Slide 1: TMK Investor Presentation April 2013
PROPRIETARY & CONFIDENTIAL TMK Investor Presentation April 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 14 Financial Overview 23 Appendix – Summary Financial Accounts 32 Appendix – TMK Global Assets and Products 36 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 World Leading Tubular Producer A world leading tube producer by sales volumes in 2012. 4,238 3,864 High exposure to the oil and gas industry: approximately 75% of sales volumes went to the oil and gas sector in 2012. 1,
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$/barrel) oil and gas. 150 Significant expected capital expenditure by oil and gas industry driven by strong outlook for
Slide 9: Diversified Business Model
Diversified Business Model Key Considerations Diversified Product Portfolio and Customer Base High degree of diversification enabling earnings resilience. Sales Volumes by Product (2012) Geographical diversification seeking to mitigate swings in Welded OCTG geographical demand (Russian division
Slide 10: Focus on High Value Added Products
Focus on High Value Added Products Key Considerations Increasing Focus on Higher Margin Seamless Products 62% of revenues was higher margin seamless pipes in 2012. 30% 26% 28% 26% 70% Share of seamless product in 25% 26% gross margin for seamless pipe vs. 15% for welded pipes in 2012. 20% 65% Gr
Slide 11: Low Cost Vertically Integrated Producer
Low Cost Vertically Integrated Producer Key Considerations Industry Leading Cost Position Structural cost advantages over major international competitors: 2012 Cost per Tonne (US$/t)(a) 2,700 2,614 Russia is one of the lowest cost regions for steel production. 2,250 Fully vertically integrated s
Slide 12: 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 13: 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 14: Industry Overview
Industry Overview 14
Slide 15: Seamless OCTG is the Most Attractive Segment
Seamless OCTG is the Most Attractive Segment Key Considerations OCTG is a Relatively Small Segment of Global Tube Industry... Seamless OCTG sector constitutes approximately 9% of total global World Tube Market Segmentation (2012) tube market. Welded LD Seamless OCTG is highly complex value added
Slide 16: Increasing Complexity of Russian Drilling
Increasing Complexity of Russian Drilling Key Considerations Increasing Greenfield Oil Production in Eastern Regions Demand driven by production shift to unconventional regions 11,300 Russian Oil Production Prirazlomnoye (Eastern Siberia, Sakhalin and Arctic offshore) and development of Yamal fiel
Slide 17: Russian Drilling - Moving East for Growth
Russian Drilling - Moving East for Growth Unconventional Tax Stimulus Greenfields Unconventional Oil Offshore Increasing complexity of oil and gas Approved Approved production in Russia is expected to Reduced export duty = Reduced export duty for increase demand for higher value- 45% * (Urals - U.S.
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: Increasing Unconventional Drilling Activity in the United States
Increasing Unconventional Drilling Activity in the United States Key Considerations US Rigs Expected to Increase by 2% p.a. Demand for high-value added products driven by continued shift to 2,500 US Oil and Gas Rig Count unconventional drilling 2012-20E CAGR: +2% 2,000 Horizontal drilling now ac
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: From Gas Shale to Oil Shale
From Gas Shale to Oil Shale Shift from gas to oil is changing product demands and sales mix Move to shallower wells, with less pressure utilizing API alloy pipe with SEMI PREMIUM connections rather PREMIUM CONNECTIONS Gas rich plays Oil and Liquid rich plays Conductor Casing Conductor Casing Surfa
Slide 22: 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 23: 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 24: Financial Overview
Financial Overview 24
Slide 25: 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 26: 4Q 2012 and FY 2012 Summary Financial Highlights
4Q 2012 and FY 2012 Summary Financial Highlights Revenue 4Q12: +1% QoQ FY12: -1% YoY 4Q 2012 revenue was relatively flat QoQ, with unfavorable 1,800 7,000 changes in seamless pipe pricing in the American division being 1,500 6,000 offset by higher LDP volumes in the Russian division and the 1,200
Slide 27: FY 2012 Sales by Division and Group of Product
FY 2012 Sales by Division and Group of Product FY 2012 Sales by Division +1% Russian division sales increased YoY mainly due to higher demand for seamless OCTG and line pipe as well as welded 3,200 line pipe that was significantly offset by the decrease in sales of LDP. Thousand tonnes 2,400 Ame
Slide 28: FY 2012 Revenue by Division
FY 2012 Revenue by Division FY 2012 Revenue FY 2012 Revenue per Tonne* -2% 5,000 2,400 -13% +2% 2,000 4,000 U.S.$ / tonne -3% U.S.$ mln 1,600 3,000 1,200 4,788 4,714 +4% 2,107 2,000 1,783 1,827 1,840 800 1,537 1,492 1,000 400 1,590 1,650 -14% 375 324 0 0 Russia Americas Europe Russia Americas Europe
Slide 29: FY 2012 Adjusted EBITDA by Division vs. Prior Year
FY 2012 Adjusted EBITDA by Division vs. Prior Year FY 2012 Adjusted EBITDA FY 2012 Adjusted EBITDA per Tonne +6% 800 400 -18% 700 350 -17% 600 300 +5% U.S.$ mln 500 250 U.S.$ 400 766 721 -16% 200 360 300 150 298 294 231 242 246 200 100 -19% 265 222 100 50 64 52 0 0 Russia Americas Europe Russia Amer
Slide 30: Seamless – Core to Profitability
Seamless – Core to Profitability U.S.$ mln QoQ, YoY, 4Q 2012 FY 2012 % % (unless stated otherwise) Sales of seamless pipes Volumes- Pipes, kt 619 +2% 2,495 +7% generated 61% of total Revenue in 4Q 2012 and 62% of total Net Sales 999 1% 4,134 +6% Revenue for FY 2012. SEAMLESS Gross Profit 246 3% 1,
Slide 31: Working Capital Position
Working Capital Position Inventories (Days) TMK Cash Conversion Cycle (days) 140 132 97 120 119 105 84 91 90 100 90 70 76 80 80 72 35 0 60 2008 2009 2010 2011 2012 40 20 Accounts Receivable (Days) 94 0 100 2008 2009 2010 2011 2012 80 Source: TMK data 56 56 56 60 50 40 20 Working Capital as Days of S
Slide 32: Debt Profile
Debt Profile TMK Continues to Optimize its Capital Structure and Develop a Flexible, Cost-effective Debt Portfolio Maturity Profile as of December 31, 2012 As of December 31, 2012, total financial debt accounted for U.S.$3,885 mln 1,050 1,019 73% of total financial debt is long-term 28% of Tot
Slide 33: Appendix – Summary Financial Accounts
Appendix – Summary Financial Accounts 33
Slide 34: Income Statement
Income Statement U.S.$ 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 35: 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 36: 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 37: Appendix – TMK Products
Appendix – TMK Products 37
Slide 38: Utilisation of TMK Pipe Products in Oil and Gas Industry
Utilisation of TMK Pipe Products in Oil and Gas Industry 38
Slide 39: 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 40: 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 41: Thank You
Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com 41