4Q/ FY 2018 IFRS Results - tmk-group.com · 2019-03-01 · 4Q/ FY 2018 Summary Financial Results...

March 01, 2019

Financial Presentation4Q/ FY 2018 IFRS Results

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. PAO 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 PAO 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

PAO 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 PAO TMK cannot guarantee that a third party

would obtain or generate the same results.

4Q/ FY 2018 Summary Financial Results and Market Update

3

4Q 2018 vs. 3Q 2018 Summary Financial Highlights

4

Sales increased QoQ across all divisions

Revenue increased QoQ, reflecting higher pipe sales at the

Russian and American divisions

925 1,002

0

300

600

900

1,200

3Q2018 4Q2018

Thousand to

nnes

1,207 1,264

0

500

1,000

1,500

3Q2018 4Q2018

US

$ m

ln

8% QoQ 5% QoQ

Adjusted EBITDA increased QoQ, due to a stronger

performance at the Russian division

Net loss was recorded, due to an FX loss and an impairment of

goodwill

9% QoQ

164 179

14% 14%

0%

3%

6%

9%

12%

15%

18%

0

50

100

150

200

3Q2018 4Q2018

EB

ITD

A m

arg

in,

%

US

$ m

ln

-8

-20

-25

-20

-15

-10

-5

0

5

3Q2018 4Q2018U

S$ m

ln

Source: TMK data

FY 2018 vs. FY 2017 Summary Financial Highlights

5

Sales were up YoY across all divisions

Revenue increased YoY, driven by stronger results at all three

divisions

Adjusted EBITDA increased YoY, driven by a stronger

performance across all three divisions. The increase was

partially offset by a negative currency translation effect at the

Russian division

Net profit decreased YoY, mainly due to a FX loss, disposal of

subsidiaries recorded in 3Q 2018 and an impairment of

goodwill recorded in 4Q 2018

Source: TMK data

5% YoY 16% YoY

16% YoY

3,784 3,989

0

600

1,200

1,800

2,400

3,000

3,600

4,200

12M2017 12M2018

Thousand to

nnes

4,3945,099

0

1,000

2,000

3,000

4,000

5,000

6,000

12M2017 12M2018

US

$ m

ln

605

700

14%14%

0%

3%

6%

9%

12%

15%

18%

0

100

200

300

400

500

600

700

800

12M2017 12M2018

EB

ITD

A m

arg

in,

%

US

$ m

ln

30

0

-5

5

15

25

35

12M2017 12M2018U

S$ m

ln

Russian Market Overview

6

The Russian pipe market grew 2% year-on-year, largely

driven by higher demand for large diameter pipe.

The OCTG market was flat year-on-year, while seamless

OCTG consumption was up 2.5%, supported by the

increasing complexity of hydrocarbon production projects in

Russia and a higher share of horizontal drilling (from 41%

in 2017 to 48% in 2018).

Source: TMK estimates

In 4Q, the Russian pipe market declined 7% compared to

the previous quarter due to weak seasonal demand for

industrial pipe, both seamless and welded. Lower demand

for industrial pipe was partially compensated by a stronger

Russian OCTG market, which grew 17% quarter-on-quarter

following traditionally higher seasonal purchasing activity

by the oil and gas companies.

Drilling activity in Russia seasonally slowed down, and the

share of horizontal drilling reduced marginally from 52% in

3Q 2018 to 51% in 4Q 2018.

Source: CDU TEK

4Q 2018 vs. 3Q 2018

FY 2018 vs. FY 2017

Non

-En

erg

yE

ne

rgy

Key considerationsPipe market in Russia

Russian drilling activity remains strong

0

15

30

45

60

75

90

20

14

20

15

20

16

20

17

20

18

1Q

2017

2Q

2017

3Q

2017

4Q

2017

1Q

2018

2Q

2018

3Q

2018

4Q

2018

km

/d

U.S. Market Overview

7

In the U.S., the average rig count increased 18%,

according to Baker Hughes, supported by a recovery in

crude oil prices and higher E&P spending by the oil and

gas companies. This drove higher demand for OCTG pipe

throughout the year, with OCTG consumption increasing

17% year-on-year.

High inventory levels, which were built up at the beginning

of the year due to an influx of imports ahead of the

implementation of Section 232, fell steadily in the last two

quarters of the year to normalized levels.

Source: Baker Hughes, EIA

In the U.S., drilling activity in 4Q grew slightly, with 29 more

rigs compared to the previous quarter. OCTG shipments

were down 1% quarter-on-quarter (Preston Pipe Report),

following the high buildup of inventories in the market that

took place during 1Q 2018, as a result of an influx of

imports ahead of the implementation of Section 232, with

inventories then falling steadily in the last two quarters of

2018.

WTI prices were in steep decline during the fourth quarter

of 2018, falling 42% from a peak of 76 $/bbl on October 3,

2018 to a low of 44 $/bbl on December 27, 2018. Since

then, prices have recovered to levels above 50 $/bbl as

concerns of lower than expected economic growth and

oversupply have begun to dissipate.

Source: Preston Pipe & Tube Report, Company data

4Q 2018 vs. 3Q 2018

FY 2018 vs. FY 2017

Key considerationsRig count improved YoY

OCTG inventories returned to normalized levels

0

20

40

60

80

100

120

0

400

800

1,200

1,600

2,000

2,400Jan

-10

Ma

y-1

0S

ep-1

0Jan

-11

Ma

y-1

1S

ep-1

1Jan

-12

Ma

y-1

2S

ep-1

2Jan

-13

Ma

y-1

3S

ep-1

3Jan

-14

Ma

y-1

4S

ep-1

4Jan

-15

Ma

y-1

5S

ep-1

5Jan

-16

Ma

y-1

6S

ep-1

6Jan

-17

Ma

y-1

7S

ep-1

7Jan

-18

Ma

y-1

8S

ep-1

8

Cru

de o

il p

rice (

$/B

bl)

US

Rig

co

un

t

Oil Gas Crude Oil WTI Spot

0

3

6

9

12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mo

nth

s o

f In

ven

tory

Ab

so

lute

in

ven

tory

, m

ln

ton

nes

Monthly Absolute Inventory Months of Inventory

4Q 2018 vs. 3Q 2018 Results

8

606

318

738

265

0

200

400

600

800

Seamless Welded

Thousand to

nnes

3Q2018 4Q2018

4Q 2018 vs. 3Q 2018 Sales by Division and Product Group

9

Seamless pipe sales increased QoQ, due to higher

seamless pipe across all divisions

Welded pipe sales declined QoQ, due to lower welded pipe

sales at the Russian and American divisions. LDP sales at

the Russian division partially compensated for the

decrease in other segments

Total OCTG sales increased 18% QoQ, due to higher sales

at both the Russian and American divisions

Russian division sales increased QoQ, driven by higher

seamless OCTG and line pipe sales, as well as increased

LDP sales

American division sales increased QoQ, mainly driven by

higher seamless OCTG sales. This was partially offset by

lower sales of welded pipe, as in 4Q 2018 distributors

reduced pipe inventories in anticipation of new import

supplies, declining HRC prices and year-end inventory

taxes

European division sales increased QoQ, recovering to

normalized levels after a seasonal slowdown of activities in

the European market during 3Q 2018

Source: TMK data

Sales by division

Sales by product group

687

190

48

745

205

52

0

300

600

900

Russia America Europe

Thousand to

nnes

3Q2018 4Q2018

22%

8%

9%

9%

-17%

4Q 2018 vs. 3Q 2018 Revenue by Division

10

Revenue Revenue per tonne*

Source: Consolidated IFRS financial statements, TMK data

Russian division revenue increased QoQ, due to higher

seamless OCTG and line pipe sales, as well as increased LDP

sales. However, the result was partially offset by the negative

impact of currency translation

Stronger revenue at the American division was mainly a result of

higher seamless OCTG sales, which was partially offset by

lower welded pipe sales

European division revenue decreased QoQ, impacted by the

negative effect of currency translation

Russian division revenue per tonne was down, due to a

negative impact of currency translation

American division revenue per tonne was almost flat QoQ,

impacted by lower selling prices for welded pipe

European division revenue per tonne decreased QoQ due to

the negative effect of currency translation

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.

1,148

1,794

1,520

1,104

1,7881,441

0

500

1,000

1,500

2,000


US

$/t

onne

3Q2018 4Q2018

789

34177

822

366

75

0

200

400

600

800

1,000


US

$ m

ln

3Q2018 4Q2018

* 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+billets sales

-4%

7%

-2%

0%

-5%

4%

106 45

13

123

43

12

0

30

60

90

120

150


US

$ m

ln

3Q2018 4Q2018

4Q 2018 vs. 3Q 2018 Adjusted EBITDA by Division

11

Adjusted EBITDA Adjusted EBITDA margin


Russian division Adjusted EBITDA increased QoQ, reflecting

the change in the sales mix with a higher share of seamless

pipe

American division Adjusted EBITDA decreased QoQ, reflecting

a decline in selling prices for welded products and higher input

costs due to the increase in raw material prices recorded in

previous quarters

European division Adjusted EBITDA decreased QoQ, due to the

negative effect of currency translation

Russian division Adjusted EBITDA margin increased 2 p.p.

QoQ, reflecting a higher share of seamless pipe in the sales mix

American division Adjusted EBITDA margin declined, due to

lower Adjusted EBITDA, impacted by a decline in selling prices

for welded products and higher input costs

European division Adjusted EBITDA margin declined, due to

lower Adjusted EBITDA, impacted by the negative effect of

currency translation


13% 13%

17%

15%

12%

16%

0%

5%

10%

15%

20%


%

3Q2018 4Q2018

17%

-5%

-8%

FY 2018 vs. FY 2017 Results

12

2,671

1,113

2,743

1,246

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

Seamless Welded

Thousand to

nnes

12M2017 12M2018

FY 2018 vs. FY 2017 Sales by Division and Product Group

13

Seamless pipe volumes increased compared to FY 2017,

mainly driven by growth in OCTG pipe sales at the Russian

and the Amercian divisions, and seamless industrial pipe

sales at the European division

Welded pipe sales increased compared to FY 2017, mainly

due to considerable growth in welded pipe volumes at the

American division and higher LDP sales at the Russian

division

Total OCTG sales increased 10% compared to FY 2017,

driven by substantial growth at the American division and

higher seamless OCTG sales at the Russian division

Russian division sales increased YoY, driven mainly by

higher seamless OCTG and LDP sales

An increase in OCTG and line pipe sales at the American

division reflected the continued improvements in the US oil

and gas market, which has seen higher drilling activity and

E&P spending. Welded industrial pipe sales also

contributed to the increase in overall sales

European division sales increased due to higher demand in

the European market

Source: TMK data

Sales by division

Sales by product group

2,926

673

186

2,985

804

201

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200


Thousand to

nnes

12M2017 12M2018

2%

12%

19%

8%

3%

FY 2018 vs. FY 2017 Revenue by Division

14

Revenue Revenue per tonne*


The Russian division’s YoY revenue growth was driven by

higher sales, better pricing and an improved product mix with a

higher share of OCTG

Revenue for the American division grew materially YoY due to a

significant increase in pipe volumes, especially OCTG, and

stronger pricing supported by market conditions

A healthy YoY performance at the European division reflected

higher sales, stronger pricing and a better sales mix

Russian division revenue per tonne increased YoY, mainly due

to higher prices and an improved sales mix. The increase was

partially offset by the negative effect of currency translation

American division revenue per tonne grew YoY as a result of

improved pricing

European division revenue per tonne improved YoY due to a

better product mix and stronger pricing


* 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+billets sales

1,081

1,470

9711,153

1,679

1,408

0

600

1,200

1,800


US

$/t

onne

12M2017 12M2018

3,163

989

242

3,442

1,349

308

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

3,600

4,000


US

$ m

ln

12M2017 12M2018

45%

9%

36%

27%

7%

14%

FY 2018 vs. FY 2017 Adjusted EBITDA by Division

15

Adjusted EBITDA Adjusted EBITDA margin


Adjusted EBITDA in the Russian division increased YoY,

supported by higher pricing, higher sales and improved sales

mix, but was partially offset by the negative effect of currency

translation and higher raw material prices seen in 1H 2018

American division Adjusted EBITDA significantly improved YoY,

due to a better market environment. The result was partially

offset by higher raw material prices

European division Adjusted EBITDA increased YoY, driven by

higher sales, improved sales mix and favourable pricing

Russian division Adjusted EBITDA margin marginally declined

YoY as a result of higher raw material prices seen in 1H 2018

American division Adjusted EBITDA margin remained almost

flat, reflecting higher raw material prices

European division Adjusted EBITDA margin increased YoY,

mostly due to a more favourable product mix towards higher

margin products and higher prices


15%

12% 12%

14%

12%

17%

0%

5%

10%

15%

20%


%

12M2017 12M2018

463

114

28

485

164

51

0

100

200

300

400

500

600


US

$ m

ln

12M2017 12M2018

5%

81%

44%

Seamless – Core to Profitability

16

FY 2018 gross profit breakdown



US$ mln(unless stated otherwise)

4Q2018QoQ,

%12M2018

YoY,

%

Sales - Pipes, kt 738 22% 2,743 3%

Revenue 950 18% 3,550 15%

Gross profit 221 15% 824 13%

Margin, % 23% 23%

Avg revenue/tonne (US$) 1,288 -3% 1,294 12%

Avg gross profit/tonne (US$) 300 -6% 301 10%

Sales - Pipes, kt 265 -17% 1,246 12%

Revenue 267 -15% 1,272 17%

Gross profit 5 -72% 67 -39%

Margin, % 2% 5%

Avg revenue/tonne (US$) 1,010 2% 1,021 5%

Avg gross profit/tonne (US$) 19 -66% 54 -46%

SE

AM

LE

SS

WE

LD

ED

Sales of seamless pipe generated 70% of

total revenues in FY 2018

Gross profit from seamless pipe sales

represented 90% of FY 2018 total gross profit

Gross profit margin from seamless pipe sales

amounted to 23% in FY 2018

Seamless90%

Welded7%

Other operations3%

Debt Maturity Profile as at December 31, 2018

17

Debt currency structure

Source: TMK management accounts (figures based on non-IFRS measures), TMK estimates


2019 2020 2021 2022 2023 2025

As at December 31, 2018, Net Debt stood atUS$ 2,437 mln

In January 2018, TMK fully redeemed theremaining part of its US$500 mln 7-yearEurobond issue in the total nominal value ofUS$231 mln

The weighted average nominal interest ratedecreased by 87 bps from the end of 2017 to7.29%

Credit Ratings confirmed:

S&P B+, Stable

Moody’s B1, Stable

19 6 943

1

257

163

9472

112

18 18

162125 143

21 21

258

69

90 80

550

135

265

56

345

169 192 195

1

663

19 19

154

428

126 144

22 22

259

57

1 1 1 3

48

0

100

200

300

400

500

600

700

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 3Q

US

$ m

ln

EUR

RUB

USD

USD43%

RUB53%

EUR 4%

18

Outlook and Trends

In Russia, TMK expects pipe consumption by domestic oil and gas companies to remainstrong in 2019, with higher demand for high tech products to be driven by the increasedcomplexity of hydrocarbon production projects.

In the U.S., the rig count continued to grow in 2018 driving higher demand for OCTG pipe.Consumption in the North American pipe market remained flat, reflecting marginally higherdrilling activity in the United States, as operators took a wait-and-see approach to falling oilprices. As of the end of 2018, inventories returned to normalized levels.

In Europe, it is expected that TMK sustains demand for seamless industrial pipe in 2019.The division’s sales mix is estimated to include a higher share of high value-addedproducts.

Overall, TMK anticipates higher EBITDA for FY 2019, supported by further improvementsacross all three divisions, with its EBITDA margin being slightly above the level of full-year2018.

TMK Investor Relations

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

+7 (495) 775-7600

[email protected]

4Q/ FY 2018 IFRS Results - tmk-group.com · 2019-03-01 · 4Q/ FY 2018 Summary Financial Results...

Documents

Transcript of 4Q/ FY 2018 IFRS Results - tmk-group.com · 2019-03-01 · 4Q/ FY 2018 Summary Financial Results...