Tmk · RUS:TRMK
Tmk — Investor Presentation (February 2017)
55 slides from Tmk's investor presentation, February 2017
Slide 1: TMK IR Presentation
TMK IR PRESENTATION February 2017
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: 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 THE COMPANY OPER ATES MORE THAN 30 PRODUCTION SITES IN RUSSIA, 27 production sites in Russia, the USA, Canada, Oman, Romania and Kazakhstan, with trade offices in 10 countries Canada: 2016E global drilling Russia: 2 production fa
Slide 4: TMK Today – Key Investment Highlights
TMK Today – Key Investment Highlights Industry-leading market position and large modern asset base 1 Top-3 player in seamless OCTG industry with c. 15.5% (a) market share - dominant N1 in Russia and Top-3 in the US State-of-the-art underutilised production base with major investments completed o
Slide 5: US Shale Passing the Inflection Point
TMK Market Exposure = Highly Resilient Russian Market + US Shale Passing the Inflection Point OCTG consumption in Russia and the US Global E&P investments (m tonnes) (US$ bn nominal) 1000 10 900 8.4 800 8 7.7 1.9 700 Saudi Arabia Norway 2.0 Australia Brazil 5.8 600 China 6 Canada 500 Russia 2.0 4.3
Slide 6: Significant Underutilised Production Capacity
Significant Underutilised Production Capacity TMK capacity utilisation ratios in 2016 Russia Americas Europe 100% 100% 100% 100% 100% 100% 80% 79% 80% 80% 80% 65% 60% 60% 60% 50% 50% 40% 40% 40% 20% 20% 17% 20% 10% 0% 0% 0% Seamless Welded Total Seamless Welded Total Total (all seamless) Spare capac
Slide 7: TMK – Superior Earnings Resilience Through the Cycle
TMK – Superior Earnings Resilience Through the Cycle 4,288 4,402 3,871 3,661 3,675 1,866 1,842 1,461 2,574 1,049 885 2,633 Total 2,159 2,323 799 605 pipes sales 1,465 1,411 volume 2,422 2,560 2,410 2,612 2,790 288 905 1,774 2,028 (ths. tonnes) 1,177 2013 2014 2015 9m2016 2013 2014 2015 9m2016 2013 2
Slide 8: Vertically Integrated Model Ensuring Margin Stability
Vertically Integrated Model Ensuring Margin Stability Steel products price volatility Operating in one of the lowest cost regions for steel (US$/t) production globally 543 531 Fully vertically integrated seamless pipe production (upstream and downstream) across all regional divisions 347 363 A
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 Galvanised pipe for the outer steel frame of the Otkritie for such companies as Dacia (a subsidiary of Renault) Arena stadium in Moscow No. 1 suppl
Slide 10: TMK Russian Division: Market Overview
DRAFT TMK Russian Division: Market Overview
Slide 11: Robust Oil Production Growth and Well Flow Dynamics
Robust Oil Production Growth and Well Flow Dynamics Russian Oil Production Hits Record High… 11.4 Russian oil production set new historic record in 11.2 November 2016, reaching 11.2 mmbpd 11.0 As part of its deal with OPEC, Russia has agreed mmbpd 10.8 10.6 to cut production by 300,000 bpd in th
Slide 12: Growing Drilling Activity and OCTG Market Demand
Growing Drilling Activity and OCTG Market Demand OCTG Market Demand Fundamentals Supportive of Continuing Growth(1) Commentary 28 2.2 Drilling in Russia has demonstrated a strong 5.7% CAGR 24 2.0 between 2010 and 2015, with OCTG demand having increased at 5.9% CAGR over the same period(1) Meters (
Slide 13: Favourable Tax Regime and Stable Upstream Economics
Favourable Tax Regime and Stable Upstream Economics Strong Upstream EBITDA(1) Margin Despite Oil Price Collapse Commentary 300 50% Despite a c.50% decline in oil price since 3Q14, Russian 42% 44% Upstream sector remains profitable with stable EBITDA 38% 39% 40% 39% 37% 250 35% 40% margins (in the
Slide 14: 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 Asia DW(3) Low-cost supply completely in the money at current Brent price Permian tight 100 Breakeven price (US$ /Boe)(1) Bakken Oil Sands Canadian (primarily Brazil)
Slide 15: Russian Tube and Pipe Market Demand Outlook
Russian Tube and Pipe Market Demand Outlook Historic Russian Pipe Demand(1) Commentary 12 According to TMK estimates, in 2015, Russian 10 consumption of pipes and tubular products reached 10.9mt p.a. (+12% vs. 2013 and +3% Tonnes (mn) 8 6 vs. 2014), mainly driven by Gazprom’s 4 extensive infrastru
Slide 16: Strengthening Position on the Domestic Market
Strengthening Position on the Domestic Market TMK Share of Seamless OCTG Market is Growing… 100% Russian seamless OCTG market is up by 3% 35% 32% YoY in 9M2016(1) 39% 75% Development of conventional and 50% unconventional reserves will require the use of 68% non-conventional drilling techniques
Slide 17: TMK North American Division: Market Overview
DRAFT TMK North American Division: Market Overview
Slide 18: 2016 Industry Performance Review: a Challenging Year, but Outlook Improving
2016 Industry Performance Review: a Challenging Year, but Outlook Improving This downturn has been longer and tougher… Rig count reached bottom in May at 404 units, but has grown by over 260 rigs since then Base 100 = Last peek before decline 120 Average number of rigs in 4Q 2016 increased by 90
Slide 19: Political Backdrop Supportive of the U.S. Energy Sector Recovery
Political Backdrop Supportive of the U.S. Energy Sector Recovery Donald Trump’s presidency will potentially provide a number of policies favourable for the OCTG fundamentals 1 Scott Pruitt, previously Oklahoma attorney general, to be appointed as new EPA head. In the past he has criticized the EPA
Slide 20: U.S. Exploration & Production Capex Recovery in 2017
U.S. Exploration & Production Capex Recovery in 2017 U.S. E&P capex Driven by higher crude oil 160 and gas prices, U.S. E&P capex is expected to increase 120 by 26% in 2017 U.S.$ bn 80 This is expected to result in growing counts of active rigs 40 While growth in the rig count 0 may be moderat
Slide 21: Key New Projects on Cost Curve
Key New Projects on Cost Curve Continental U.S. tight oil cost curve 2025 100 Niobrara 80 Breakeven U.S.$/bbl Brent Equivalent Bone Spring 60 (Permian) January Brent Price: 40 U.S.$ Bakken 55/bbl Eagle Ford Wolfcamp 20 (Permian) STACK/SCOOP (a) Other Tight Oil (Mid-Continent) 0 0 1 2 3 4 5 6 7 Weigh
Slide 22: OCTG Consumption Expected to Recover to Previous Levels with Substantially Fewer Rigs
OCTG Consumption Expected to Recover to Previous Levels with Substantially Fewer Rigs OCTG consumption dropped sharply but has already reached bottom and started recovering OCTG consumption per rig increased significantly 600 2,500 450 Consumption per rig (tonnes/month) 2,000 400 Monthly U.S. OCTG c
Slide 23: Inventory at Healthy Levels When Adjusted for Obsolescence
Inventory at Healthy Levels When Adjusted for Obsolescence Inventory level normalization Standardized diameters of OCTG piping Chevron Permian EOG Eagle Ford Cabot Northeast 4.0 16 Total Weight per Total Weight per Total Weight per well: 492 NT well: 307 NT well: 267 NT 3.5 14 20" 13 3/8" 9 5/
Slide 24: OCTG Prices also Reached Bottom During 2Q and Stabilized
OCTG Prices also Reached Bottom During 2Q and Stabilized Historically, OCTG pricing demonstrated a c.6-month Indexed costs vs. prices (in 2009 example) lag to raw materials prices, e.g. in 2009, raw materials 250 800 reached the bottom in April, while OCTG troughed in Prices, rebased to 100 Octobe
Slide 25: New Go-to-Market Model in 2016
New Go-to-Market Model in 2016 Model Overview New go-to-market model is driving growth… American division seamless products sales, ‘000 tonnes TMK is implementing a new distribution model, 40 focused on providing broader technical solutions to 35 33 30 reduce E&P’s costs 30 26 26 28 26 23 23 The
Slide 26: Integrated Well Solutions: TMK IPSCO and TMK Completions
Integrated Well Solutions: TMK IPSCO and TMK Completions Bundling pipe, Premium Connections and Completions Provide customers with creative solutions by leveraging the strengths of TMK IPSCO and TMK Completions Develop proposals to meet the unique requirements of each customer by linking product
Slide 27: Cost Reduction in Operations
Cost Reduction in Operations One of the welded mills is still idled, awaiting repositioning / upturn Downward trend of conversion cost per tonne produced with approximately 34% decrease during 9M 2016 Contributing factors: matching labor, aggressive performance targets, lean manufacturing tech
Slide 28: Strategic Overview
DRAFT Strategic Overview
Slide 29: Key Strategic Pillars
Key Strategic Pillars FOCUS ON Expand product range and remain at the forefront of technology catering to CUSTOMER-DRIVEN evolving customer needs INNOVATION Significant additional revenue from newly developed products annually CEMENT Continue dominating the Russian market with primary focus on
Slide 30: Strict Control over Costs and CAPEX
Strict Control over Costs and CAPEX Ongoing cost-cutting programmes EBITDA effect EBITDA effect c. EBITDA effect c. 2014 c. US$121 mln 2015 US$115 mln 2016E US$140 mln Other Other Energy 5% Salaries Energy 13% 6% Salaries Other 3% 13% Salaries 18% 23% Logistics Maintenance Logistics 25% 8% Energy 12
Slide 31: Comfortable Maturity Profile with Ongoing Refinancing
Comfortable Maturity Profile with Ongoing Refinancing Debt maturity profile as at December 31, 2016 As at December 31, 2016, Net Debt 600 amounted to approximately US$2,555* mln EUR Over US$1bn reduction in Net Debt over RUB the past 3 years USD 500 The terms of several loan facilities 500 ren
Slide 32: Summary Financial Results
DRAFT Summary Financial Results
Slide 33: Consolidated Results Snapshot
Consolidated Results Snapshot Revenue Sales Volumes and Realised Prices Average 37.97 60.66 59.02 68.22 USD/RUB rate(a) 6,000 Average US$1,464 US$1,078 US$1,103 US$963 revenue/ tonne US$1,085 US$921 US$952 US$770 5,000 Thousand tonnes US$ mln 4,000 5,000 4,402 3,871 4,000 3,000 6,009 1,842 2,944 3,0
Slide 34: Gross Margin, SG&A and Cash Conversion
Gross Margin, SG&A and Cash Conversion Gross margin SG&A and Corporate Overheads(a) 30% 800 24% 25% 25% 26% 693 700 600 524 20% 500 14% 403 US$ mln 12% 13% % 400 313 10% 8% 300 200 100 0% 0 2014 2015 9m2015 9m2016 2014 2015 9m2015 9m2016 Seamless Welded Capex and Cash Conversion(b) Comments Gross
Slide 35: Segmental Quarterly Performance Dynamics
Segmental Quarterly Performance Dynamics Russian division American division European division 759 784 710 Sales volume (ths.tonnes) 50 65 74 43 47 41 1Q 2016 2Q 2016 3Q 2016 1Q 2016 2Q 2016 3Q 2016 1Q 2016 2Q 2016 3Q 2016 164 148 122 Adjusted EBITDA(a), 6 4 8 US$ mln (22) (9) (32) 1Q 2016 2Q 2016 3Q
Slide 36: Appendix – Summary Financial Accounts
DRAFT Appendix – Summary Financial Accounts
Slide 37: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$ mln) (a) 9m2016 9m2015 2015 2014 2013 Revenue 2,436 3,213 4,127 6,009 6,432 Adjusted EBITDA(b) 390 493 651 829 986 Adjusted EBITDA Margin (b) (%) 16% 15% 16% 14% 15% Profit (Loss) 81 3 (368) (217) 215 Net Profit Margin (%) 3% 0% n/a n/a 3% Pipe Sales ('000
Slide 38: Income Statement
Income Statement (US$ mln) 9m 2016 9m 2015 2015 2014 2013 Revenue 2,436 3,213 4,127 6,009 6,432 Cost of sales (1,927) (2,542) (3,282) (4,839) (5,074) Gross Profit 509 671 845 1,169 1,358 Selling and Distribution Expenses (159) (202) (260) (350) (379) General and Administrative Expenses (144) (161) (
Slide 39: Statement of Financial Position
Statement of Financial Position (US$ mln) 30-Sep-16 2015 2014 2013 ASSETS Cash and Cash Equivalents 203 305 253 93 Accounts Receivable 715 512 728 995 Inventories 787 785 1,047 1,324 Prepayments 113 113 113 148 Other Financial Assets 40 0 1 0 Total Current Assets 1,858 1,715 2,142 2,561 Total Non-cu
Slide 40: Cash Flow
Cash Flow (US$ mln) 9m 2016 9m 2015 2015 2014 2013 Profit / (Loss) before Income Tax 73 (17) (443) (201) 312 Adjustments for: Depreciation and Amortisation 175 190 251 304 326 Net Finance Cost (a) 198 198 269 226 245 Others (68) 103 552 479 61 Working Capital Changes (69) 173 105 (159) (159) Cash Ge
Slide 41: Seamless – Core to Profitability
Seamless – Core to Profitability (US$ mln) 3Q2o16 QoQ, % 9M2o16 YoY, % 9M 2016 gross profit breakdown Sales-Pipes, kt 6o8 2% 1,774 (2%) Other operations Revenue 6o8 5% 1,709 (14%) 3% Welded 10% Seamless Gross profit 146 (7%) 444 (10%) Margin,% 24% 26% Avg revenue / tonne (US$) 1,001 4% 963 (13%) Avg
Slide 42: Appendix – Capital Structure and Corporate Governance
DRAFT Appendix – Capital Structure and Corporate Governance
Slide 43: Capital Structure
Capital Structure Capital structure Key considerations Free float** TMK’s securities are listed on the London Stock 34.93% Exchange, the OTCQX International Premier trading TMK Steel platform in the U.S. and on Russia’s major stock Holding exchange – MICEX-RTS. Ltd, incl. affiliates* Total share
Slide 44: TMK Corporate Governance
TMK 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 majority shareholder of
Slide 45: Appendix – TMK Products
DRAFT Appendix – TMK Products
Slide 46: 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 47: TMK Premium Product Offering
TMK Premium Product Offering TMK Connections Series Premium Products and Services TMK to maintain its share of premium connections market Higher resistance to torque Easy and reliable make-up with greater focus on sales of 2nd and 3rd generation for casing while drilling and Comprises connections
Slide 48: 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 49: 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 (40% of total sales in 9M 2016); Line pipe – used for short distance transportation of crude oil, oil products
Slide 50: Appendix – Oil & Gas Market Outlook
DRAFT Appendix – Oil & Gas Market outlook
Slide 51: Adjustment of Oil Output
Adjustment of Oil Output Oil Production Brief Regulation of Methods Description Oil Output Flush production is the initial high yield oil Operating mode of the well is that flows under high pressure from a well, regulated by changing the without mechanical aid wellhead pressure with the use of s
Slide 52: Broker Consensus Predicts Brent Price Recovery to US$70+/bbl
Broker Consensus Predicts Brent Price Recovery to US$70+/bbl Brent Historical and Forecasted Prices 150 120 111 112 109 110 100 87 90 77 68 54 65 60 Brent Crude Spot Price: US$54/bbl 63 46 56 61 30 43 42 40 38 0 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E Brent Price (Historical) Brent pic
Slide 53: Appendix – Other Materials
DRAFT Appendix – Other Materials
Slide 54: TMK's Undisputed Market Leading Position in Russia
TMK’s Undisputed Market Leading Position in Russia Seamless Welded Premium OCTG Line Pipe Premium Connections TMK (TMK UP) 20% TMK Threaded pipes for O&G Short-distance Premium connections 68% TMK are proprietary value- industry including drill transportation of O&G 81% pipe, casing and tubing and o
Slide 55: Thank You
Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com 55