Slide 1: TMK Investor Presentation May 2013
PROPRIETARY & CONFIDENTIAL TMK Investor Presentation May 2013
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: Presentation Outline
Presentation Outline Company Overview and Investment Highlights 4 Industry Overview 15 Financial Overview 23 Appendix – Summary Financial Accounts 32 Appendix – TMK Products 36 Appendix – TMK Synergies 38 Contacts 40 3
Slide 4: Company Overview and Investment Highlights
Company Overview and Investment Highlights 4
Slide 5: Investment Highlights
Investment Highlights One of the largest tubular capacity Global High exposure to the oil & gas industry: approximately 75% of 2012 shipments went to the oil & gas sector Market Leader Leading producer of value-added steel pipes for the oil & gas industry 10% global seamless OCTG(1) Leading
Slide 6: 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 Steel Tubular Industry Leader TMK’s strategic positioning made it the steel tubular industry leader, with over 4 million tonnes sold in 2012. Truboplast Pipe Maintenance Department Seversky Sinarsky Moscow RosNITI Central Pipe Yard
Slide 7: Leading Global Supplier of Pipes for Oil and Gas Industry
Leading Global Supplier of Pipes for Oil and Gas Industry Key Considerations since 2010 World Leading Tubular Producer for the Last 3 Years A world leading tube producer by sales volumes in 2012. Sales Volumes (thousand tonnes) 4,185 4,238 High exposure to the oil and gas industry: approximately
Slide 8: Strong Pipe Industry Fundamentals
Strong Pipe Industry Fundamentals Key Considerations Oil Prices Remain High Strong industry fundamentals driven by robust demand for Historical and forward Brent Oil price (US$/barrel) oil and gas. 150 Significant expected capital expenditure by oil and gas industry driven by strong outlook for
Slide 9: 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 (41% of total sales volumes in 2012); Line pipe – used for short distance transportation of crude oil, oil pro
Slide 10: Diversified Business Model
Diversified Business Model Key Considerations Diversified Product Portfolio and Customer Base High degree of diversification enabling earnings resilience. Sales Volumes by Product (2012) Geographical diversification seeking to mitigate swings in Welded OCTG geographical demand (Russian division
Slide 11: Focus on High Value Added Products
Focus on High Value Added Products Key Considerations Increasing Focus on Higher Margin Seamless Products 62% of revenues was higher margin seamless pipes in 2012. 30% 26% 28% 26% 70% Share of seamless product in 25% 26% gross margin for seamless pipe vs. 15% for welded pipes in 2012. 20% 65% Gr
Slide 12: 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 (2012) Russia is one of the lowest cost regions for steel production. Repairs and Oth
Slide 13: Proven Track Record of Sustainable Growth
Proven Track Record of Sustainable Growth Key Considerations Sales Volumes Evolution Resilient pipe sales throughout the crisis. Sales Volumes (thousand tonnes) 4,185 4,238 More than US$2.5bn capex spent since 2004. 3,962 3,227 Strategic Investment Programme (2004-14) aimed at substantial capa
Slide 14: Strategy Focused on Profitable Growth
Strategy Focused on Profitable Growth TMK is committed to maintaining its global leadership position in the main product segments and core markets, improving production efficiencies and seeking to enhance its margins in line with industry peers. Strategic Investment Programme (2004-14) aimed at
Slide 15: Industry Overview
Industry Overview 15
Slide 16: Increasing Complexity of Russian Drilling
Increasing Complexity of Russian Drilling Increasing Greenfield Oil Production in Eastern Regions Falling Oil Wells Productivity in Russia 11,300 Russian Oil Production Prirazlomnoye 1,000 Yamal fields**** Thousand barrels per day Northern Timan 10,300 Pechora fields*** Gazprom, SE, 800 NOVATEK, TNK
Slide 17: Russian Market Overview
Russian Market Overview Key Considerations Growing Drilling Market in Russia Demand driven by production shift to unconventional regions 25,000 7,000 (Eastern Siberia, Sakhalin and Arctic offshore) and development of greenfield projects 6,000 20,000 5,000 Increasing complexity of oil and gas pro
Slide 18: Strong Russian LDP Demand
Strong Russian LDP Demand Key Considerations Russian Pipeline Projects Russian LDP demand is expected to be driven by new CIS pipeline projects Shtokman TMK is currently a supplier for major pipeline projects Bovanenkovo Murmansk Bovanenkovo- South Stream Novy Ukhta Urengoy Zapolyarye-Purpe
Slide 19: US Market Overview
US Market Overview Growing Oil Drilling Activity Supported by High Crude Oil Key Considerations Prices US Oil and Gas Rig Count In 1Q 2013, US total rig count amounted on average to 1,758 rigs, down 3% QoQ and 12% YoY. 2,100 Gas rig count remained almost flat QoQ but fell by more than 40% YoY. 1
Slide 20: 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 21: Shale Gas Revolution Led to an Increase in Natural Gas Consumption
Shale Gas Revolution Led to an Increase in Natural Gas Consumption Key Considerations With Gas Prices Falling Gas-Fueled Power Capacity Extended The shale gas revolution led to a 48% surge in natural gas output in US Electricity Generation by Fuel, 1991-2015E (mln kW/h per year) the US in the seve
Slide 22: Canadian Oil Sands
Canadian Oil Sands Three Major Oil Sands Deposits Canadian Oil Sands – Fast Facts Around 170 billion of Oil Sands reserves Potential for over 100 years of production Peace River Deposit Athabasca Deposit Mining – less than 200 feet deep: 20% of reserves Drilling – more than 200 feet deep: 80
Slide 23: Financial Overview
Financial Overview 23
Slide 24: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$mln)(a) 2008 2009 2010 2011 2012 Revenue 5,690 3,461 5,579 6,754 6,688 Adjusted EBITDA(b) 1,047 328 942 1,050 1,040 Adjusted EBITDA Margin (%) 18% 9% 17% 16% 16% Profit (Loss) 198 (324) 104 385 282 Net Profit Margin (%) 3% NM 2% 6% 4% Pipe Sales ('000 tonnes
Slide 25: 1Q 2013 Summary Financial Highlights
1Q 2013 Summary Financial Highlights Sales were down QoQ due to weaker demand for welded industrial pipe, Revenue was up QoQ on higher volumes and improved product mix but increased YoY driven by higher consumption of LDP seamless line of seamless pipe. YoY growth was due to increased LDP and welded
Slide 26: 1Q 2013 Revenue by Division
1Q 2013 Revenue by Division 1Q 2013 Revenue 1Q 2013 Revenue per Tonne* +5% +16% 1,400 1,800 -3% +11% 1,200 1,500 U.S.$ / tonne 1,000 U.S.$ mln 1,200 800 900 1,720 1,212 1,277 1,624 1,670 1,618 600 1,480 +5% 1,468 600 400 +19% 200 300 352 369 67 79 0 0 Russia Americas Europe Russia Americas Europe**
Slide 27: 1Q 2013 Adjusted EBITDA by Division
1Q 2013 Adjusted EBITDA by Division 1Q 2013 Adjusted EBITDA 1Q 2013 Adjusted EBITDA Margin +31% 250 19% 20% 200 16% 15% U.S.$ mln 13% 150 % 247 10% 7% 100 188 7% 5% 5% 50 -13% -30% 23 20 8 6 0 0% Russia Americas Europe Russia Americas Europe 4Q2012 1Q2013 4Q2012 1Q2013 Russian division Adjusted EB
Slide 28: Seamless – Core to Profitability
Seamless – Core to Profitability U.S.$ mln QoQ, YoY, 1Q 2013 (unless stated otherwise) % % Sales of seamless pipe generated Volumes- Pipes, kt 627 +1% +3% 63% of total Revenue in 1Q 2013 compared to 61% in 4Q 2012 and Net Sales 1,084 +9% +2% 64% in 1Q 2012. SEAMLESS no Gross Profit 306 +24% change
Slide 29: Working Capital Position
Working Capital Position Inventories (Days) Accounts Payable (Days) 140 132 120 107 120 100 97 100 91 90 86 75 73 80 64 64 80 60 60 40 40 20 20 0 0 2009 2010 2011 2012 3m2013 2009 2010 2011 2012 3m2013 Accounts Receivable (Days) Cash Conversion Cycle (days) 100 94 120 119 80 100 80 82 60 76 60 56 56
Slide 30: Debt Maturity Profile as of March 31, 2013
Debt Maturity Profile as of March 31, 2013 1,200 As of March 31, 2013, total financial debt amounted to U.S.$3,849 mln 1,051 1,000 73% of total financial debt is long-term 413* 800 776 Weighted average nominal interest rate 22 totalled 7.02% 658 U.S.$ mln 600 11 501 As of March 31, 2013, bor
Slide 31: Debt Profile as of March 2013
Debt Profile as of 31 March 2013 Around U.S.$1 bn of Undrawn Committed Credit Lines to Cover Debt Breakdown by Source of Borrowings Short-term Debt 1,200 Investment Utilized Credit Facilities Loans 1,000 Unutilized Credit Facilities Bonds 2% 28% 800 U.S.$ mln 600 400 200 Bank 0 Loans 2013 2014 2015
Slide 32: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 32
Slide 33: Income Statement
Income Statement U.S.$ mln 2012 2011 2010 2009 2008 Revenue 6,688 6,754 5,579 3,461 5,690 Cost of Sales (5,204) (5,307) (4,285) (2,905) (4,252) Gross Profit 1,483 1,446 1,293 556 1,438 Selling and Distribution Expenses (433) (411) (403) (313) (344) General and Administrative Expenses (293) (283) (23
Slide 34: Statement of Financial Position
Statement of Financial Position U.S.$ mln 31-Dec-12 31-Dec-11 31-Dec-10 31-Dec-09 31-Dec-08 ASSETS Cash and Bank Deposits 225 231 158 244 143 Accounts Receivable 914 772 720 580 758 Inventories 1,346 1,418 1,208 926 1,176 Prepayments 180 200 172 223 213 Other Financial Assets 4 4 4 4 4 Total Current
Slide 35: Cash Flow
Cash Flow U.S.$ mln 2012 2011 2010 2009 2008 Profit / (Loss) before Income Tax 405 544 185 (427) 308 Adjustments for: Depreciation and Amortisation 326 336 301 313 248 Net Interest Expense 275 271 412 406 263 Others 34 (101) 44 36 228 Working Capital Changes (34) (156) (527) 558 (81) Cash Generated
Slide 36: Appendix – TMK Products
Appendix – TMK Products 36
Slide 37: TMK Product Portfolio
TMK Product Portfolio Seamless Welded Threading Threaded pipes for the oil Threaded pipes for the oil Premium connections are and gas industry including and gas industry including gas tight, proprietary value- drill pipe, casing and tubing drill pipe, casing and tubing added products used to connect
Slide 38: Appendix – TMK Synergies
Appendix – TMK Synergies 38
Slide 39: Russian and North American Synergies
Russian and North American Synergies Both Russia and North America have benefitted during the past three years since the acquisition of IPSCO Benefits for Russia Benefits for North America Best business practices – Russia is implementing practices Technology – Building relationships between U.S.
Slide 40: Thank You
Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com 40