Financial Presentation 4Q and FY 2014 IFRS Results€¦ · 4Q 2014 Rig 0 300 600 900 1,500 1,800...
Transcript of 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
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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.
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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
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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.
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15E
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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
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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
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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
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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
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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
Russia America Europe
3Q2014 4Q2014
1,014
441
72
948
492
60
0
200
400
600
800
1,000
1,200
Russia America Europe
3Q2014 4Q2014
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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 $218 million.
Revenue for the American division increased QoQ due to higher
volumes, and in particular, strong growth of seamless and welded
OCTG sales.
Revenue for the European division decreased QoQ mainly due to
a negative effect of currency translation and lower steel billets
sales.
Russian division revenue per tonne decreased QoQ due to
a negative effect of currency translation.
American division revenue per tonne remained largely
unchanged QoQ.
European division revenue per tonne decreased QoQ due
to a negative effect of currency translation and unfavorable
pricing of seamless pipe.
* Revenue per tonne for the Russian and American divisions is calculated as total
revenue divided by pipe sales. Revenue for the European division is calculated as
total revenue divided by total pipe and steel billets sales
Note:
Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums.
12%
-6%
-17%
-21% -8%
0%
151
42 9
162
59
6 0
30
60
90
120
150
180
Russia America Europe
3Q2014 4Q2014
Adjusted EBITDA Adjusted EBITDA margin
U.S
.$ m
ln
4Q 2014 Adjusted EBITDA by Division
Source: TMK Consolidated IFRS Financial Statements, TMK data
7%
41%
Note:
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.
%
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%
Russia America Europe
3Q2014 4Q2014
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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
Russia America Europe
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%
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1,453 1,621
1,127 1,242
1,733
1,286
0
450
900
1,350
1,800
Russia America Europe
FY2013 FY2014
FY 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 dropped YoY largely due to a
negative currency translation effect in the amount of $788 million.
Revenue for the American division increased YoY due to higher
seamless OCTG volumes.
Revenue for the European division fell YoY primarily due to a
decrease in steel billets sales.
Russian division revenue per tonne decreased YoY as a
result of a negative currency translation effect.
American division revenue per tonne increased YoY due
to better sales mix and higher prices as well as higher
share of seamless pipe in total volumes.
European division revenue per tonne increased YoY as a
result of higher share of seamless pipe in total sales.
* Revenue/tonne for the Russian and American divisions is calculated as total
revenue divided by pipe sales. Revenue for the European Division is calculated as
total revenue divided by total pipe and steel billets sales
Note:
Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums.
6%
-5%
-15%
7% -11%
14%
4,483
1,665
284
3,973
1,766
270
0
800
1,600
2,400
3,200
4,000
4,800
Russia America Europe
FY2013 FY2014
12
776
145 31
614
159 32
0
200
400
600
800
Russia America Europe
FY2013 FY2014
Adjusted EBITDA Adjusted EBITDA margin
U.S
.$ m
ln
FY 2014 Adjusted EBITDA by Division
Source: TMK Consolidated IFRS Financial Statements, TMK data
10%
-21%
Note:
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.
%
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 $32 million.
Russian division Adjusted EBITDA margin decreased YoY
largely due to a negative currency translation and
unfavorable pricing and product mix in seamless pipe.
American division Adjusted EBITDA margin remained flat
YoY.
European division Adjusted EBITDA margin remained
almost unchanged YoY.
3%
17%
9%
11%
15%
9%
12%
0%
4%
8%
12%
16%
20%
Russia America Europe
FY2013 FY2014
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Seamless – Core to Profitability
Source: Consolidated IFRS Financial Statements, TMK data
Sales of seamless pipe generated
59% of total Revenue in 4Q 2014
and 62% for FY 2014.
Gross Profit from seamless pipe
represented 66% of total Gross Profit
in 4Q 2014 and 78% - for FY 2014.
Gross Profit Margin from seamless
pipe sales amounted to 23% in 4Q
2014 and 24% for FY 2014.
Note:
Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums.
FY 2014 gross profit breakdown U.S.$ 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
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Debt Profile as of December 31, 2014
Debt breakdown by currency
Around U.S.$880 mln of undrawn committed credit lines to
cover short-term debt
Just 9% of debt is secured with assets and mortgages
Note: TMK management accounts. Figures above are based on non-IFRS
measures, estimates from TMK management.
Note: TMK management accounts. Figures above are based on non-IFRS
measures, estimates from TMK management.
Secured 9%
Unsecured 91%
USD; 67% RUR; 30%
EUR; 3%
0
100
200
300
400
500
600
2015 2016 2017 2020 Unlimited
U.S
.$ m
ln
Utilized Credit Facilities
Unutilized Credit Facilities
Undrawn credit lines by bank
Russian banks 85%
Foreign banks 15%
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.
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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
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