seasonally stronger demand.

Welded pipe sales rose QoQ as a result of higher volumes of

LDP in Russia and welded OCTG in the U.S.

Total OCTG sales grew by 15% QoQ due to stronger volumes

of seamless OCTG in the Russian division and both seamless

and welded OCTG in the U.S.

11%

18%

20%

1,312

1,775

1,346

1,040

1,775

1,240

0

300

600

900

1,200

1,500

1,800


3Q2014 4Q2014

1,014

441

72

948

492

60

0

200

400

600

800

1,000

1,200


3Q2014 4Q2014

9

4Q 2014 Revenue by Division

Revenue Revenue per tonne*

U.S

.$ m

ln

U.S

.$ / t

on

ne

Source: Consolidated IFRS Financial Statements, TMK data

Revenue for the Russian division decreased QoQ mainly as a

result of a negative effect of currency translation, which totaled

$283 million. Excluding this negative effect revenue growth would

have amounted to $218 million.

Revenue for the American division increased QoQ due to higher

volumes, and in particular, strong growth of seamless and welded

OCTG sales.

Revenue for the European division decreased QoQ mainly due to

a negative effect of currency translation and lower steel billets

sales.

Russian division revenue per tonne decreased QoQ due to

a negative effect of currency translation.

American division revenue per tonne remained largely

unchanged QoQ.

European division revenue per tonne decreased QoQ due

to a negative effect of currency translation and unfavorable

pricing of seamless pipe.

* Revenue per 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 total pipe and 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.

12%

-6%

-17%

-21% -8%

0%

151

42 9

162

59

6 0

30

60

90

120

150

180


3Q2014 4Q2014

Adjusted EBITDA Adjusted EBITDA margin

U.S

.$ m

ln

4Q 2014 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

7%

41%

Note:


%

Russian division Adjusted EBITDA went up QoQ due to stronger

volumes of LD pipe, resulting in a better product mix of welded

pipe, higher seamless OCTG and line pipe sales.

American division Adjusted EBITDA grew QoQ due to a

favorable sales mix of welded pipe resulted from higher volumes

of welded OCTG.

European division Adjusted EBITDA went down QoQ, on the

back of unstable economic situation in the European market.

Russian division Adjusted EBITDA margin increased QoQ

mainly due to favorable welded pipe product mix and

higher share of seamless pipe in total volumes.

American division Adjusted EBITDA margin improved QoQ,

as a result of favorable welded pipe product mix and higher

prices.

European division Adjusted EBITDA margin decreased

QoQ due to lower seamless pipe prices.

-33%

15%

9%

13%

17%

12% 11%

0%

5%

10%

15%

20%


3Q2014 4Q2014

10

2,422

1,866

2,560

1,842

0

325

650

975

1,300

1,625

1,950

2,275

2,600

Seamless Welded

FY2013 FY2014

3,085

1,027 175

3,198

1,019 185

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200


FY2013 FY2014

FY 2014 Sales by Division and Group of Product

Source: TMK data

Sales by division

Sales by group of product

Th

ou

sa

nd

to

nn

es

Th

ou

sa

nd

to

nn

es

6%

-1%

Russian division sales increased YoY mostly due to higher

seamless OCTG and line pipe volumes, as well as stronger

LDP sales.

American division sales slightly decreased YoY due to lower

welded line and industrial pipe volumes.

European division sales grew YoY due to higher seamless

pipe volumes.

Seamless pipe sales grew YoY mostly due to higher sales of

seamless OCTG in the Russian and American divisions as

well as stronger seamless line pipe volumes in the Russian

division.

Welded pipe sales declined YoY as higher LDP and welded

OCTG volumes were offset by weaker sales of welded line

and industrial pipe.

Total OCTG sales increased by 7% YoY mainly due to higher

volumes in the Russian and American divisions.

-1%

5%

4%

11

1,453 1,621

1,127 1,242

1,733

1,286

0

450

900

1,350

1,800


FY2013 FY2014

FY 2014 Revenue by Division

Revenue Revenue per tonne*

U.S

.$ m

ln

U.S

.$ / t

on

ne


Revenue for the Russian division dropped YoY largely due to a

negative currency translation effect in the amount of $788 million.

Revenue for the American division increased YoY due to higher

seamless OCTG volumes.

Revenue for the European division fell YoY primarily due to a

decrease in steel billets sales.

Russian division revenue per tonne decreased YoY as a

result of a negative currency translation effect.

American division revenue per tonne increased YoY due

to better sales mix and higher prices as well as higher

share of seamless pipe in total volumes.

European division revenue per tonne increased YoY as a

result of higher share of seamless pipe in total sales.

* 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 total pipe and steel billets sales

Note:


6%

-5%

-15%

7% -11%

14%

4,483

1,665

284

3,973

1,766

270

0

800

1,600

2,400

3,200

4,000

4,800


FY2013 FY2014

12

776

145 31

614

159 32

0

200

400

600

800


FY2013 FY2014

Adjusted EBITDA Adjusted EBITDA margin

U.S

.$ m

ln

FY 2014 Adjusted EBITDA by Division

Source: TMK Consolidated IFRS Financial Statements, TMK data

10%

-21%

Note:


%

Russian division Adjusted EBITDA decreased YoY mainly as a

result of a negative currency translation effect and higher raw

materials prices.

American division Adjusted EBITDA increased YoY as a result of

stronger OCTG sales as well as lower selling, general and

administrative expenses, along with other operating expenses.

European division Adjusted EBITDA remained almost flat

compared to the full year 2013 and amounted to $32 million.

Russian division Adjusted EBITDA margin decreased YoY

largely due to a negative currency translation and

unfavorable pricing and product mix in seamless pipe.

American division Adjusted EBITDA margin remained flat

YoY.

European division Adjusted EBITDA margin remained

almost unchanged YoY.

3%

17%

9%

11%

15%

9%

12%

0%

4%

8%

12%

16%

20%


FY2013 FY2014

13

Seamless – Core to Profitability


Sales of seamless pipe generated

59% of total Revenue in 4Q 2014

and 62% for FY 2014.

Gross Profit from seamless pipe

represented 66% of total Gross Profit

in 4Q 2014 and 78% - for FY 2014.

Gross Profit Margin from seamless

pipe sales amounted to 23% in 4Q

2014 and 24% for FY 2014.

Note:


FY 2014 gross profit breakdown U.S.$ mln(unless stated otherwise)

4Q 2014QoQ,

%FY 2014

YoY,

%

Volumes- Pipes, kt 702 20% 2,560 6%

Revenue 883 -4% 3,748 -5%

Gross Profit 204 -12% 907 -16%

Margin, % 23% 24%

Avg Revenue / Tonne (U.S.$) 1,256 -20% 1,464 -10%

Avg Gross Profit / Tonne

(U.S.$)290 -27% 354 -20%

Volumes- Pipes, kt 534 11% 1,842 -1%

Revenue 566 5% 1,998 -9%

Gross Profit 101 76% 239 -3%

Margin, % 18% 12%

Avg Revenue / Tonne (U.S.$) 1,060 -6% 1,085 -8%

Avg Gross Profit / Tonne

(U.S.$)189 58% 130 -1%

SE

AM

LE

SS

WE

LD

ED

Seamless 78%

Welded 20%

Other operations

2%

14

Working Capital Position as of December 31, 2014

Inventories (days)

Accounts receivable (days)

Accounts payable (days)

Cash conversion cycle (days)

Source: TMK data

91 90

97 96

89

80

90

100

2010 2011 2012 2013 2014

75

64

73 73

66

40

60

80

2010 2011 2012 2013 2014

56 50

56 63

60

0

20

40

60

80

2010 2011 2012 2013 2014

72 76 80 86 83

0

20

40

60

80

100

120

2010 2011 2012 2013 2014

15

438

606

534

15

244

311

500 500

0

200

400

600

800

2015 2016 2017 2018 2019 2020

U.S

.$ m

ln

Bank Loans Bonds

Debt Maturity Profile as of December 31, 2014

As of December 31, 2014, total financial debt amounted to U.S.$3,223 mln.

76% of total financial debt is long-term.

Redeemed Feb 2015 Convertible Bonds using cash accumulated from operating and financial activities, including a new 4-year US$ credit line with one of the leading Russian banks.

Weighted average nominal interest rate totalled 7.26%

As of December 31, 2014, borrowings with a floating interest rate represented U.S.$461 million, or 15%, borrowings with a fixed interest rate – U.S.$2,709 million, or 85%

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

16

Debt Profile as of December 31, 2014

Debt breakdown by currency

Around U.S.$880 mln of undrawn committed credit lines to

cover short-term debt

Just 9% of debt is secured with assets and mortgages

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

measures, estimates from TMK management.



Secured 9%

Unsecured 91%

USD; 67% RUR; 30%

EUR; 3%

0

100

200

300

400

500

600

2015 2016 2017 2020 Unlimited

U.S

.$ m

ln

Utilized Credit Facilities

Unutilized Credit Facilities

Undrawn credit lines by bank

Russian banks 85%

Foreign banks 15%





17

Outlook

In 1Q2015, TMK observes a high utilization rate of its production facilities in Russia, due to seasonally

stronger demand from the oil and gas majors and greater pipeline construction activity. TMK already

increased prices to the most of its customers, to largely offset input cost inflation in Roubles. Overall, the

Company expects the Russian division EBITDA to stay approximately in line with 4Q2014.

For FY2015, the Company foresees the Russian pipe market to remain stable, largely due to further growth

of the LD pipe market as a result of the commencement of Power of Siberia project, continued construction

of Bovanenkovo-Ukhta, South Corridor and a number of other projects, along with substantial demand for

maintenance needs of Gazprom and Transneft. For FY2014, pipe imports in Russia fell by more than 20%

YoY and TMK believes the market share of imported pipe will continue to decrease throughout 2015. This will

enable the Company to continue substituting the imported products in the short-term, and increase its pipe

sales in the Russian market. Based on the stable market conditions, TMK will aim at increasing its Rouble

prices to maintain the margins for FY2015.

In the U.S., a drop of around 570 rigs since the beginning of 2015 is resulting in a sharp decline in demand

for OCTG, as companies adjust inventories to lower drilling activity. TMK expects to see a slight OCTG

demand improvement during 2H2015, when companies should begin to restock in anticipation of a recovery

in oil and natural gas drilling activity. However, given an excess of domestic capacity and a stronger U.S.

Dollar, which favors imports, the Company expects pipe prices to remain under pressure throughout 2015.

Outside of the energy industry, as the U.S. economy continues to expand, TMK expects to see an increase in

demand for industrial products.

For FY2015, the Company expects the situation on the European pipe market to remain challenging due to

lower end-users consumption and market overcapacity.

In 2015, TMK will keep further deleveraging as its priority. Capex is expected to decrease by 25%-30%

compared to FY2014.

18

Thank You

TMK Investor Relations

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

+7 (495) 775-7600

[email protected]

19

financial presentation 4q and fy 2014 ifrs results€¦ · 4q 2014 rig 0 300 600 900 1,500 1,800...

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