Financial Presentation - TMK · 3 6 9 12 15 18 1.6 2.0 2.4 2.8 3.2 3.6 Jan-09 Feb-10 Mar-11 Mar-12...

Financial Presentation 3Q and 9m 2015 IFRS Results

November 24, 2015

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.

3Q and 9m 2015 Summary Financial Results and Market Update

3

4

3Q 2015 vs 2Q 2015 Summary Financial Highlights

Sales decreased QoQ, primarily due to lower LD pipe volumes and weaker sales of seamless pipe

Adjusted EBITDA fell QoQ, mainly as a result of a negative effect of currency translation and lower LD pipe sales in the Russian division

Revenue fell QoQ, mainly due to a negative effect of currency translation, unfavorable product mix of welded pipe and weaker seamless pipe sales in the Russian division

Net loss was $74 million as compared to net profit of $47 million for the second quarter of 2015

-2% QoQ

-27% QoQ

Source: TMK data

-21% QoQ

1,162

917

0

300

600

900

1,200

2Q2015 3Q2015

US

$ m

ln

97 8 963

0

200

400

600

800

1,000

2Q2015 3Q2015

Th

ou

san

d t

on

ne

s

172

125

15%14%

0%

3%

6%

9%

12%

15%

18%

0

60

120

180

2Q2015 3Q2015

EB

ITD

A m

arg

in, %

US

$ m

ln

47

-7 4

-80

-35

10

55

2Q2015 3Q2015

US

$ m

ln

5

9m 2015 vs 9m 2014 Summary Financial Highlights

Sales decreased YoY, due to lower pipe volumes in the American division

Adjusted EBITDA decreased YoY, mainly due to weaker results of the American division

Revenue fell YoY, mainly due to a negative effect of currency translation and a fall of sales in the American division

Net profit was $3 million as compared to $37 million for the first nine months of 2014

Source: TMK data

-7% YoY -29% YoY

-17% YoY -91% YoY

3,166 2,944

0

800

1,600

2,400

3,200

9m2014 9m2015

Th

ou

san

d t

on

ne

s

4,509

3,213

0

650

1,300

1,950

2,600

3,250

3,900

4,550

9m2014 9m2015

US

$ m

ln577

481

13%

15%

0%

3%

6%

9%

12%

15%

18%

0

100

200

300

400

500

600

9m2014 9m2015

EB

ITD

A m

arg

in, %

US

$ m

ln

37

3

0

10

20

30

40

9m2014 9m2015

US$ m

ln

11% 12% 13%

21%

29%

34%

0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 9m2015

%

6

Russian Market Overview

Share of horizontal drilling is growing

Growing oil drilling market in Russia

Source: Companies data, Citi equity research

Key considerations

In 3Q 2015, the Russian pipe market remained nearly flat QoQ, as a strong growth in industrial pipe demand was offset by lower LD pipe consumption, following suspension of South Corridor project.

In 3Q 2015, drilling in Russia increased by 6% QoQ. At the same time, OCTG market remained nearly flat QoQ, as stronger seamless OCTG demand did not compensate for lower welded OCTG consumption.

Line pipe market increased by 5% QoQ, following a generally higher activity on construction of infrastructure projects. At the same time, the LD pipe market in Russia fell by 28% QoQ, largely as a result of suspension of South Corridor project.

Industrial pipe market increased by 27% QoQ, mainly due to seasonally higher demand.

For 9m 2015, the Russian pipe market increased by 6%, largely due significant growth of LD pipe consumption, which increased by 60% YoY as a result of Gazprom’s higher pipeline construction activity.

OCTG pipe market remained almost flat YoY. Despite drilling growth by 8% YoY, consumption of OCTG was negatively affected by customers’ inventory adjustments.

For 9m 2015, line pipe consumption decreased by 5% partially also due to more cautious inventory management by the oil and gas producers.

The industrial pipe market decreased by 12% YoY, mainly as a result of lower demand from construction industry.

Source: Citi equity research, TMK data

No

n-E

ner

gy

En

erg

y

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

to

nn

es

3Q 2015 vs. 2Q2015

9m 2015 vs. 9m 2014

3

6

9

12

15

18

1.6

2.0

2.4

2.8

3.2

3.6

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

Mo

nth

s o

f In

ven

tory

Ab

solu

te i

nv

ento

ry,

mln

to

nn

es

Monthly Absolute Inventory Months of Inventory

0

20

40

60

80

100

120

0

400

800

1,200

1,600

2,000

2,400

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

Cru

de

Oil

Pri

ce (

$/B

bl)

US

Rig

Co

un

t

Oil Gas Crude Oil WTI Spot

7

U.S. Market Overview

Drop in rig count followed drop in oil prices

Lower consumption pushed inventory levels to 8.2 months in September 2015

Source: Preston Pipe & Tube Report

Source: Baker Hughes, Bloomberg

Key Considerations

According to Baker Hughes, the average number of rigs in 3Q 2015 fell by 5% QoQ, following a continued decline in oil prices.

According to the Preston Pipe Report, OCTG shipments fell by 26% QoQ. At the same time, the number of months of OCTG inventory decreased to 8.5 compared to 9.6 in the previous quarter.

Pipe Logix data shows that, in 3 Q2015, the average composite OCTG seamless and welded prices decreased by 9% and 8% respectively, compared to the second quarter of 2015.

According to Baker Hughes, the average rig count declined by 43% for 9m 2015 YoY. The decrease was due to the continuing slump of oil prices, which resulted in a lower demand for OCTG and growth of pipe inventories.

OCTG local shipments dropped by 44% YoY. The decrease was driven by continued weak demand and high volumes of welded OCTG imports.

According to Pipe Logix, both average composite OCTG seamless and welded prices decreased by 12% YoY.

3Q 2015 vs. 2Q2015

9m 2015 vs. 9m 2014

3Q 2015 vs 2Q 2015 Results

8

604

37 3

57 1

391

0

125

250

375

500

625

Seamless Welded

Th

ou

san

dto

nn

es

2Q2015 3Q2015

845

8350

826

9839

0

170

340

510

680

850

Russia America Europe

Th

ou

san

d t

on

ne

s

2Q2015 3Q2015

9

3Q 2015 vs 2Q 2015 Sales by Division and Group of Product

Source: TMK data

Sales by division

Sales by group of product

Russian division sales decreased QoQ, mainly as a result of seasonally weaker seamless OCTG demand coupled with preplanned capital repairs of the main pipe rolling equipment, and lower LD pipe volumes, resulting from a suspension of South Corridor project.

American division sales grew QoQ, largely due to higher welded OCTG volumes.

European division sales dropped QoQ, as a result of lower seamless industrial pipe sales.

Seamless pipe volumes decreased by 5% QoQ, partially as a result of seasonally lower seamless OCTG and line pipe sales in the Russian division.

Welded pipe sales increased by 5% QoQ, mostly due to higher volumes of welded OCTG pipe in the American division.

Total OCTG sales declined by 1% QoQ, mostly due to seasonally lower volumes of OCTG in the Russian division.

19%

-5%

-2%

-23%

5%

1 ,134

1,809

1,09187 5

1,5471,094

0

400

800

1,200

1,600

2,000


US

$/

ton

ne

2Q2015 3Q2015

958

150 55

7 22

152 430

200

400

600

800

1,000


US

$ m

ln

2Q2015 3Q2015

10

3Q 2015 vs 2Q 2015 Revenue by Division Revenue Revenue per tonne*

Source: Consolidated IFRS financial statements, TMK data

Revenue for the Russian division decreased QoQ, as a result of a negative effect of currency translation, seasonally weaker seamless OCTG demand coupled with preplanned capital repairs of the main pipe rolling equipment, and lower LD pipe volumes, resulting from a suspension of South Corridor project.

Revenue for the American division increased QoQ, as growth from higher welded and seamless volumes was offset by unfavorable pricing and product mix.

Revenue for the European division decreased QoQ, largely due to lower volumes of seamless industrial pipe.

Russian division revenue per tonne decreased QoQ, partially due to unfavorable product mix of welded pipe resulting from lower LD pipe sales.

American division revenue per tonne decreased QoQ, as a result of unfavorable pricing environment.

European division revenue per tonne remained relatively flat QoQ.

* 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.

-25%

2%

-23%

0.2% -23%

-14%

179

-16

9

132

-10

3

-30

0

30

60

90

120

150

180


US

$ m

ln

2Q2015 3Q2015

11

3Q 2015 vs 2Q 2015 Adjusted EBITDA by Division Adjusted EBITDA Adjusted EBITDA margin

Source: TMK Consolidated IFRS financial statements, TMK data


Russian division Adjusted EBITDA dropped QoQ, largely due to a negative effect of currency translation and unfavorable product mix as a result of lower LD pipe sales, partially offset by lower SG&A expenses

American division Adjusted EBITDA increased QoQ, partially as a result of a reduction in SG&A expenses.

European division Adjusted EBITDA fell QoQ, as a result of lower volumes and unfavorable pricing environment on the European market.

Russian division Adjusted EBITDA declined QoQ, as a result of less favorable welded pipe product mix.

European division Adjusted EBITDA margin decreased QoQ, mainly due to unfavorable pricing on the European market.

-71%

-26% 19%

-11%

16%18%

-7 %

6%

-15%

-10%

-5%

0%

5%

10%

15%

20%


%

2Q2015 3Q2015

9m 2015 vs 9m 2014

12

1,858

1,308

1,806

1,139

0

400

800

1,200

1,600

2,000

Seamless Welded

Th

ou

san

d t

on

ne

s

9m2014 9m2015

2,286

7 42137

2,440

365 139

0

500

1,000

1,500

2,000

2,500


Th

ou

san

d t

on

ne

s

9m2014 9m2015

13

9m 2015 vs 9m 2014 Sales by Division and Group of Product

Source: TMK data

Sales by division

Sales by group of product

-3%

-51%

Russian division sales grew YoY, largely due to higher LDP volumes.

American division sales dropped YoY, mainly due to lower volumes across all pipe segments.

European division sales remained relatively flat YoY.

Seamless pipe volumes decreased YoY, as a result of lower seamless pipe sales in the American division partially compensated by higher volumes in the Russian division.

Welded pipe sales decreased YoY, largely due to lower welded OCTG pipe volumes in the American division, which was not fully compensated by stronger LD pipe sales in the Russian division.

Total OCTG sales decreased by 24% YoY, largely due to lower volumes in the American division.

-13%

1%

7%

1 ,323

1,717

1,299

995

1,7 23

1,124

0

300

600

900

1,200

1,500

1,800


US

$/

ton

ne

9m2014 9m2015

3,025

1 ,274

210

2,428

629 156

0

800

1,600

2,400

3,200


US

$ m

ln

9m2014 9m2015

14

9m 2015 vs 9m 2014 Revenue by Division Revenue Revenue per tonne*


Revenue for the Russian division decreased YoY, due to a negative effect of currency translation.

Revenue for the American division dropped YoY, as a result of significant decrease in volumes of both seamless and welded pipe.

Revenue for the European division fell YoY, mostly due to a negative effect of currency translation and lower steel billets sales.

Russian division revenue per tonne fell YoY, as a result negative effect of currency translation.

American division revenue per tonne remained relatively flat YoY.

European division revenue per tonne decreased YoY, as a result of unfavorable pricing environment.

* 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


-51%

-26%

-25% -13%

0.3% -20%

451

100 26

457

223

0

80

160

240

320

400

480


US

$ m

ln

9m2014 9m2015

15

9m 2015 vs 9m 2014 Adjusted EBITDA by Division Adjusted EBITDA Adjusted EBITDA margin

Source: TMK Consolidated IFRS financial statements, TMK data

-98%

1%


Russian division Adjusted EBITDA increased YoY, as a negative effect of currency translation was partially offset by significantly lower selling and administrative expenses.

American division Adjusted EBITDA dropped YoY, mainly as a result of lower pipe sales and unfavorable pricing environment.

European division Adjusted EBITDA fell YoY, due to lower volumes and unfavorable pricing environment on the European market.

Russian division Adjusted EBITDA margin increased YoY, largely due to favorable pricing and sales mix, particularly higher LD pipe volumes.

American division Adjusted EBITDA margin fell YoY, as a result of unfavorable pricing.

European division Adjusted EBITDA margin grew YoY, mostly as a result of higher share of seamless pipe in total sales.

-10%

15%

8%

12%

19%

0.3%

15%

0%

3%

6%

9%

12%

15%

18%

21%


%

9m2014 9m2015

16

Seamless – Core to Profitability


Sales of seamless pipe generated 64% of total Revenue in 3Q 2015 and 62% for 9m 2015.

Gross Profit from seamless pipe sales represented 88% of 3Q 2015 total Gross Profit and 74% of 9m 2015 total Gross Profit.

Gross Profit Margin from seamless pipe sales amounted to 27% in 3Q 2015 and 25% for 9m 2015.


3Q 2015 gross profit breakdown

Seamless88%

Welded10%

Other operations

2%

U.S.$ mln(unless stated otherwise)

3Q 2015QoQ,

%9m 2015

YoY,

%

Volumes- Pipes, kt 571 -5% 1,806 -3%

Revenue 581 -17% 1,992 -31%

Gross profit 157 3% 496 -29%

Margin, % 27% 25%

Avg revenue/tonne (US$) 1,027 -12% 1,103 -29%

Avg gross profit/tonne (US$) 275 9% 275 -27%

Volumes- Pipes, kt 391 5% 1,139 -13%

Revenue 294 -27% 1,084 -24%

Gross profit 17 -80% 157 13%

Margin, % 6% 14%

Avg revenue/tonne (US$) 752 -31% 952 -13%

Avg gross profit/tonne (US$) 43 -81% 138 30%

SE

AM

LE

SS

WE

LD

ED

Working Capital and Debt Maturity Profile

17

US$ mln 2014 2015

1Q 2Q 3Q 4Q 1Q 2Q 3Q 12m 9m

(Increase)/decrease in inventories -22 -25 -63 -21 6 92 -39 -130 78

(Increase)/decrease in trade and other receivables 27 6 -91 -19 -6 121 49 -76 95

Decrease in prepayments 6 -3 0 -24 12 7 -29 -21 -5

Decrease in trade and other payables -28 -44 44 69 -46 -77 -19 41 -54

Decrease in advances from customers -14 -2 -10 52 -24 6 120 26 34

Working capital, US$ mln -30 -67 -119 58 -59 150 82 -159 149

2014 2015

18

Working Capital Position as of September 30, 2015

Source: TMK data

Working capital position as of Sep 30, 2015

For 9m 2015, release of working capital in the amount of US$149 mln:

− Improved payment discipline of the major clients;

− Decrease in inventory levels.

Prepayments will enable incremental reduction of debt.

Source: TMK data

-30-67

-119

58

-59

150

82

-120

-80

-40

0

40

80

120

160

1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015

US

$ m

ln

32 32

143

99

344

469

562

421

500

262

27 16

17

92

6

414

504

163

500

414 25

528 171 2

101

2

310

39 58

258 262

0

100

200

300

400

500

600

4Q2015

1Q 2Q 3Q 4Q 2017 2018 2019 2020 3Q2025

US

$ m

ln

EUR RUB USD

USD 66%

RUB 31%

EUR 3%

USD 61%

RUB 36%

EUR 3%

19

Debt Maturity Profile as of November 20, 2015

Debt maturity profile as of November 20, 2015

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

As of September 30, 2015, total loan portfolio amounted to US$2,761 mln based on management accounts compared to US$3,148 mln as of December 31, 2014.

More than 85% of total bank loans are with the major Russian banks.

Weighted average interest rate 8.79% compared to 9.07% as of June 30, 2015.

Credit Ratings:

− S&P: B+, Negative;

− Moody’s: B1, Negative.

In October-November 2015, TMK redeemed $91.78 million of $500 million 7.75% loan participation notes due 2018. Following settlement of the transaction outstanding amount of the Eurobonds is $408.22 million.

Debt currency structure

September 30, 2015 November 20, 2015

Source: TMK management accounts, TMK estimates

2016

20

Outlook

For the fourth quarter of 2015, the Company expects stronger financial results compared to the third quarter 2015, partially due to seasonally higher OCTG demand on the Russian market.

U.S. demand for OCTG will remain low for the remainder of the year as drilling volumes continue to decline. A gradual recovery of the North American pipe market is not expected until the second half of 2016, subject to oil price growth, an increase in drilling volumes and stable or improved monthly inventory reduction.

For the full year 2015, TMK expects a decrease in overall pipe sales, revenue and EBITDA compared to the full year 2014. But nevertheless, the Company anticipates improvement of its EBITDA margin, which along with a stronger cash flow generation should support significant net debt reduction for the full year 2015, subject to stable exchange rate in the fourth quarter of 2015.

TMK Investor Relations

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

+7 (495) 775-7600

[email protected]

Thank you!

Financial Presentation - TMK · 3 6 9 12 15 18 1.6 2.0 2.4 2.8 3.2 3.6 Jan-09 Feb-10 Mar-11 Mar-12...

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