Tmk · RUS:TRMK
Tmk — Investor Presentation (March 2014)
46 slides from Tmk's investor presentation, March 2014
Slide 1: TMK Investor Presentation March 2014
PROPRIETARY & CONFIDENTIAL TMK Investor Presentation March 2014
Slide 2: Disclaimer
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 offic
Slide 3: Growing Confidence
Growing Confidence Strong demand in key Russian domestic market driven by O&G majors’ upstream capex growth US volumes likely to improve amid signs that prices are stabilising – Coal/Gas switching in power generation – Export of LNG starting – Economic recovery – US manufacturing renaissance as
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 Capacity North Russia Europe Total (tons) America and CIS Steelmak ing 540,000 450,000 2,700,000 3,690,000 Seamless Pipes 350,000 220,000 2,412,000 2,982,000 Welded Pipes 1,040,000 2,423,000 3,463,000 Heat Treat 550,000 1,540,000 2
Slide 5: Leading Global Supplier of Pipes for Oil and Gas Industry
Leading Global Supplier of Pipes for Oil and Gas Industry A world leading tube producer by sales volumes in 2013 and last 4 years Sales Volumes (thousand tonnes) 4,186 4,237 4,287 3,962 1,844 1,743 1,866 1,843 Seamless pipes Welded pipes 2,119 2,342 2,494 2,422 2010 2011 2012 2013 Source: TMK data
Slide 6: Diversified Business Model
Diversified Business Model Diversified Product Portfolio and Customer Base Key Considerations Sales Volumes by Product (2013) High degree of diversification enabling earnings Welded OCTG 11% resilience. Seamless OCTG Welded LD 32% Geographical diversification seeking to mitigate swings 10% in ge
Slide 7: Group Wide Confidence Based on Solid Industry Fundamentals
Group Wide Confidence Based on Solid Industry Fundamentals Complex unconventional drilling in both US and Russia forecast to grow, Russian horizontal drilling forecast to grow by CAGR 14% in 2012-15 Forecast horizontal drilling in Russia 2012-2015 CAGR 14% 4,400 4,500 4,000 4,000 3,600 3,500 3,000
Slide 8: Group Wide Confidence Based on Solid Industry Fundamentals
Group Wide Confidence Based on Solid Industry Fundamentals Growing requirement for customer specific solutions plays to TMK strengths – Arctic steel – High temperature SAGD – Corrosion resistance – Premium connections – “fit for purpose” Pricing improvement anticipated in US when trade case is s
Slide 9: Russian Market Overview
Russian Market Overview Our goals is to extract even more value from our market leading position TMK enjoys market leading position in the Russian market of Seamless OCTG TMK’s focus on seamless pipes is reflected in its market shares in Russia TMK’s market shares in the Russian market (%) for F
Slide 10: Russian Market Overview
Russian Market Overview And Continued investment in technology solutions, R&D and oil field services enhancing our position Demand is growing particularly for solutions in complex, unconventional drilling where our product suite provides clear market advantages Russian oil production 11,300 Prir
Slide 11: Solutions, not Product, the Differentiator
Solutions, not Product, the Differentiator Increase in unconventional drilling requires a different approach Increase in usage of seamless pipe Horizontal drilling increasing demand for premium threads, heat treated pipe and connections Differentiation through both R&D and working on solutio
Slide 12: Changing Approach to Product Mix
Changing Approach to Product Mix Traditional approach of supplying conventional product at market prices Focus now on supplying higher value, higher margin product Seamless OCTG sales now account for 35% of Russian sales Stable high margin in seamless business 30% 28% 65% Share of seamless p
Slide 13: Low Cost Vertically Integrated Producer
Low Cost Vertically Integrated Producer Raw Materials Costs can Generally be Passed Through to Key Considerations Customers Structural cost advantages over major international competitors: Cost of Sales Structure (2013) Russia is one of the lowest cost regions for steel production. Repairs and Oth
Slide 14: Our Take on the US Market
Our Take on the US Market Pricing of natural gas is key demand driver and factor in improvement of market product mix By 2016 US will start exporting LNG Gas/coal switching for electricity generation already happening with additional catalysts from improving air standards (MATS) and CO2 emissi
Slide 15: US Pricing Environment
US Pricing Environment Average prices for welded and seamless OCTG decreased by 10% and 9% YoY respectively Average spread between welded and seamless prices increased from 16.7% to 17.4% Prices began to stabilize in 4Q 2013 Based on the preliminary DOC decision, TMK expects prices to remain
Slide 16: US Market Stabilising
US Market Stabilising US demand has been difficult with drop in natural gas drilling activity and product mix deterioration Premium Tubular Content Increasing With Unconventional Drilling Activity Increasing Long Laterals Drive Growth US Oil and Gas Rigs by Type of Drilling Footage Drilled (Millio
Slide 17: Increasing Complexity of Lateral Drilling Fuelling Demand
Increasing Complexity of Lateral Drilling Fuelling Demand The “Octopus” Structure • 1 pad, 50 wells – a whole lot of pipe Taken from Brian Hicks article “The Strangest Looking Octopus You’ll ever see” December 13th 2012 Energy and Capital 17
Slide 18: Canadian Market Improving
Canadian Market Improving Premium tubular content increasing with Natural Gas and SAGD drilling activity Footage Drilled by Rig Type Wells Drilled by Type 80 12,000 10,000 60 8,000 Mln feet 40 6,000 4,000 20 2,000 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Oil Gas Dry Service Oil Gas Dr
Slide 19: Our New Approach Driving Growth
Our New Approach Driving Growth TMK strength lies in its diversity Group has full range of products for conventional and unconventional markets US wide presence- being close to the customer TMK strength lies in its technology Deliberate move from commodity product to technology led solutions
Slide 20: US Outlook
US Outlook Management increasingly confident of meeting sales growth targets Better visibility from being on major programmes Better margins/mix following new product launches EBITDA margin bottomed in Q1 2013 and rose to 11% in 4Q 2013 100 25% Adjusted EBITDA, US$ mln 21% 80 20% EBITDA Marg
Slide 21: Premium Solutions: TMK UP
Premium Solutions: TMK UP ULTRA-SF ULTRA-FJ ULTRA-FX ULTRA CX ULTRA QX ULTRA DQX Unique range of Premium products 2003 2003 2003 2008 2009 2011 − Onshore/offshore − Sour gas − Thermal − Arctic − Horizontal and extended reach − Drilling with casing Cal II Cal IV Cal IV Cal IV Cal II − Steam-Assiste
Slide 22: New Product Development and New Customer Focus in US & Canada
New Product Development and New Customer Focus in US & Canada Whilst volumes are increasing marginally, New Year launch of higher margin/value solutions will further drive revenue growth Moving up the value chain Severe Duplex Stainless Steel High Ni Alloy Super 13Cr 13Cr CO2 partial pressure (atm
Slide 23: Other US & Canada Challenges to Address
Other US & Canada Challenges to Address Benefits may be offset with new incoming (US) domestic capacity Duties may be lower than desired by domestic producers Removed tonnage may be redirected to Canadian market BP Macondo accident has made approval process for new technologies for Deep Offs
Slide 24: Deleveraging and Capex Plan
Deleveraging and Capex Plan Total $1.1bn capex programme for three years which translates to $300-400 mln per year with a $100 mln annual maintenance capex US$mln 840 445 395 402 397 314 371 2008 2009 2010 2011 2012 2013 2014E Source: TMK data Focus of capex programme has been seamless pipes and
Slide 25: FY 2013 Summary Financial Highlights
FY 2013 Summary Financial Highlights Revenue declined YoY mainly due to lower sales of Sales increased YoY mainly due to higher volumes seamless pipe in the Russian division and a of welded OCTG pipe negative effect of currency translation 4,500 1% YoY -4% YoY 7,200 3,600 Thousand tonnes 5,400 U.S.$
Slide 26: FY 2013 Sales by Division and Group of Product
FY 2013 Sales by Division and Group of Product FY 2013 Sales by Division -2% 3,200 Russian division sales declined YoY mostly due to lower 2,800 OCTG and line pipe volumes. Thousand tonnes 2,400 2,000 American division sales increased YoY due to higher welded 1,600 and seamless OCTG pipe volumes
Slide 27: FY 2013 Revenue by Division
FY 2013 Revenue by Division FY 2013 Revenue FY 2013 Revenue per Tonne* -5% -12% 2,000 -11% 4,500 -3% 3,600 1,600 U.S.$ / tonne U.S.$ mln 2,700 1,200 4,714 4,483 1% 1,827 1,840 1,800 800 1,621 1,620 1,492 1,453 900 -12% 400 1,650 1,665 324 284 0 0 Russia America Europe Russia America Europe** FY2012
Slide 28: FY 2013 Adjusted EBITDA by Division
FY 2013 Adjusted EBITDA by Division FY 2013 Adjusted EBITDA FY 2013 Adjusted EBITDA Margin 2% 800 20% 17% 16% 16% 600 16% U.S.$ mln 13% 12% 11% % 400 776 759 9% -34% 8% 200 -40% 4% 218 145 31 0 52 0% Russia America Europe Russia America Europe FY2012 FY2013 FY2012 FY2013 Russian division Adjusted
Slide 29: Deleveraging and Capex Plan
Deleveraging and Capex Plan Maintenance capex anticipated to be lower than depreciation post 2013 Benefits of capex programme reflected in growing confidence for future years EBITDA growth Dividend distribution set at minimum 25% of net income Commitment to reduce Net Debt/EBITDA from curren
Slide 30: Improving Debt Structure
Improving Debt Structure 89% of total financial debt is long-term Net Debt and Short-term Debt Share 4,000 3,711 3,656 3,600 30% 3,552 3,500 25% 27% Share of ST Debt, % Net Debt, US$ mln 3,000 18% 20% 2,500 16% 2,000 15% 11% 1,500 10% 1,000 5% 500 0 0% 2010 2011 2012 2013 Net Debt, US$ mln Share o
Slide 31: Strategy for Future Growth
Strategy for Future Growth Leverage our new capacity to sell more high margin seamless pipes into our existing markets Improve our product mix through our technology advancements Improve the financial performance by focusing on profitable work rather than just low margin high volume pipe Cap
Slide 32: Conclusion
Conclusion Excellent fundamentals underpin Russian market growth Leveraging relationships with Gazprom and Rosneft Importing our shale expertise to Russia from US US market turning for TMK as product launches raise margins and revenues Longer term US outlook more favourable – key KPI to wa
Slide 33: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 33
Slide 34: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$mln)(a) 2013 2012 2011 Revenue 6,432 6,688 6,754 Adjusted EBITDA(b) 952 1,028 1,047 Adjusted EBITDA Margin (%) 15% 15% 15% Profit (Loss) 215 278 385 Net Profit Margin (%) 3% 4% 6% Pipe Sales ('000 tonnes) 4,287 4,238 4,185 Average Net Sales/tonne (US$)(c) 1,
Slide 35: Income Statement
Income Statement US$ mln 2013 2012 2011 2010 2009 Revenue 6,432 6,688 6,754 5,579 3,461 Cost of Sales (5,074) (5,209) (5,307) (4,285) (2,905) Gross Profit 1,358 1,479 1,446 1,293 556 Selling and Distribution Expenses (379) (433) (411) (403) (313) General and Administrative Expenses (317) (293) (283)
Slide 36: Statement of Financial Position
Statement of Financial Position US$ mln 2013 2012 2011 2010 2009 ASSETS Cash and Bank Deposits 93 225 231 158 244 Accounts Receivable 995 914 772 720 580 Inventories 1,324 1,346 1,418 1,208 926 Prepayments 148 180 200 172 223 Other Financial Assets 0 4 4 4 4 Total Current Assets 2,561 2,670 2,625 2,
Slide 37: Cash Flow
Cash Flow US$ mln 2013 2012 2011 2010 2009 Profit / (Loss) before Income Tax 312 400 544 185 (427) Adjustments for: Depreciation and Amortisation 326 326 336 301 313 Net Interest Expense 245 275 271 412 406 Others 61 39 (101) 45 36 Working Capital Changes (159) (34) (156) (527) 558 Cash Generated fr
Slide 38: Seamless – Core to Profitability
Seamless – Core to Profitability QoQ, YoY, FY 2013 Gross Profit Breakdown U.S.$ mln 4Q 2013 FY 2013 (unless stated otherwise) % % Other operations Volumes- Pipes, kt 617 15% 2,422 -3% 3% Welded Revenue 978 12% 3,960 -4% 18% SEAMLESS Gross Profit 251 8% 1,077 -1% Margin, % 26% 27% Avg Revenue / Tonne
Slide 39: Appendix – Capital Structure and Corporate Governance
Appendix – Capital Structure and Corporate Governance 39
Slide 40: Capital Structure and Dividend Policy
Capital Structure and Dividend Policy Key Considerations Dividend Policy TMK’s securities are listed on the London Stock Exchange, the OTCQX International Premier trading platform in the U.S. and on At least 25% of annual IFRS net profits is paid out as dividends. Russia’s major stock exchange –
Slide 41: Corporate Governance
Corporate Governance DMITRY PUMPYANSKIY, Chairman of the Board of Directors, non-executive director. Key Considerations Born in 1964. Graduated from the Sergey Kirov Urals Polytechnic Institute in 1986. PhD in Technical Sciences, Doctor of Economics. Founder and beneficial owner of TMK Relevant expe
Slide 42: Appendix – TMK Products
Appendix – TMK Products 42
Slide 43: Wide Range of Products, Focus on Oil and Gas
Wide Range of Products, Focus on Oil and Gas 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 tubi
Slide 44: 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 (43% of total sales volumes in 2013); Line pipe – used for short distance transportation of crude oil, oil pro
Slide 45: Shift to Unconventional Drilling Drives Demand for Seamless and Premium Products
Shift to Unconventional Drilling Drives Demand for Seamless and Premium Products Conventional (Vertical) Drilling Unconventional (Horizontal) Drilling (Hydraulic Fracturing) Drilling with casing TMK CWB Seamless / Premium Welded Tubing Connections Vertical Horizontal Shale Shale Length, km Up to 5 U
Slide 46: Thank You
Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 [email protected] 46