Financial Presentation - TMK...1Q2016 2Q2016 655 65 41 731 75 47 0 200 400 600 800 Russia America...
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Financial Presentation 2Q 2016 IFRS Results August 19, 2016
Transcript of Financial Presentation - TMK...1Q2016 2Q2016 655 65 41 731 75 47 0 200 400 600 800 Russia America...
Financial Presentation2Q 2016 IFRS Results
August 19, 2016
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.
2Q and 1H 2016 Summary Financial Results and Market Update
3
4
2Q 2016 Summary Financial HighlightsSales increased QoQ, due to higher industrial pipe volumes and improvement in sales at the American division
Adjusted EBITDA increased QoQ, largely due to a positive effect of currency translation at the Russian division, improved performance at the American division and lower selling expenses
Revenue increased QoQ, mostly as a result of a positive effect of currency translation
Net profit was $57 million compared to $14 million in 1Q 2016, due to stronger results overall
5% QoQ
Source: TMK data
19% QoQ
12% QoQ
852 896
0
300
600
900
1Q2016 2Q2016
Th
ou
san
d t
on
nes
761853
0
300
600
900
1Q2016 2Q2016
US
$ m
ln
120
143
16%17%
0%
3%
6%
9%
12%
15%
18%
0
40
80
120
160
1Q2016 2Q2016
EB
ITD
A m
arg
in, %
US
$ m
ln
14
57
0
20
40
60
1Q2016 2Q2016
US
$ m
ln
More than 4x QoQ
5
1H 2016 Summary Financial Highlights
Sales decreased YoY, due to reduced volumes at the American division, caused by unfavorable market conditions, and lower LD pipe sales
Adjusted EBITDA decreased YoY, mostly due to the impact of weak results at the American division
Revenue fell YoY, mostly due to weaker sales at the American division as a result of weaker drilling activity in the US and low E&P spending, and a negative effect of currency translation
Net profit decreased YoY, due to generally weaker results
Source: TMK data
-12 % YoY -30% YoY
-26% YoY
1,9811,748
0
500
1,000
1,500
2,000
1H2015 1H2016
Th
ou
san
d t
on
nes
2,296
1,614
0
600
1,200
1,800
2,400
1H2015 1H2016
US
$ m
ln356
264
16% 16%
0%
3%
6%
9%
12%
15%
18%
0
90
180
270
1H2015 1H2016
EB
ITD
A m
arg
in, %
US
$ m
ln
77 71
0
20
40
60
80
1H2015 1H2016
US
$ m
ln
-8% YoY
The Russian pipe market decreased by 6% YoY, dueto weaker LDP demand in 1H 2016 compared to therecord high volumes in 1H 2015.
OCTG consumption increased by 6% compared tothe same period of 2015, supported by the growth ofdrilling activity in Russia by 17% year-on-year.
6
Russian Market Overview
Russian drilling activity is strong and growing
Pipe market in Russia
Source: TMK estimates
Key considerations
In 2Q 2016, the Russian pipe market contracted by8% compared to 1Q 2016, mostly due to weaker LDPdemand as a result of lower purchasing activity byGazprom.
The OCTG market decreased by 16% QoQ,predominantly due to the structural changes inOCTG demand, weighted more towards smallerdiameter pipes specifically supplied for horizontaldrilling in existing vertical wells.
Source: CDU TEK
2Q 2016
1H 2016
No
n-E
ner
gy
En
erg
y
0
2
4
6
8
10
12
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16E
20
17E
20
18 E
Mln
to
nn
es
30
40
50
60
70
2010 2011 2012 2013 2014 2015 1H2016
km
/d
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U.S. Market Overview
Rising oil prices followed by improvement in rig count
Lower consumption pushed inventory levels to 10.8 months in June 2016
Source: Preston Pipe & Tube Report
Source: Baker Hughes, Bloomberg
In the US, the average number of rigs in 1H 2016 fellby 57% compared to 1H 2015 (Baker Hughes),following a continued decline in oil prices.
OCTG shipments decreased by 66% year-on-year(Preston Pipe Report). OCTG inventories increasedto an average 10.2 months compared to 8.2 in 1H2015.
Key considerations
In the US, the average number of rigs in 2Q 2016 fellby 24% compared to 1Q 2016 (Baker Hughes).
OCTG shipments decreased by 43% quarter-on-quarter (Preston Pipe Report). At the same time,OCTG inventories increased to an average 10.8months compared to 9.5 in 1Q 2016.
2Q 2016
1H 2016
0
20
40
60
80
100
120
0
400
800
1,200
1,600
2,000
2,400
Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Aug-16
Cru
de
oil
pri
ce (
$/B
bl)
US
Rig
co
un
t
Oil Gas Crude Oil WTI Spot
3
6
9
12
15
18
1.6
2.0
2.4
2.8
3.2
3.6
Jan-09 Feb-10 Feb-11 Mar-12 Apr-13 Apr-14 May-15 Jun-16
Mo
nth
s o
f In
ven
tory
Ab
solu
te i
nv
ento
ry, m
ln t
on
nes
Monthly Absolute Inventory Months of Inventory
2Q 2016 Results
8
568
284
598
298
0
200
400
600
Seamless Welded
Th
ou
san
dto
nn
es
1Q2016 2Q2016
759
50 43
784
65 47
0
200
400
600
800
Russia America Europe
Th
ou
san
d t
on
nes
1Q2016 2Q2016
9
2Q 2016 Sales by Division and Product Group
Source: TMK data
Sales by division
Sales by product group
Russian division sales increased QoQ, due to higher seamless and welded industrial pipe volumes.
American division sales increased, predominantly as a result of higher seamless OCTG and welded line pipe volumes.
European division sales increased by 9% QoQ, as a result of higher seamless pipe volumes.
Seamless pipe sales increased QoQ, due to higher seamless industrial pipe volumes at the Russian division and improved OCTG sales at the American division.
Welded pipe sales increased QoQ, mostly due to higher welded industrial pipe volumes at the Russian division.
Total OCTG sales demonstrated a marginal QoQ growth, with slightly lower volumes at the Russian division and increased sales at the American division.
9%
3%
31%
5%
5%
862
1,309
954933
1,140932
0
200
400
600
800
1,000
1,200
1,400
Russia America Europe
US
$/t
on
ne
1Q2016 2Q2016
655
6541
731
7547
0
200
400
600
800
Russia America Europe
US
$ m
ln
1Q2016 2Q2016
10
2Q 2016 Revenue by DivisionRevenue Revenue per tonne*
Source: Consolidated IFRS financial statements, TMK data
Results for 2Q 2016 at the Russian division recognized a positive effect of currency translation. Excluding this effect, revenue would have been relatively flat QoQ.
Revenue for the American division increased QoQ due to higher sales.
Revenue for the European division increased QoQ, a result of higher seamless pipe sales.
Russian division revenue per tonne increased QoQ, mostly as a result of a positive effect of currency translation.
American division revenue per tonne decreased QoQ, as a result of an unfavorable pricing environment.
European division revenue per tonne decreased QoQ, mainly due to lower prices as a result of higher competition from imports.
* 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.
13%
8%
-13%12%
14%
-2%
146
-32
6
161
-22
4
-40
0
40
80
120
160
200
Russia America Europe
US
$ m
ln
1Q2016 2Q2016
11
2Q 2016 Adjusted EBITDA by DivisionAdjusted EBITDA Adjusted EBITDA margin
Source: TMK Consolidated IFRS financial statements, TMK data
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 increased QoQ, mostly due to a positive effect of currency translation.
The American division continued to be affected by low pipe sales combined with a further decline in prices.
European division Adjusted EBITDA declined QoQ, mainly as a result of unfavorable seamless pipe pricing.
Russian division Adjusted EBITDA margin remained flat QoQ.
European division Adjusted EBITDA margin decreased QoQ, mainly due to weaker pricing.
-30%
11%22%
-48%
15%
22%
-30%
9%
-50%
-25%
0%
25%
Russia America Europe
%
1Q2016 2Q2016
1H 2016 Results
12
1,234
747
1,167
582
0
200
400
600
800
1,000
1,200
1,400
Seamless Welded
Th
ou
san
d t
on
nes
1H2015 1H2016
1,615
267 100
1,543
115 900
600
1,200
1,800
Russia America Europe
Th
ou
san
d t
on
nes
1H2015 1H2016
13
1H Sales by Division and Product Group
Source: TMK data
Sales by division
Sales by product group
Russian division sales decreased YoY, mainly affected by lower LD pipe volumes in 1H 2016 compared to record high demand in 1H 2015 and a sharp decline in welded OCTG sales at the American division.
A dramatic YoY decrease in rig count combined with E&P spending cuts in the North American market led to a significant decline in pipe sales at the American division.
European division sales decreased due to lower seamless pipe volumes, resulting from a decline in pipe consumption in the European market.
Seamless pipe volumes decreased YoY, as a result of lower seamless pipe sales at the American division.
Welded pipe sales decreased YoY, largely due to a sharp decline in welded OCTG volumes at the American division combined with lower LD pipe sales at the Russian division.
Total OCTG sales decreased by 14% YoY, largely as a result of a sharp decline at the American division.
-5%
-4%
-57%-10%
-22%
1,056
1,788
1,136898 1,213
942
0
300
600
900
1,200
1,500
1,800
Russia America Europe
US
$/t
on
ne
1H2015 1H2016
1,706
477
114
1,386
14088
0
600
1,200
1,800
Russia America Europe
US
$ m
ln
1H2015 1H2016
14
1H 2016 Revenue by DivisionRevenue Revenue per tonne*
Source: Consolidated IFRS financial statements, TMK data
Revenue for the Russian division decreased YoY, due to a negative effect of currency translation. Excluding this effect, revenue would have remained stable year-on-year.
Revenue for the American division dropped YoY, as a result of a significant decrease in pipe volumes coupled with weaker pricing.
Revenue for the European division fell YoY, due to lower seamless pipe sales and weaker pricing.
Russian division revenue per tonne decreased YoY, primarily due a negative effect of currency translation.
American division revenue per tonne fell due to lower prices.
European division revenue per tonne decreased YoY, as a result of an unfavorable pricing environment in the European market.
* 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.
-19%
-71%
-22%
-15%
-32%
-17%
324
12 20
307
-54 10
-50
0
50
100
150
200
250
300
350
Russia America Europe
US
$ m
ln
1H2015 1H2016
19%
2%
18%
22%
12%
-4%
-1%
2%
5%
8%
11%
14%
17%
20%
23%
Russia America Europe
%
1H2015 1H2016
15
1H 2016 Adjusted EBITDA by DivisionAdjusted EBITDA Adjusted EBITDA margin
Source: TMK Consolidated IFRS financial statements, TMK data
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, due to a negative effect of currency translation.
American division Adjusted EBITDA dropped YoY, following a sharp decline in sales and pricing.
European division Adjusted EBITDA fell YoY, partially due to a decline in seamless pipe prices.
Russian division Adjusted EBITDA margin increased YoY, as a result of higher prices, cost saving measures and better seamless pipe product mix.
European division Adjusted EBITDA margin decreased YoY, mostly due to lower pricing of seamless pipe.
-50%
-38%
-5%
16
Seamless – Core to Profitability
Source: Consolidated IFRS financial statements, TMK data
Sales of seamless pipe generated 68% of total Revenue both in 2Q 2016 and for 1H 2016.
Gross Profit from seamless pipe sales represented 82% of 2Q 2016 total GP 87% of 1H 2016 GP.
Gross Profit Margin from seamless pipe sales amounted to 27% in 2Q 2016 and for 1H 2016.
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.
1H 2016 gross profit breakdownU.S.$ mln(unless stated otherwise)
2Q 2016QoQ,
%1H 2016
YoY,
%
Sales - Pipes, kt 598 5% 1,167 -5%
Revenue 578 11% 1,100 -22%
Gross profit 157 11% 298 -13%
Margin, % 27% 27%
Avg revenue/tonne (US$) 965 5% 943 -17%
Avg gross profit/tonne (US$) 263 6% 256 -8%
Sales - Pipes, kt 298 5% 582 -22%
Revenue 233 14% 438 -44%
Gross profit 28 220% 37 -74%
Margin, % 12% 8%
Avg revenue/tonne (US$) 784 9% 754 -29%
Avg gross profit/tonne (US$) 94 205% 63 -66%
SE
AM
LE
SS
WE
LD
ED
Seamless86%
Welded11%
Other operations
3%
Working Capital and Debt Maturity Profile
17
18
Working Capital Position as at June 30, 2016
Source: TMK data
Changes in working capital
In 2Q 2016, there was a working capital release in the amount of US$87 mln, partially due to improved payment discipline of the clients and efficient work with suppliers.
For FY 2016 the Company expects some working capital release.
Source: TMK data
-59
150
82
-68 -56
87
-120
-80
-40
0
40
80
120
160
1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016
US
$ m
ln
US$ mln 2015 2016
1Q 2Q 3Q 4Q 6m 6m
Decrease/(increase) in inventories 6 92 (39) 39 98 14
Decrease/(increase) in trade and other receivables (6) 121 49 (49) 114 22
Decrease/(increase) in prepayments 12 7 (29) 29 19 15
Increase/(decrease) in trade and other payables (46) (77) (19) 19 (123) 40
Increase/(decrease) in advances from customers (24) 6 120 (120) (18) (60)
Working capital, US$ mln (59) 150 82 (82) 91 31
2015
138
317
23
436
19
123
393
560
500
265
44
267
2 27
16
100
67
347
-
265
64
28
10
403
3
3
326
213
500
29 22 106 19
0
100
200
300
400
500
600
3Q 4Q 1Q 2Q 3Q 4Q 2018 2019 2020 2025
US
$ m
ln
EUR
RUB
USD
19
Debt Maturity Profile as at June 30, 2016
Debt maturity profile as at June 30, 2016
Source: TMK management accounts, figures based on non-IFRS measures
As at June 30, 2016, total loan portfolio amounted to US$2,772 mln compared to US$2,738 mln as at December 31, 2015.
Weighted average nominal interest rate increased by 3 bps compared to December 31, 2015 to 9.09% as at the end of the reported period.
Credit Ratings:
− S&P: B+, Negative;
− Moody’s: B1, Negative.
In April 2016, TMK completed a placement of Russian rouble bonds for a total of 5 billion roubles with a 13% coupon per annum payable on a semi-annual basis. The bonds are listed on the Moscow Exchange.
In April 2016, the Company redeemed $177.5 million of 7.75% loan participation notes due 2018.
Debt currency structure
Source: TMK management accounts, TMK estimates
2016
USD56%
RUB41%
EUR3%
2017
20
Outlook
In Russia, TMK anticipates 3Q 2016 sales to be lower compared to 2Q 2016, mostly due to seasonally weaker OCTG demand and pre-planned maintenance works at TMK’s Russian plants. In 4Q 2016, the Company expects seasonally strong OCTG demand as the Russian oil and gas majors begin to stock up on pipes. Margins at the Russian division are expected to be similar to FY 2015, supported by strong OCTG demand and TMK’s ongoing cost-cutting program.
In the US, TMK expects a moderate increase in drilling activity during the second half of the year. The Company anticipates demand for new production and shipments to be somewhat dampened by the large distributor inventories built up during 15 months’ worth of declining rig count. As such, TMK expects demand from oil and gas companies to continue to improve in the fourth quarter of the year, to coincide with the start of a gradual recovery in prices.
Industrial pipe consumption in the European pipe market will somewhat decline in 3Q 2016, affected by the holiday season and a seasonal slowdown of business activity, while prices are expected to remain nearly flat quarter-on-quarter. In 4Q 2016, the Company expects an improvement in its sales and financial performance at the European division.
Overall, TMK anticipates an improved EBITDA performance in 2H 2016 driven by a gradual improvement at the American division and stable results at the Russian division. The Company expects the FY 2016 EBITDA margin to remain flat compared to FY 2015.
TMK Investor Relations
40/2a, Pokrovka Street, Moscow, 105062, Russia
+7 (495) 775-7600
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