Slide 1: TMK Investor Presentation 2Q and 1H 2012 IFRS Results
PROPRIETARY & CONFIDENTIAL TMK Investor Presentation 2Q and 1H 2012 IFRS Results
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 4 Financial Review 8 Russia 21 North America 26 Investments 32 Appendix – Summary Financial Accounts 34 Appendix – TMK Global Assets 38 Contacts 41 3
Slide 4: Company Overview
Company Overview 4
Slide 5: Investment Highlights
Investment Highlights One of the largest tubular capacity Global High exposure to the oil & gas industry: approximately 74% of 2011 shipments went to the oil & gas sector Market Leader Leading producer of value-added steel pipes for the oil & gas industry 14% global seamless OCTG(1), 12% of
Slide 6: Global Operational and Sales Footprint
Global Operational and Sales Footprint Steel Tubular Industry Leader TMK’s strategic positioning made it the steel tubular industry leader, with over 4 million tonnes sold in 2011. Truboplast Pipe Maintenance Department Seversky Sinarsky Moscow RosNITI Central Pipe Yard Orsky Calgary Cologne Astana
Slide 7: 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 8: Financial Review
Financial Review 8
Slide 9: 2Q 2012 Sales by Segment and Group of Product
2Q 2012 Sales by Segment and Group of Product Russia Americas Europe Total Thousand 2Q 2012 QoQ, % 2Q 2012 QoQ, % 2Q 2012 QoQ, % 2Q 2012 QoQ, % Tonnes Seamless Pipe 546 9% 69 11% 48 9% 663 9% OCTG 319 21% 62 13% - n/a 381 20% Line Pipe 129 -7% 4 100% 8 14% 141 -4% Industrial Pipe 98 -4% 3 -40% 40 8%
Slide 10: 1H 2012 Sales by Segment and Group of Product
1H 2012 Sales by Segment and Group of Product Russia Americas Europe Total Thousand 1H 2012 YoY, % 1H 2012 YoY, % 1H 2012 YoY, % 1H 2012 YoY, % Tonnes Seamless Pipe 1,049 6% 131 -10% 92 -3% 1,272 3% OCTG 582 18% 117 -9% - n/a 699 12% Line Pipe 267 -6% 6 -40% 15 15% 288 -6% Industrial Pipe 200 -8% 8
Slide 11: 2Q 2012 and 1H 2012 Summary Financial Highlights
2Q 2012 and 1H 2012 Summary Financial Highlights Revenue 2Q12: +7% QoQ 1H12: -3% YoY 1,800 3,600 2Q 2012 revenue increased QoQ primarily due to both 1,500 3,000 seamless OCTG pipe and large-diameter (LD) pipe sales U.S.$ mln U.S.$ mln 1,200 2,400 growth 900 1,659 1,781 1,800 3,547 3,439 600 1,200
Slide 12: 2Q 2012 Revenue by Division
2Q 2012 Revenue by Division 2Q 2012 Revenue 2Q 2012 Revenue per Tonne* 1,400 +9% 2,400 +2% 1,200 +4% 2,000 -4% 1,000 1,600 U.S.$ mln U.S.$ 800 1,200 600 1,237 +2% 1,133 1,963 1,997 1,824 1,889 800 1,573 1,516 400 200 440 448 +11% 400 86 96 0 0 Russia Americas Europe Russia Americas Europe 1Q2012 2Q2
Slide 13: 1H 2012 Revenue by Division
1H 2012 Revenue by Division 1H 2012 Revenue 1H 2012 Revenue per Tonne* 2,800 -8% -2% 2,100 +6% 2,400 1,800 -2% 2,000 1,500 U.S.$ mln U.S.$ 1,600 1,200 2,589 2,028 1,980 1,200 2,370 +16% 900 1,755 1,856 1,571 1,543 800 600 887 -5% 400 765 300 193 182 0 0 Russia Americas Europe Russia Americas Europe
Slide 14: 2Q 2012 Revenue Growth by Segments and Groups of Products
2Q 2012 Revenue Growth by Segments and Groups of Products Revenue growth in the Russian division was driven primarily by higher welded volumes, due to large- diameter business, and pricing. Increasing seamless volumes were virtually offset by declining welded volumes in the American division. The Eu
Slide 15: 1H 2012 Revenue Growth by Segments and Groups of Products
1H 2012 Revenue Growth by Segments and Groups of Products Revenue growth in the Russian division was driven by better pricing and product mix and higher sales volumes in the seamless business, while lower large-diameter pipe volumes offset those gains. In the American division, revenue was up primar
Slide 16: 2Q 2012 Adjusted EBITDA by Division vs. Prior Quarter
2Q 2012 Adjusted EBITDA by Division vs. Prior Quarter 2Q 2012 Adjusted EBITDA 2Q 2012 Adjusted EBITDA per Tonne +16% 210 -19% +7% 400 180 350 150 300 +2% U.S.$ mln 120 250 U.S.$ -20% 204 200 90 176 357 362 338 150 289 60 245 250 86 +17% 100 30 68 50 15 17 0 0 Russia Americas Europe Russia Americas E
Slide 17: 1H 2012 Adjusted EBITDA by Division vs. Prior Year
1H 2012 Adjusted EBITDA by Division vs. Prior Year 1H 2012 Adjusted EBITDA 1H 2012 Adjusted EBITDA per Tonne -12% -12% -5% 450 400 360 350 300 -5% 300 240 U.S.$ mln 250 U.S.$ 430 -4% 367 370 200 380 180 350 323 150 261 120 248 100 160 154 -8% 50 60 35 32 0 0 Russia Americas Europe Russia Americas Eu
Slide 18: Seamless – Core to Profitability
Seamless – Core to Profitability U.S.$ mln QoQ, YoY, 2Q 2012 1H 2012 (unless stated otherwise) % % Sales of seamless pipes Volumes- Pipes, kt 663 +9% 1,272 +3% generated 61% of total Revenue in Net Sales 1,084 +2% 2,143 +6% 2Q 2012 and 62% of total Revenue in 1H 2012 SEAMLESS Gross Profit 285 -7%
Slide 19: Working Capital Position
Working Capital Position Accounts Receivable (days) Accounts Payable (days) 100 94 120 107 80 100 80 75 60 56 56 64 50 52 63 60 50 40 40 20 20 0 0 2008 2009 2010 2011 1H 2012 2008 2009 2010 2011 1H 2012 LTM LTM Inventories (days) Cash Conversion Cycle (days) 140 132 119 120 120 100 90 100 91 95 84 9
Slide 20: Debt Profile
Debt Profile TMK Continues to Optimize its Capital Structure and Develop a Flexible, Cost-effective Debt Portfolio Maturity Profile as of 30 June 2012 As of 30 June, 2012, Total Debt accounted for U.S.$3,710 mln 800 73% of Total Debt is long-term 714 699 29% of Total Debt is represented by Eur
Slide 21: Russia
Russia 21
Slide 22: Oil Production and Capex Needs in Russia
Oil Production and Capex Needs in Russia Deteriorating oil production conditions at mature The average productivity of oil wells in Russia fields, particularly in the Urals and Western Siberia, remains below most of other major oil regions in the require substantial capex spending by oil majors to w
Slide 23: Russian Drilling - Moving East for Growth
Russian Drilling - Moving East for Growth The Increasing complexity of oil and gas production in Russia is expected to increase demand for higher value-added products CAGR 2007-2012F 5.6% Drilling Activity, km 24,000 Unconventional Regions Arctic Offshore 18,000 Conventional Regions 12,000 6,000 Tim
Slide 24: Increasing Complexity of Russian Drilling
Increasing Complexity of Russian Drilling The Share of Greenfield Production is Projected to Reach 17% Horizontal Drilling is Expected to Double in the Next 5 Years in 2015 Compared to 7% in 2011 21 20% 560 18 480 mln tonnes mln meters 15 14% 400 % 12 320 8% 240 9 160 6 2% 80 3 0 2011F 2012F 2013F 2
Slide 25: Russian LDP Demand Drivers
Russian LDP Demand Drivers Shtokman Bovanenkovo Murmansk Bovanenkovo- Novy Ukhta Urengoy Murmansk- Zapolyarye- Volkhov Ukhta- Ukhta SRTO- Purpe Vyborg Torzhok Torzhok Altai Purpe- Project ESPO-1 Volkhov Gryazovets Sakhalin- Nord Stream Samotlor BTS-2 Torzhok Pochinki- Khabarovsk- Gryazovets Vladivos
Slide 26: North America
North America 26
Slide 27: Shift to Unconventional Drilling
Shift to Unconventional Drilling Conventional (Vertical) Drilling Unconventional (Horizontal) Drilling (Hydraulic Fracturing) Seamless / Premium Welded Tubing Connections Vertical Horizontal Shale Shale Length, km Up to 5 Up to 10 Drilling % Seamless 35% 60% Fracturing Seamless / Welded Casing % Pre
Slide 28: Increasing Drilling Complexity
Increasing Drilling Complexity Increasing Service Intensity Average Average Service intensity in 2008 multiplied by 3-5 Lateral Number of Field Period Hydraulic Length (ft) Stages AFE(1) times compared to 2006, and by more than 7 HP (US$ mn) times in 2010. Marcellus 2008 6k 3,000 7 3.4 2010 30k 5,
Slide 29: Shale Plays Remain Economic at Lower Gas Prices
U.S.$ $0 $1 $2 $3 $4 $5 $6 Marcellus Wet (core) $2.8 Pinedale $2.9 Marcellus Dry (core) $3.0 major shales. Fayetteville (3.4 Bcf) $3.0 Granite Wash (Horizontal) $3.1 Huron Shale $3.2 Gas above U.S.$4/Mcf Deep Bossier (E.Texas) $3.3 Eagle Ford (Condensate Zone) $3.4 Cana-Woodford (core) Source: Morga
Slide 30: US Drilling – Stronger than Ever
US Drilling – Stronger than Ever Drilling Activity Brought Months of OCTG Supply Back to Normal Major U.S. Shale Oil & Gas Plays 16 2,500 Months of Supply 14 US Rig Count Bakken 2,000 Months of Supply 12 U.S. Rig Count 10 1,500 McClure 8 6 1,000 4 Monterey 500 2 0 0 Shale Oil Jan-08 Jan-09 Jan-10 Ja
Slide 31: Canadian Oil Sands
Canadian Oil Sands Three Major Oil Sands Deposits Canadian Oil Sands – Fast Facts Around 170 billion of Oil Sands reserves Potential for over 100 years of production Mining – less than 200 feet deep: 20% of reserves Peace River Deposit Athabasca Deposit Drilling – more than 200 feet deep: 80
Slide 32: Investments
Investments 32
Slide 33: Investment Projects
Investment Projects Russia USA Construction of EAF at Tagmet R&D Center in Houston Total Investment: U.S.$ 247 mln Investment: U.S.$26 mln Remaining Investment: U.S.$ 120 mln Timing: Building Completed in 2011 The in-house R&D Center Project Launch: 2013 Final test equipment will allow for significa
Slide 34: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 34
Slide 35: TMK Income Statement
TMK Income Statement U.S.$ mln 2011 2010 2009 2008 2007 Revenue 6,754 5,579 3,461 5,690 4,179 Cost of Sales (5,307) (4,285) (2,905) (4,252) (2,891) Gross Profit 1,446 1,293 556 1,438 1,288 Selling and Distribution Expenses (411) (403) (313) (344) (238) General and Administrative Expenses (283) (232)
Slide 36: TMK Statement of Financial Position
TMK Statement of Financial Position U.S.$ mln 31-Dec-11 31-Dec-10 31-Dec-09 31-Dec-08 31-Dec-07 ASSETS Cash and Bank Deposits 231 158 244 143 89 Accounts Receivable 772 720 580 758 541 Inventories 1,418 1,208 926 1,176 782 Prepayments 200 172 223 213 238 Other Financial Assets 4 4 4 4 - Total Curren
Slide 37: TMK Cash Flow
TMK Cash Flow U.S.$ mln 2011 2010 2009 2008 2007 Profit / (Loss) before Income Tax 544 185 (427) 308 699 Adjustments for: Depreciation and Amortisation 336 301 313 248 140 Net Interest Expense 271 412 406 263 90 Others (101) 44 36 228 (9) Working Capital Changes (156) (527) 558 (81) (386) Cash Gener
Slide 38: Appendix – TMK Global Assets
Appendix – TMK Global Assets 38
Slide 39: Russia - CIS - Europe Production
Russia - CIS - Europe Production Seversky (incld. TMK-CPW) Capacity Volzhsky Product (tonns) Capacity Seamless OCTG 220,000 Product (tonnes) S.Line Pipe & Industrial 120,000 Seamless OCTG 270,000 Heat Treating 175,000 S.Line Pipe & Industrial 430,000 Welded Industrial & Line Pipe 600,000 Heat Treati
Slide 40: TMK IPSCO – US Market Penetration
TMK IPSCO – US Market Penetration Camanche, IA Brookfield, OH Koppel, PA Product Capacity (tonnes) Product Capacity (tons) Product Capacity (tonnes) ERW OCTG line pipe, 249,000 ULTRA™ Premium 86,500 Heat Treating 73,000 standard pipe connections Billets 435,000 Threading 290,000 Bakken Geneva, NE Pr
Slide 41: Thank You
Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com 41