Tmk · RUS:TRMK

Tmk — Investor Presentation (October 2018)

52 slides from Tmk's investor presentation, October 2018

  1. Slide 1: TMK IR Presentation October 2018

    TMK IR PRESENTATION October 2018

  2. 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 2017E global drilling activity Canada: by geography Rus

  3. 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

  4. 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

  5. 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 1,461 1,113 1,049 885 2,618 1,046 2,633 Total 2,062 2,159 2,323 2,256 605 1,990 461 1,771 pipes sales 662 355 1,411 1,087 2,790 431 1,281 volume 2,422 2,560 2,410 2,412 2,668 2,612 2,028 2,157

  6. 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 543 531 500

  7. 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

  8. Slide 8: TMK Russian Division: Market Overview

    TMK Russian Division: Market Overview 8

  9. 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 10.5 MMbpd whilst adhering to the agreement with OPEC Russian total oil output, MMbpd 11.3  Russian oil production set new historic record in November 2016, reaching 11.2 mmbpd 11

  10. Slide 10: Strong Oil Production Creates Long-term Demand for High-End Oil & Field Services

    Strong Oil Productions Creates Long-term Demand for High- End Oil & Field Services Russian drilling activity remains solid with development drilling activity growing. This fuels strong demand for advanced oil field services fueled by EOR activity at brownfields Russian drilling, kmpd Russian drillin

  11. Slide 11: Attractive Portfolio of Premium OCTG Projects

    Attractive Portfolio of Premium OCTG Projects 11

  12. 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

  13. Slide 13: Russian Tube and Pipe Market

    Russian Tube and Pipe Market 12 10 8 Non-Energy mln tonnes 6 4 Energy 2 0 2018E 2019E 2020E 2021E 2022E 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 No.1 on the Russian tube and pipe market 34% market share of energy pipe demand 1H 2018 1H 2018 TMK TMK 24% 34% Source: TMK es

  14. 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 24%  Russian seamless OCTG market was up 10%

  15. Slide 15: LDP Demand in Russia

    LDP Demand in Russia LDP demand in Russia, 2012–2020E Booming market Stable and constructive outlook 3,500 15% 3,000 2,500 20% '000 tonnes 20% 2,000 26% 26% 1,500 31% 30% 15% 30% 29% 34% 30% 14% 65% 12% 13% 1,000 26% 14% 15% 54% 59% 500 54% 58% 58% 44% 52% 55% 0 2012 2013 2014 2015 2016 2017 2018E 2

  16. Slide 16: Strategic Cooperation Supporting Growth

    Strategic Cooperation Supporting Growth Strategic cooperation with key customers Technology Partnership Scientific and Program Technological Cooperation Partnership Memorandum  Newly signed long-term agreements with key customers to develop and supply innovative premium products with related servic

  17. Slide 17: TMK UP Connections for all Conditions

    TMK UP Connections for all Conditions 17

  18. Slide 18: TMK American Division: Market Overview

    TMK American Division: Market Overview 18

  19. Slide 19: Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production

    Improving Oil & Gas Market Fundamentals Drive U.S. Shale Production…  Sentiment has improved as the EIA’s forecast for 2018E U.S. crude oil production is positive 12 10.5  Improved demand outlook, weaker oil and gas 9.4 9.3 10 8.7 8.9 investment, and the OPEC prolonging production cuts indicate a

  20. Slide 20: 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

  21. Slide 21: Driving Increasing Unconventional Horizontal Drilling

    Driving Increasing Unconventional Horizontal Drilling …  Horizontal and directional drilling exceeded 90% in U.S. active rig count by type of drilling 2017 and has more than doubled for the last 10 100 13 11 7 6 years 22 17 32 31 27 75 % as of year end  According to Spears & Associates estimates,

  22. Slide 22: 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 1,879 1,919 1,862 1,768 1,761 314 297 1,546 300 274 1,500 211 217 1,089 192 978 1,003 200 169 173 1,000 876 509 500 100 0 0 2007 2008 2009 2010 2011 2012 2013 2014

  23. Slide 23: More Wells Drilled per Rig and Longer Laterals

    … Coupled with More Wells Drilled per Rig and Longer Laterals … Horizontal wells drilled per rig  Pad drilling operations allow operators to drill more 20 17.7 horizontal wells per rig per year 16.7 15.4 15  In the U.S., the average number of horizontal wells 11.6 10.0 drilled per rig has increase

  24. Slide 24: Resulting in OCTG Consumption Growth

    … Resulting in OCTG Consumption Growth … Total U.S. OCTG consumption  U.S. consumption of OCTG reached 4.6 mln metric 10.0 tonnes in 2017, more than twice 2016 7.3 7.0 7.3 mln metric tonnes 7.5 6.5  Total demand for OCTG in the U.S. is projected to 6.2 5.6 grow at a CAGR of 8% YoY in 2017 – 2022E

  25. Slide 25: Inventory Normalization, Higher Efficiency

    … Inventory Normalization, Higher Efficiency …  US OCTG inventories have reached the normalized Increased shipment levels bring months-of- levels of 2014 as shipments outpace consumption inventory back to pre-downturn levels  Despite months of inventory having reached 2014 Monthly Absolute Invento

  26. Slide 26: and Growth of OCTG Prices

    … and Growth of OCTG Prices U.S. distributor welded OCTG vs. HRC prices U.S. distributor seamless OCTG vs. scrap prices (U.S.$/tonne, monthly average) (U.S.$/tonne, monthly average) 2,100 2,400 +47% 1,900 +63% 1,800 1,500 1,400 1,600 1,400 1,100 +88% 1,000 700 800 700 600 +72% 0 300 0 200 Apr-16 Jan

  27. Slide 27: Strategic Overview

    Strategic Overview 27

  28. Slide 28: 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

  29. Slide 29: Comfortable Maturity Profile as at June 30, 2018

    Comfortable Maturity Profile as at June 30, 2018 700 EUR  As at June 30, 2018, Net Debt amounted to 651 US$2,715 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 502  The weighted average nomin

  30. Slide 30: Summary Financial Results

    Summary Financial Results 30

  31. Slide 31: 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

  32. Slide 32: 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

  33. Slide 33: Segmental Quarterly Performance Dynamics

    Segmental Quarterly Performance Dynamics Russian division American division European division 760 812 756 734 740 675 Sales volume 210 185 199 199 (ths.tonnes) 128 158 45 48 42 50 47 53 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 127 12

  34. Slide 34: 2Q 2018 vs. 1Q 2018 Summary Financial Highlights

    2Q 2018 vs. 1Q 2018 Summary Financial Highlights Revenue increased QoQ, driven by stronger pipe sales and higher prices at the American and European divisions and the Sales were up QoQ across all divisions stable performance of the Russian division 9% QoQ 6% QoQ 1,200 1,500 Thousand tonnes 900 US$ m

  35. Slide 35: 1H 2018 vs. 1H 2017 Summary Financial Highlights

    1H 2018 vs. 1H 2017 Summary Financial Highlights Revenue increased YoY, driven by stronger sales and Sales were up QoQ across all divisions improved pricing across all divisions 14% YoY 28% YoY 2,400 3,000 Thousand tonnes 1,800 US$ mln 2,000 1,200 2,062 2,628 1,815 1,000 2,050 600 0 0 1H2017 1H2018

  36. Slide 36: Seamless – Core to Profitability

    Seamless – Core to Profitability US$ mln QoQ, YoY, 1H 2018 gross profit breakdown 2Q2018 1H2018 (unless stated otherwise) % % Other Sales - Pipes, kt 719 6% 1,399 3% operations Welded 4% Revenue 914 4% 1,796 19% 9% SEAMLESS Gross profit 213 8% 411 15% Margin, % 23% 23% Avg revenue/tonne (US$) 1,271

  37. Slide 37: Appendix – Summary Financial Accounts

    Appendix – Summary Financial Accounts 37

  38. Slide 38: 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

  39. Slide 39: 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) (

  40. Slide 40: 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

  41. Slide 41: 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

  42. Slide 42: Appendix – Capital Structure and Corporate Governance

    Appendix – Capital Structure and Corporate Governance 42

  43. Slide 43: 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 June 30, 2018 35% of TMK ordinary shares were in free float TMK Steel Holding Ltd, * TMK incl. affiliates  Total shares outstanding a

  44. Slide 44: 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

  45. Slide 45: Appendix – TMK Products

    Appendix – TMK Products 45

  46. Slide 46: 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

  47. Slide 47: 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

  48. Slide 48: 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

  49. Slide 49: 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 (46% of total sales in 1H 2018)  Line pipe – used for short distance transportation of crude oil, oil products

  50. Slide 50: Appendix – Other Materials

    Appendix – Other Materials 50

  51. Slide 51: TMK's Undisputed Market Leading Position in Russia

    TMK’s Undisputed Market Leading Position in Russia Seamless Welded Premium OCTG Line Pipe Premium TMK Connections TMK Threaded pipes for O&G 29% Short-distance TMK 63% industry including drill transportation of O&G 68% (TMK UP) pipe, casing and tubing and oil products Premium connections are proprie

  52. Slide 52: TMK Investor Relations

    TMK Investor Relations 40/2a, Pokrovka Street, Moscow, 105062, Russia +7 (495) 775-7600 IR@tmk-group.com

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