Slide 1: TMK IR Presentation
TMK IR PRESENTATION August 2017
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 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 3: 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. 16% (a) market share - dominant N1 in Russia and Top-3 in the US State-of-the-art underutilised production base with major investments completed ove
Slide 4: TMK Market Exposure: Resilient Russian Market + US Shale 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 600 China 6 5.6 Canada 500 Russia 4.7 1.8
Slide 5: TMK – Superior Earnings Resilience Through the Cycle
TMK – Superior Earnings Resilience Through the Cycle 3,661 3,675 4,288 4,402 3,871 1,049 885 3,458 2,633 1,866 1,842 1,461 605 1,990 Total 1,046 2,323 1,815 355 2,159 pipes sales 1,748 1,207 462 2,612 2,790 987 1,411 volume 582 2,028 170 1,281 1,013 2,422 2,560 2,410 2,412 1,635 226 572 (ths. tonnes
Slide 6: 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 467 (upstream and downstream) across all regional divisions 387 A
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 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 8: TMK Russian Division: Market Overview
DRAFT TMK Russian Division: Market Overview
Slide 9: Robust Oil Production Growth and Well Flow Dynamics
Robust Oil Production Growth and Well Flow Dynamics Russian oil production hits record high… 11.4 11.2 Russian oil production set new historic record in 11.0 November 2016, reaching 11.2 mmbpd mmbpd 10.8 As part of its deal with OPEC, which was prolonged until 10.6 the end of March 2018, Russia
Slide 10: Growing Drilling Activity and OCTG Market Demand
Growing Drilling Activity and OCTG Market Demand OCTG market demand fundamentals supportive of continuing growth(1) Key considerations 28 2.2 Drilling in Russia has demonstrated a strong 6.3% 24 2.0 CAGR between 2010 and 2016, with OCTG demand having increased at 2.0% CAGR over the same period(1)
Slide 11: Favourable Tax Regime and Stable Upstream Economics
Favourable Tax Regime and Stable Upstream Economics Strong upstream EBITDA(1) margin despite oil price collapse Key considerations 300 50% Despite a c.50% decline in oil price since 3Q14, Russian 42% 44% 41% 39% 40% Upstream sector remains profitable with stable EBITDA 38% 39% 40% 39% 37% 250 35%
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 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 13: Russian Tube and Pipe Market Demand Outlook
Russian Tube and Pipe Market Demand Outlook Historic Russian pipe demand(1) Key considerations 12.0 According to TMK estimates, in 2016, Russian 10.0 consumption of pipes and tubular products reached 9.7mt p.a. (-10% vs. 2015 and -8% vs. 2014), mainly Tonnes (mn) 8.0 6.0 affected by weaker LDP con
Slide 14: 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 increased by 12% YoY 35% 32% in 1H 2017(1) 39% 75% Development of conventional and unconventional 50% reserves will require the use of non-conventional drilling technique
Slide 15: TMK North American Division: Market Overview
DRAFT TMK North American Division: Market Overview
Slide 16: US Industry Performance Review – Outlook Improving
US Industry Performance Review – Outlook Improving This downturn has been longer and tougher… Rig count reached bottom in May 2016 at 404 units, but has grown by over 550 rigs since then Base 100 = Last peek before decline 125 100 Average number of rigs in 2Q 2017 increased by U.S. Rig Count Ind
Slide 17: 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 and 180 gas prices, U.S. E&P capex is expected to increase by 40% and U.S.$ bn 135 27% in 2018 and 2019, 90 respectively 45 This is expected to result in growing counts of active rigs 0 2018E 2019E 201
Slide 18: Key New Projects on Cost Curve
Key New Projects on Cost Curve Continental U.S. tight oil cost curve 2026 120 Niobrara 100 Breakeven U.S.$/bbl Brent Equivalent 80 Mid- continent 60 2017 YTD 40 Bone Spring Brent (Permian) Bakken Price: Wolfcamp U.S.$ (Permian) 45-57/bbl Eagle Ford 20 Other 0 0 1 2 3 4 5 6 7 8 Weighted Average Break
Slide 19: OCTG Consumption Expected to Recover 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 2,500 550 600 500 Monthly U.S. OCTG consumption, k tonne Consumption per rig (
Slide 20: 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 3.5 12.0 Total Weight per Total Weight per Total Weight per well: 492 NT well: 307 NT well: 267 NT 20" 3.0 13 3/8" 9 5/8
Slide 21: OCTG Prices Reached Bottom in 2Q 2016 and Then Rebounded
OCTG Prices Reached Bottom in 2Q 2016 and Then Rebounded 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 October Prices, rebased to 10
Slide 22: Strategic Overview
DRAFT Strategic Overview
Slide 23: 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 24: 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 2016 US$124 mln(a) Other Other Energy 5% Salaries 16% 6% Salaries Other Energy 13% 18% 23% 4% Salaries Logistics Maintenance 29% 8% Energy 12% Logist
Slide 25: Comfortable Maturity Profile with Ongoing Refinancing
Comfortable Maturity Profile with Ongoing Refinancing Debt maturity profile as of June 30, 2017 As of June 30, 2017, Net Debt 700 amounted to US$2,567 mln 656 EUR Over US$1bn reduction in Net Debt RUB over the past 3 years 600 USD In April 2017, TMK placed a RUB 5 billion 10-year bond with a 9
Slide 26: Summary Financial Results
DRAFT Summary Financial Results
Slide 27: FY Consolidated Results Snapshot
FY Consolidated Results Snapshot Revenue Volumes and realised prices Average 37.97 60.66 66.90 USD/RUB rate(a) 6,000 Average US$1,464 US$1,078 US$970 revenue/ tonne US$1,085 US$921 US$796 5,000 Thousand tonnes US$ mln 4,000 5,000 4,402 3,871 4,000 3,458 3,000 6,009 1,842 3,000 1,461 1,046 2,000 4,12
Slide 28: 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% 693 700 600 524 20% 500 437 US$ mln 12% 13% % 400 10% 8% 300 200 100 0% 0 2014 2015 2016 2014 2015 2016 Seamless Welded Capex and cash conversion(b) Key considerations Gross margin resilient thr
Slide 29: Segmental Quarterly Performance Dynamics
Segmental Quarterly Performance Dynamics Russian division American division European division 759 784 747 760 710 675 Sales volume (ths.tonnes) 158 93 128 50 65 74 43 47 41 45 45 48 1Q 16 2Q 16 3Q16 4Q 16 1Q 17 2Q 17 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 164 148 (b)
Slide 30: 2Q 2017 vs 1Q 2017 Summary Financial Highlights
2Q 2017 vs 1Q 2017 Summary Financial Highlights Sales were up QoQ, due to higher seamless line and industrial pipe volumes at the Russian division and Revenue increased QoQ, due to higher volumes at stronger welded OCTG sales in the US the Russian and American divisions 14% QoQ 17% QoQ 1,000 1,200 T
Slide 31: 1H 2017 vs 1H 2016 Summary Financial Highlights
1H 2017 vs 1H 2016 Summary Financial Highlights Revenue increased YoY supported by a positive Sales were up YoY, due to high OCTG sales at the effect of currency translation and strong sales at the American and Russian divisions American division 4% YoY 27% YoY 2,000 2,000 Thousand tonnes 1,500 1,60
Slide 32: Appendix – Summary Financial Accounts
DRAFT Appendix – Summary Financial Accounts
Slide 33: Key Consolidated Financial Highlights
Key Consolidated Financial Highlights (US$mln) (a) 2016 2015 2014 2013 Revenue 3,338 4,127 6,009 6,432 Adjusted EBITDA(b) 530 651 829 986 Adjusted EBITDA Margin (b) (%) 16% 16% 14% 15% Profit (Loss) 166 (368) (217) 215 Net Profit Margin (%) 5% n/a n/a 3% Pipe Sales ('000 tonnes) 3,458 3,871 4,402 4,
Slide 34: Income Statement
Income Statement (US$ mln) 2016 2015 2014 2013 Revenue 3,338 4,127 6,009 6,432 Cost of sales (2,634) (3,282) (4,839) (5,074) Gross Profit 704 845 1,169 1,358 Selling and Distribution Expenses (220) (260) (350) (379) General and Administrative Expenses (196) (207) (278) (317) Adverstising and Promoti
Slide 35: Statement of Financial Position
Statement of Financial Position (US$ mln) 2016 2015 2014 2013 ASSETS Cash and Cash Equivalents 277 305 253 93 Accounts Receivable 689 512 728 995 Inventories 769 785 1,047 1,324 Prepayments 107 113 113 148 Other Financial Assets 42 0 1 0 Total Current Assets 1,883 1,715 2,142 2,561 Total Non-current
Slide 36: Cash Flow
Cash Flow (US$ mln) 2016 2015 2014 2013 Profit / (Loss) before Income Tax 169 (443) (201) 312 Adjustments for: Depreciation and Amortisation 242 251 304 326 (a) Net Finance Cost 263 269 226 245 Others (154) 552 479 61 Working Capital Changes (13) 105 (159) (159) Cash Generated from Operations 506 73
Slide 37: Seamless – Core to Profitability
Seamless – Core to Profitability U.S.$ mln QoQ, YoY, 1H 2017 gross profit breakdown 2Q2017 1H2017 (unles s s tated otherwis e) % % Other Sales - Pipes, kt 690 4% 1,353 16% operations Welded 2% Revenue 800 12% 1,514 38% 1 3% SEAMLESS Gross profit 189 11% 358 20% Margin, % 24% 24% Avg revenue/tonne (U
Slide 38: Appendix – Capital Structure and Corporate Governance
DRAFT Appendix – Capital Structure and Corporate Governance
Slide 39: Capital Structure
Capital Structure Capital structure Key considerations Free float ** 34.89% TMK’s securities are listed on the London Stock Exchange, the OTCQX International Premier trading platform in the U.S. and on Russia’s major stock Members of exchange – MICEX-RTS. TMK Steel the Board of Holding Ltd, Direct
Slide 40: 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 41: Appendix – TMK Products
DRAFT Appendix – TMK Products
Slide 42: 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 43: 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 for casing while drilling and market with greater focus on sales of 2nd and 3rd Comprises connections with rotati
Slide 44: 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 45: 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 for 1H 2017); Line pipe – used for short distance transportation of crude oil, oil product
Slide 46: Appendix – Other Materials
DRAFT Appendix – Other Materials
Slide 47: 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 17% (TMK UP) TMK Threaded pipes for O&G Short-distance Premium connections 63% industry including drill transportation of O&G TMK are proprietary value- pipe, casing and tubing 86% and o
Slide 48: Thank You
DRAFT Thank You TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com