Tmk · RUS:TRMK
Tmk — Investor Presentation (November 2018)
51 slides from Tmk's investor presentation, November 2018
Slide 1: TMK IR Presentation
TMK IR PRESENTATION November 2018
Slide 2: 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 R&D
Slide 3: 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 4: 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 7.7 600 6.9 Australia 500 Europe 6 5.6 Africa 400 South America 6.5 4.7 5.7 4.6 Asia 4 300 3.8 Russia 2.7 200 Middle East 2 2.3 100 2.0 1.9 1.8 1.9 North America 0
Slide 5: TMK – Superior Earnings Resilience Through the Cycle
TMK – Superior Earnings Resilience Through the Cycle 4,288 4,402 3,871 3,781 3,458 3 661 3 675 1,866 1,842 2,987 1,461 1,113 1 049 885 2 618 2 624 1,046 2 633 Total 981 2,159 2,323 2,256 605 1 990 461 630 pipes sales 355 1,411 1,670 2 790 1,281 volume 2,422 2,560 2,410 2,412 2,668 2 612 2 028 2 157
Slide 6: 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$/t) Fully vertically integrated seamless pipe production (upstream 596 590 and downstream) across all regional divisions 543 556 531
Slide 7: Strong Position in Multiple End-Markets for Pipes Beyond Oil & Gas
Strong Position in Multiple End-Markets for Pipes Beyond Oil & Gas Automotive Civil Construction TMK-ARTROM is qualified as an authorised supplier for Galvanised pipe for the outer steel frame of the Otkritie such companies as Dacia (a subsidiary of Renault) Arena stadium in Moscow Supplier fo
Slide 8: TMK Russian Division: Market Overview
TMK Russian Division: Market Overview 8
Slide 9: Oil Production in Russia Remains Strong, However There Are Changes to its Composition
Oil Production in Russia Remains Strong, However There Are Changes to its Composition… Oil production remains well above 11.2 MMbpd whilst adhering to the new agreement with OPEC. Gradual stagnation of oil production from brownfields is accompanied by development of greenfield projects Russian total
Slide 10: ...and This Creates Long-term Demand for High-End Oil & Field Services
...and This Creates Long-term Demand for High-End Oil & Field Services Russian drilling activity remains solid with development drilling activity growing Russian drilling, kmpd Russian oil drilling growth broken down, km 80 76 77 60% 3% 3% 21,080 68 7% 14% 20,534 60 60 54 57 53 49 48% 40% 41% km/d 4
Slide 11: Attractive Portfolio of Premium OCTG Projects
Attractive Portfolio of Premium OCTG Projects 11
Slide 12: TMK's Home Market is One of the Lowest Cost Oil Producing Regions
TMK’s Home Market is One of the Lowest Cost Oil Producing Regions Global oil production supply curve Coal to Liquid Gas to Liquid 125 Low-cost supply completely in the money at current Brent price Asia DW (3) Permian tight 100 Breakeven price (U.S.$/Boe)(1) Bakken Oil Sands Canadian (primarily Brazi
Slide 13: Russian Tube and Pipe Market
Russian Tube and Pipe Market 12 10 8 mln tonnes Non-Energy 6 4 Energy 2 0 2018E 2019E 2020E 2021E 2022E 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: TMK estimates No.1 on the Russian tube and pipe market 33% market share of energy pipe demand 9M 2018 9M 2018 TMK TMK
Slide 14: 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 15: LDP Demand in Russia
LDP Demand in Russia LDP demand in Russia, 2013–2022E Booming market Source: TMK estimates For the next three years we expect the LDP market to increase to approximately 2.2 mln tonnes Major projects planned: Power of Siberia (GAZP), Bovanenkovo-Ukhta 3 (GAZP), Power of Siberia-2 (GAZP), Sakhali
Slide 16: 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 17: TMK American Division: Market Overview
TMK American Division: Market Overview 17
Slide 18: Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production
Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production… Sentiment continues improving as global crude oil U.S. crude oil production supply and demand balances keep tightening 12 10.7 10 9.4 9.4 8.7 8.9 Global capex spending in oil and gas has bottomed 7.5 8 but it has only recovered
Slide 19: 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 YTD 60 WTI average price 40 Bone Spring (Permian) Bakken Wolfcamp (Permian) 20 Other 0 0 1 2 3 4 5 6 7 8 C
Slide 20: 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 21: 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) 400 2,000 1,879 1,919 1,862 1,761 312 1,546 300 277 277 276 1,500 212 219 1,011 192 978 200 169 173 1,000 876 509 500 100 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2010 201
Slide 22: Coupled with More Wells Drilled per Rig and Longer Laterals
… Coupled with More Wells Drilled per Rig and Longer Laterals … The recovery in spending and rig count since 2016 Horizontal wells drilled per rig is more significant when accounting for efficiency 20 and productivity gains achieved by producers over 17.0 the same period 15.2 15.8 14.8 15 11.2 D
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 … US OCTG inventories have reached the normalized Increased shipment levels bring months-of-inventory levels of 2014 as shipments outpace consumption back to pre-downturn levels Despite months of inventory having reached 2014 levels, the monthly absol
Slide 25: and Growth of OCTG Prices
… and Growth of OCTG Prices U.S. distributor welded OCTG vs. HRC prices Prices have rallied from the low in April 2016. (U.S.$/tonne, monthly average) Since the trough, welded OCTG prices 2,100 1,900 +61% increased by more than 60% and seamless OCTG prices by almost 50% 1,500 1,400 Prices have s
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 September 30, 2018
Maturity Profile as at September 30, 2018 700 EUR As at September 30, 2018, Net Debt amounted to 647 US$2,624 mln RUB In January 2018, TMK fully redeemed the 600 USD remaining part of its US$500 mln 7-year Eurobond issue in the total nominal value of US$231 mln The weighted average nominal int
Slide 29: Summary Financial Results
Summary Financial Results 29
Slide 30: FY Consolidated Results Snapshot
FY Consolidated Results Snapshot Revenue Volumes and realised prices Average 6,000 USD/RUB rate(a) 37.97 60.66 66.90 58.35 Average US$1,464 US$1,078 US$970 US$1,181 5,000 revenue/ tonne US$1,085 US$921 US$796 US$1,075 US$ mln 4,000 5,000 4,402 Thousand tonnes 3,871 3,781 3,000 6,009 4,000 3,458 1,84
Slide 31: 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% 600 524 544 20% 437 US$ mln % 12% 13% 400 10% 10% 8% 200 0% 0 2014 2015 2016 2017 2014 2015 2016 2017 Seamless Welded Capex and cash conversion(b) Key considerations 68% 67% Gross margin
Slide 32: Segmental Quarterly Performance Dynamics
Segmental Quarterly Performance Dynamics Russian division American division European division 760 812 756 734 740 675 687 Sales volume 210 185 199 199 190 (ths.tonnes) 128 158 45 48 42 50 47 53 48 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 1Q 17 2Q 17 3Q 17 4
Slide 33: 3Q 2018 vs. 2Q 2018 Summary Financial Highlights
3Q 2018 vs. 2Q 2018 Summary Financial Highlights Revenue decreased QoQ, reflecting lower pipe sales across Sales declined QoQ across all divisions all divisions and a negative currency translation effect -14% QoQ -11% QoQ 1 200 1 500 Thousand tonnes 900 US$ mln 1 000 600 1 076 1 355 925 1 207 500 30
Slide 34: 9M 2018 vs. 9M 2017 Summary Financial Highlights
9M 2018 vs. 9M 2017 Summary Financial Highlights Revenue increased YoY, driven by improved results at all Sales were up YoY across all divisions three divisions 7% YoY 20% YoY 4,000 3,000 Thousand tonnes 2,400 3,000 US$ mln 1,800 2,000 3,835 2,798 2,987 1,200 3,191 1,000 600 0 0 9M2017 9M2018 9M2017
Slide 35: Seamless – Core to Profitability
Seamless – Core to Profitability US$ mln QoQ, YoY, 9M 2018 gross profit breakdown 3Q2018 9M2018 (unless stated otherwise) % % Other Sales - Pipes, kt 606 -16% 2,006 1% operations Welded 4% Revenue 804 -12% 2,600 15% 9% SEAMLESS Gross profit 193 -9% 603 9% Margin, % 24% 23% Avg revenue/tonne (US$) 1,
Slide 36: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 36
Slide 37: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$mln)(a) 2017 2016 2015 2014 2013 Revenue 4,394 3,338 4,127 6,009 6,432 Adjusted EBITDA(b) 605 530 651 829 986 Adjusted EBITDA Margin(b)(%) 14% 16% 16% 14% 15% Profit (Loss) 30 166 (368) (217) 215 Net Profit Margin (%) 1% 5% n/a n/a 3% Pipe Sales ('000 tonnes
Slide 38: Income Statement
Income Statement (US$ mln) 2017 2016 2015 2014 2013 Revenue 4,394 3,338 4,127 6,009 6,432 Cost of sales (3,521) (2,634) (3,282) (4,839) (5,074) Gross Profit 872 704 845 1,169 1,358 Selling and Distribution Expenses (261) (220) (260) (350) (379) General and Administrative Expenses (231) (196) (207) (
Slide 39: Statement of Financial Position
Statement of Financial Position (US$ mln) 2017 2016 2015 2014 2013 ASSETS Cash and Cash Equivalents 491 277 305 253 93 Accounts Receivable 871 689 512 728 995 Inventories 1,121 769 785 1,047 1,324 Prepayments 139 107 113 113 148 Other Financial Assets 0 42 0 1 0 Total Current Assets 2,624 1,883 1,71
Slide 40: Cash Flow
Cash Flow (US$ mln) 2017 2016 2015 2014 2013 Profit / (Loss) before Income Tax 78 169 (443) (201) 312 Adjustments for: Depreciation and Amortisation 263 242 251 304 326 Net Finance Cost 268 263 269 226 245 Others (260) (154) 552 479 61 Working Capital Changes (253) (13) 105 (159) (159) Cash Generate
Slide 41: Appendix – Capital Structure and Corporate Governance
Appendix – Capital Structure and Corporate Governance 41
Slide 42: Capital Structure
Capital Structure Capital structure Key considerations Free float** TMK’s securities are listed on the London Stock 34.94% Exchange and the Moscow Exchange As of September 30, 2018 35% of TMK ordinary shares were in free float TMK Steel Holding Ltd, * TMK incl. affiliates Total shares outstand
Slide 43: TMK Corporate Governance
TMK Corporate Governance DMITRY PUMPYANSKIY, Chairman of the Board of Directors, non-executive director Born in 1964. Graduated from the Urals Polytechnic Institute (now Ural Federal University) in 1986. Professor, PhD Key considerations in Technical Sciences and Doctor of Economics. Relevant experi
Slide 44: Appendix – TMK Products
Appendix – TMK Products 44
Slide 45: 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 46: 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 47: 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 48: 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 (47% of total sales in 9M 2018) Line pipe – used for short distance transportation of crude oil, oil products
Slide 49: Appendix – Other Materials
Appendix – Other Materials 49
Slide 50: TMK's Undisputed Market Leading Position in Russia
TMK’s Undisputed Market Leading Position in Russia Seamless Welded Premium OCTG Line Pipe Premium TMK TMK 29% Connections Threaded pipes for O&G Short-distance TMK 62% industry including drill transportation of O&G 66% (TMK UP) pipe, casing and tubing and oil products Premium connections are proprie
Slide 51: TMK Investor Relations
TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com