Tmk · RUS:TRMK
Tmk — Investor Presentation (March 2019)
54 slides from Tmk's investor presentation, March 2019
Slide 1: TMK IR Presentation March 2019
TMK IR PRESENTATION March 2019
Slide 2: Contents
Contents Company Overview………………………………………………………... 3 TMK Russian Division: Market Overview……………………………….. 10 TMK American Division: Market Overview……………………………… 18 Strategic Overview………………………………………………………… 26 Environmental, Social & Governance…………………………………… 29 Summary Financial Results………………………………………………
Slide 3: Company Overview
Company Overview 3
Slide 4: TMK – Global Supplier of Full Range of Pipes for Oil and Gas Industry
TMK– Global Supplier of Full Range of Pipes for Oil and Gas Industry More than 20 production sites in Russia, the USA, Canada, Romania and Kazakhstan, with trade offices in 10 countries 2018 global drilling activity Russia: by geography (number of wells drilled)(a) 11 production facilities 1 tra
Slide 5: TMK Today – Key Investment Highlights
TMK Today – Key Investment Highlights Industry-leading market position and large modern asset base 1 Dominant #1 player in seamless OCTG industry in Russia and Top-3 in the US State-of-the-art underutilised production base with major investments completed over 10 years in 2004-14 Established l
Slide 6: TMK Market Exposure
TMK Market Exposure OCTG consumption in Russia and the US Global E&P investments (m tonnes) (US$ bn nominal) 800 10 Russia US 700 8.4 8 7.6 7.7 600 6.9 Australia 500 Europe 6 5.6 Africa 400 South America 6.5 5.4 5.7 4.4 4.6 Asia 4 300 3.8 Russia 2.5 200 Middle East 2 2.3 2.3 100 2.0 1.9 1.8 1.9 Nort
Slide 7: TMK – Superior Earnings Resilience Through the Cycle
TMK – Superior Earnings Resilience Through the Cycle 4 288 4 402 3 989 3 871 3 784 3 458 3 661 3 675 3 571 1 866 1 842 1 246 1 461 1 113 1 049 885 2 618 877 1 046 2 633 2 364 Total 2 159 2 323 2 256 605 1 990 461 pipes sales 355 1 411 2 790 1 281 volume 2 422 2 560 2 410 2 412 2 671 2 743 2 612 2 02
Slide 8: Vertically Integrated Model Ensuring Margin Stability
Vertically Integrated Model Ensuring Margin Stability Operating in one of the lowest cost regions for steel Steel products price volatility production globally (US$/t) Fully vertically integrated seamless pipe production (upstream 590 596 and downstream) across all regional divisions 543 556 531
Slide 9: Strong Position in Multiple End-Markets for Pipes Beyond Oil & Gas
Strong Position in Multiple End-Markets for Pipes Beyond Oil & Gas Automotive Civil Construction TMK-ARTROM is qualified as an authorised supplier for Galvanised pipe for the outer steel frame of the Otkritie such companies as Dacia (a subsidiary of Renault) Arena stadium in Moscow Supplier fo
Slide 10: TMK Russian Division: Market Overview
TMK Russian Division: Market Overview 10
Slide 11: Oil Production in Russia Remains Strong and Creates Long-term Demand
Oil Production in Russia Remains Strong and This Creates Long-term Demand for High-End Oil & Field Services Annual average oil production increased 1.6% YoY and came to 11.2 MMbd in 2018 Gradual stagnation of oil production from brownfields is accompanied by development of greenfield projects Ru
Slide 12: Attractive Portfolio of Premium OCTG Projects
Attractive Portfolio of Premium OCTG Projects 12
Slide 13: TMK's Home Market is One of the Lowest Cost Oil Producing Regions
TMK’s Home Market is One of the Lowest Cost Oil Producing Regions Global oil production supply curve Coal to Liquid Gas to Liquid 125 Low-cost supply completely in the money at current Brent price Asia DW (3) Permian tight 100 Breakeven price (U.S.$/Boe)(1) Bakken Oil Sands Canadian (primarily Brazi
Slide 14: Russian Tube and Pipe Market
Russian Tube and Pipe Market 12 10 8 mln tonnes Non-Energy 6 4 Energy 2 0 2019E 2020E 2021E 2022E 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: TMK estimates No.1 on the Russian tube and pipe market 33% market share of energy pipe demand 2018 2018 TMK TMK 24% 33%
Slide 15: Strong Position on the Domestic Market
Strong Position on the Domestic Market TMK share of seamless OCTG remains high Seamless OCTG market share, % Development of conventional and unconventional reserves will require the use of non-conventional drilling techniques and reliable OCTG products 26% Russian seamless OCTG market is strong
Slide 16: LDP Demand in Russia
LDP Demand in Russia LDP demand in Russia, 2013–2022E Booming market 3,500 15% 3,000 2,500 20% '000 tonnes 20% 2,000 26% 25% 22% 22% 26% 25% 24% 1,500 31% 30% 15% 11% 12% 12% 30% 12% 13% 14% 65% 12% 1,000 26% 54% 59% 64% 66% 66% 63% 63% 500 54% 58% 44% 0 2012 2013 2014 2015 2016 2017 2018 2019F 2020
Slide 17: Strategic Cooperation Supporting Growth
Strategic Cooperation Supporting Growth Strategic cooperation with key customers Technology Partnership Scientific and Program Technological Cooperation Partnership Memorandum Long-term agreements with key customers to develop and supply innovative premium products with related services will stren
Slide 18: TMK American Division: Market Overview
TMK American Division: Market Overview 18
Slide 19: Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production
Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production… Supply cuts from OPEC+ and Canada have U.S. crude oil production brought the market into balance and stabilized 12 10.9 prices. 10 9.4 9.4 8.8 8.8 7.5 Capex spending in oil and gas continues to focus 8 6.5 on US shale drilling
Slide 20: Which is Sustainable in the Long Term at Current Oil Price Levels
… Which is Sustainable in the Long Term at Current Oil Price Levels Continental U.S. tight oil cost curve 120 Niobrara 100 Eagle Ford Breakeven U.S.$/bbl Brent equivalent 80 Mid- continent 2018 WTI average 60 price 40 Bone Spring (Permian) Bakken Wolfcamp (Permian) 20 Other 0 0 1 2 3 4 5 6 7 8 Cumul
Slide 21: Driving Increasing Unconventional Horizontal Drilling
Driving Increasing Unconventional Horizontal Drilling … Horizontal and directional drilling represents 94% of U.S. active rig count by type of drilling all US drilling activity in 2018 100 13 11 7 6 22 17 32 31 27 According to Spears & Associates estimates, 2018 75 % as of year end U.S. drilling
Slide 22: Growing Rig Count and Footage Drilled per Rig
…Growing Rig Count and Footage Drilled per Rig … U.S. average annual rig count(1) Footage drilled per rig 2,500 (000’s) 350 2,000 1,879 1,919 1,862 313 1,761 300 284 1,546 273 271 1,500 250 1,032 211 217 978 1,000 876 191 200 169 172 509 500 150 0 100 2010 2011 2012 2013 2014 2015 2016 2017 2018 201
Slide 23: Resulting in OCTG Consumption Growth
… Resulting in OCTG Consumption Growth … OCTG consumption per rig has nearly doubled OCTG consumption per rig since January 2013, allowing for significant 2,500 550 Consumption per rig (tonnes/month) recovery in the sector despite having fewer than 500 half of the rigs in operation 2,000 U.S. rig
Slide 24: Inventory Normalization, Higher Efficiency
… Inventory Normalization, Higher Efficiency … Despite months of inventory having reached 2014 Increased shipment levels bring months-of-inventory levels, the monthly absolute inventory is back to pre-downturn levels meaningfully below pre-crisis levels due to higher 15 industry efficiency: 3.4 Mo
Slide 25: and Growth of OCTG Prices
… and Growth of OCTG Prices U.S. distributor welded OCTG vs. HRC prices (U.S.$/tonne, monthly average) Prices have rallied from the low in April 2016. 2,100 1,900 Since the trough, welded OCTG prices increased by 55% and seamless OCTG 1,500 prices by more than 40% 1,400 1,100 Following the imple
Slide 26: Strategic Overview
Strategic Overview 26
Slide 27: Key Strategic Pillars
Key Strategic Pillars Enhance leadership Dominate the Russian OCTG and line pipe markets in key segments Remain in the TOP 3 leading OCTG producers in the USA and enter new Increase the share of high-tech products in the Russian division’s revenue to 50% by 2022 and product niches maintain a l
Slide 28: Maturity Profile as at December 31, 2018
Maturity Profile as at December 31, 2018 As at December 31, 2018, Net Debt amounted to US$2,437 mln 700 663 In January 2018, TMK fully redeemed the EUR remaining part of its US$500 mln 7-year Eurobond RUB issue in the total nominal value of US$231 mln 600 USD The weighted average nominal inter
Slide 29: Environmental, Social & Governance
Environmental, Social & Governance 29
Slide 30: Corporate Governance
Corporate Governance The Board of Directors Directors DMITRY PUMPYANSKIY 5 Independent Directors Chairman Independent Directors Non-Executive Director Chairman of the Committee 11 4 Non-Executive Directors 2 Executive Directors ALEXANDER SHIRYAEV SERGEY KRAVCHENKO CEO Chairman of the Executive Direc
Slide 31: Focus on Environmental Protection as a Foundation for Business Sustainability
Focus on Environmental Protection as a Foundation for Business Sustainability Environmental management system Key results in 2018 -1% YoY 95.32% 11 TMK’s plants Environmental monitoring total pollutant emissions water supply confirmed their All Russian division plants have into atmosphere is recycle
Slide 32: Focus on Health & Safety and Social Responsibility
Focus on Health & Safety and Social Responsibility as a Foundation For Business Sustainability Health & Safety – key results in 2018 Corporate social responsibility $11 mln Comprehensive charity Health & safety expenditure program +14% YoY in 2018 Through sponsorship and charity, Steel Safety Day-20
Slide 33: Summary Financial Results
Summary Financial Results 33
Slide 34: FY Consolidated Results Snapshot
FY Consolidated Results Snapshot Revenue Volumes and realised prices Average 6,000 37.97 60.66 66.90 58.35 62.71 USD/RUB rate(a) Average US$1,464 US$1,078 US$970 US$1,152 US$1,294 5,000 revenue/ tonne US$1,085 US$921 US$796 US$976 US$1,021 US$ mln 4,000 5,000 4,402 Thousand tonnes 3,871 3,784 3,989
Slide 35: Gross Margin, SG&A and Cash Conversion
Gross Margin, SG&A and Cash Conversion Gross margin SG&A and corporate overheads(a) 30% 26% 800 24% 25% 693 24% 23% 600 524 544 518 20% 437 US$ mln % 12% 13% 400 10% 10% 8% 5% 200 0% 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Seamless Welded Capex and cash conversion(b) Key considerations 6
Slide 36: Segmental Quarterly Performance Dynamics
Segmental Quarterly Performance Dynamics Russian division American division European division 760 756 812 675 734 740 687 745 Sales volume 210 190 205 (ths.tonnes) 185 199 199 128 158 45 48 42 50 47 53 48 52 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 1Q 172Q 173Q 174Q 171Q 182Q 183Q 182Q 18 1Q
Slide 37: 4Q 2018 vs. 3Q 2018 Summary Financial Highlights
4Q 2018 vs. 3Q 2018 Summary Financial Highlights Revenue increased QoQ, reflecting higher pipe sales at the Sales increased QoQ across all divisions Russian and American divisions 8% QoQ 5% QoQ 1,200 1,500 Thousand tonnes 900 US$ mln 1,000 600 925 1,002 1,207 1,264 500 300 0 0 3Q2018 4Q2018 3Q2018 4
Slide 38: FY 2018 vs. FY 2017 Summary Financial Highlights
FY 2018 vs. FY 2017 Summary Financial Highlights Revenue increased YoY, driven by stronger results at all three Sales were up YoY across all divisions divisions 5% YoY 16% YoY 4,200 6,000 Thousand tonnes 3,600 5,000 3,000 US$ mln 4,000 2,400 3,989 3,000 1,800 3,784 5,099 2,000 4,394 1,200 600 1,000
Slide 39: Seamless – Core to Profitability
Seamless – Core to Profitability US$ mln QoQ, YoY, FY 2018 gross profit breakdown 4Q2018 12M2018 (unless stated otherwise) % % Other operations Sales - Pipes, kt 738 22% 2,743 3% Welded 3% 7% Revenue 950 18% 3,550 15% SEAMLESS Gross profit 221 15% 824 13% Margin, % 23% 23% Avg revenue/tonne (US$) 1,
Slide 40: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 40
Slide 41: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$mln)(a) 2018 2017 2016 2015 2014 2013 Revenue 5,099 4,394 3,338 4,127 6,009 6,432 Adjusted EBITDA(b) 700 605 530 651 829 986 Adjusted EBITDA Margin(b)(%) 14% 14% 16% 16% 14% 15% Profit (Loss) 0 30 166 -368 -217 215 Net Profit Margin (%) 0% 1% 5% n/a n/a 3% P
Slide 42: Income Statement
Income Statement (US$ mln) 2018 2017 2016 2015 2014 2013 Revenue 5,099 4,394 3,338 4,127 6,009 6,432 Cost of sales (4,183) (3,521) (2,634) (3,282) (4,839) (5,074) Gross Profit 916 872 704 845 1,169 1,358 Selling and Distribution Expenses (231) (261) (220) (260) (350) (379) General and Administrative
Slide 43: Statement of Financial Position
Statement of Financial Position (US$ mln) 2018 2017 2016 2015 2014 2013 ASSETS Cash and Cash Equivalents 392 491 277 305 253 93 Accounts Receivable 878 871 689 512 728 995 Inventories 1,066 1,121 769 785 1,047 1,324 Prepayments 101 139 107 113 113 148 Other Financial Assets 13 0 42 0 1 0 Total Curre
Slide 44: Cash Flow
Cash Flow (US$ mln) 2018 2017 2016 2015 2014 2013 Profit / (Loss) before Income Tax 45 78 169 (443) (201) 312 Adjustments for: Depreciation and Amortisation 268 263 242 251 304 326 Net Finance Cost 232 268 263 269 226 245 Others 137 (260) (154) 552 479 61 Working Capital Changes (145) (253) (13) 105
Slide 45: Appendix – Capital Structure
Appendix – Capital Structure 45
Slide 46: Capital Structure
Capital Structure Capital structure Key considerations TMK’s securities are listed on the London Stock Free float** 34.90% Exchange and the Moscow Exchange As of December 31, 2018 35% of TMK ordinary shares were in free float TMK Steel Holding Ltd, * Total shares outstanding amount to 1,033,13
Slide 47: Appendix – TMK Products
Appendix – TMK Products 47
Slide 48: Wide Range of Products
Wide Range of Products Seamless Welded Premium Threaded pipes for the oil Threaded pipes for the oil Premium connections are and gas industry including and gas industry including proprietary value-added drill pipe, casing and drill pipe, casing and products used to connect tubing. tubing. OCTG pipes
Slide 49: TMK Premium Product Offering
TMK Premium Product Offering TMK connections series Premium products and services TMK to maintain its share of premium connections Higher resistance to torque Easy and reliable make-up market with greater focus on sales of 2nd and 3rd for casing while drilling and Comprises connections with genera
Slide 50: Premium Solutions: TMK UP
Premium Solutions: TMK UP ULTRA SF ULTRA SFII ULTRA FJ ULTRA FX ULTRA CX ULTRA QX SXC ULTRA DQX ULTRA DQXHT TMK BPN TMK-2S ULTRA GX ULTRA QX 2003 2013 2003 2003 2008 2009 2009 2011 2013 2013 2013 2016 TORQ 2016 Cal IV Cal IV Cal IV Cal II Cal IV Cal II Cal II TWCCEP Unique range of Premium products
Slide 51: Utilisation of TMK Pipe Products in Oil and Gas Industry
Utilisation of TMK Pipe Products in Oil and Gas Industry OCTG – Oil Country Tubular Goods (drilling, casing, tubing) used for oil & gas exploration, well fixing and oil & gas production (48% of total sales in FY 2018) Line pipe – used for short distance transportation of crude oil, oil products
Slide 52: Appendix – Other Materials
Appendix – Other Materials 52
Slide 53: TMK's Undisputed Market Leading Position in Russia
TMK’s Undisputed Market Leading Position in Russia Seamless Welded Premium OCTG TMK Line Pipe Premium TMK 28% TMK Connections Threaded pipes for O&G Short-distance 63% industry including drill transportation of O&G 67% (TMK UP) pipe, casing and tubing and oil products Premium connections are proprie
Slide 54: TMK Investor Relations
TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 [email protected]