TMK OAO (TMKXY: OTCQX International Premier) | TMK

TMK OAO (TMKXY: OTCQX International Premier) | TMK ANNOUNCES 1Q 2014 IFRS RESULTS

 

The following contains forward looking statements concerning future events. These statements are based on current information and assumptions of TMK management concerning known and unknown risks and uncertainties.  

 

OAO TMK (?TMK? or ?the Company?), one of the world?s leading producers of tubular products for the oil and gas industry, announces today its unaudited consolidated IFRS financial results for the three months ending March 31, 2014.

Summary 1Q 2014 Results

  (In millions of U.S.$, unless stated otherwise)

	1Q 2014	4Q 2013	Change, %		1Q 2013	Change, %
Sales volumes, thousand tonnes	1,026	1,090	-6%		1,058	-3%
Revenue	1,466	1,571	-7%		1,725	-15%
Gross profit	281	351	-20%		369	-24%
Foreign exchange loss, net	-63	-9	n/a		-5	n/a
Income/loss before tax	-14	86	n/a		112	n/a
Net income/loss	-16	55	n/a		85	n/a
Earnings /loss per GDR [1] , basic, U.S.$	-0.07	0.25	n/a		0.40	n/a
Adjusted EBITDA [2]	184	247	-25%		273	-32%
Adjusted EBITDA margin, %	13%	16%			16%

 

 

 

1Q 2014 Highlights

Sales

Sales (thousand tonnes)	1Q 2014	4Q 2013	Change, %		1Q 2013	Change, %
Seamless	640	617	4%		625	2%
Welded	386	473	-18%		433	-11%
Total	1,026	1,090	-6%		1,058	-3%

 

1Q 2014 vs. 4Q 2013

• Total pipe sales decreased by 6 % from the prior quarter to 1,026 thousand tonnes, mainly due to lower sales of welded pipe.
• Seamless pipe volumes increased by 4% over the prior quarter to 640 thousand tonnes. Seamless OCTG pipe sales grew by 2% from the fourth quarter of 2013.

• Welded pipe sales decreased by 18% from the prior quarter to 386 thousand tonnes mostly due to lower sales of welded line and industrial pipe, as well as weaker consumption of LDP in Russia.

 

1Q 2014 vs. 1Q 2013

• Total pipe sales decreased by 3% year-on-year largely due to lower consumption of large diameter pipe (LDP).  

• Seamless pipe sales grew by 2% compared to the first quarter of 2013 mostly due to higher volumes in the American division. Seamless OCTG pipe sales increased by 12% year-on-year.
• Welded pipe volumes decreased by 11% compared to the first quarter of 2013 mostly due to lower sales of LDP and welded line pipe.  

 

Financials

1Q 2014 vs. 4Q 2013

• Revenue was $1,466 million, a decrease of 7% over the fourth quarter of 2013, mainly due to lower welded pipe sales and a negative effect of currency translation.
• Adjusted EBITDA decreased by 25% quarter-on-quarter to $184 million mainly due to lower volumes and unfavorable product mix of welded pipe in the Russian division and decreasing prices in the American division coupled with growing coil prices. Adjusted EBITDA margin was 13% compared to 16% in the fourth quarter of 2013.
• Net loss was $16 million as compared to net profit of $55 million for the fourth quarter of 2013. Net loss was affected by the foreign exchange loss in the amount of $63 million for the first quarter of 2014.  
• As of March 31, 2014, total debt decreased by $100 million compared to December 31, 2013 to $3,594 million partially as a result of the Rouble?s depreciation against the U.S. dollar. TMK?s weighted average nominal interest rate decreased by 14 bps compared to December 31, 2013 and amounted to 6.58%.
• Net repayment of borrowings for the first quarter of 2014 amounted to $8 million.
• Net debt decreased by $75 million in the first quarter of 2014 compared to December 31, 2013 and amounted to $3,526 million as of March 31, 2014.

 

1Q 2014 vs. 1Q 2013

• Revenue fell by 15% compared to the first quarter of 2013 mostly due to lower LDP volumes as well as a negative effect of currency translation.
• Adjusted EBITDA dropped by 32% year-on-year mostly due to unfavorable pricing and product mix of seamless pipe and lower LDP volumes in the Russian division. Adjusted EBITDA margin was 13% compared to 16% in the first quarter of 2013.
• Net loss was $16 million for the first quarter of 2014 as compared to net profit of $85 million for the first quarter of 2013.  
• As of March 31, 2014, total debt decreased by $255 million compared to March 31, 2013. TMK?s weighted average nominal interest rate decreased by 44 bps compared to March 31, 2013.
• Net debt decreased by $201 million in the first quarter of 2014 compared to March 31, 2013.

 

 

Recent Developments

• In March 2014, TMK and Baker Hughes Incorporated announced their intention to jointly develop integrated well completion solutions. Targeted at both onshore and offshore fields, the solutions will provide turnkey well completions based on the technical and manufacturing capabilities of both companies.
• In April 2014, TMK signed an agreement with Gazprom Neft to apply a pricing formula to pipe products. The pricing formula is based on market prices for commodities and raw materials used in pipe production.
• On April 24, 2014, the Board of Directors recommended the AGM to adopt a resolution to pay final dividends for 2013 in the amount of RUB 0.78 per ordinary share. Total dividends will amount to RUB 731,317,153.32 (approximately $20.5 [3] million). Given the payment of interim dividends for the first 6 months of 2013 in the amount of RUR 975,089,537.76 (approximately $29.9 million), overall dividends for 2013 will correspond to 25% of TMK's consolidated 2013 IFRS net income, which is in compliance with the Company's Dividend policy.
• In May 2014, TMK signed a long-term contract with Yamal LNG for 2014-2020, with overall demand for premium tubular products during this period estimated at 48 thousand tonnes.
• In May 2014, TMK shipped LD pipe for Gazprom?s Bovanenkovo-Ukhta pipeline construction. Under the project, TMK plans to ship a total of 45,000 tonnes.
• In May 2014, TMK signed a memorandum of understanding with Sakhalin Energy Investment Company Ltd. (Sakhalin Energy), operator at Sakhalin-II. The memorandum provides a framework for cooperation on TMK's tubular product qualification and certification with a view to testing its suitability for Sakhalin Energy's operations.

 

 

1Q 2014 Segment Results

(In millions of U.S.$, unless stated otherwise)

	1Q 2014	4Q 2013	Change, %		1Q 2013	Change, %
Sales (thousand tonnes)
Russia	727	760	-4%		786	-8%
America	251	281	-11%		228	10%
Europe	48	49	-3%		44	9%
Revenue
Russia	981	1,044	-6%		1,277	-23%
America	418	457	-8%		369	13%
Europe	67	70	-5%		79	-15%
Gross Profit
Russia	224	268	-16%		321	-30%
America	44	67	-35%		36	21%
Europe	13	16	-15%		12	11%
Adjusted EBITDA
Russia	153	188	-19%		247	-38%
America	24	50	-51%		20	21%
Europe	7	10	-24%		6	26%

 

Russia

1Q 2014 vs. 4Q 2013

Revenue decreased by 6% to $981 million from the fourth quarter of 2013 due to a negative effect of currency translation.

Gross profit declined by 16% quarter-on-quarter to $224 million mainly due to lower welded pipe volumes, unfavorable LDP sales mix and a negative effect of currency translation. Gross profit margin decreased to 23% for the first quarter of 2014 from 26% for the prior quarter.

Adjusted EBITDA amounted to $153 million, a decline of 19% compared to the fourth quarter of 2013, following the decrease in gross profit. Adjusted EBITDA margin fell to 16% in the first quarter of 2014 compared to 18% in the prior quarter.

 

1Q 2014 vs. 1Q 2013

Revenue dropped by 23% year-on-year largely as a result of lower LDP volumes and a negative effect of currency translation.

Gross profit decreased by 30% year-on-year mainly as a result of unfavorable pricing and product mix of seamless pipe and a negative effect of currency translation. Gross profit margin decreased to 23% in the first quarter of 2014 from 25% in the first quarter of 2013.

Adjusted EBITDA fell by 38% year-on-year mainly due to lower gross profit. Adjusted EBITDA margin fell to 16% in the first quarter of 2014 compared to 19% in the first quarter of 2013.

 

America

1Q 2014 vs. 4Q 2013

Revenue decreased by 8% from the fourth quarter of 2013 to $418 million, primarily due to lower welded OCTG and line pipe sales.

Gross profit fell by 35% quarter-on-quarter to $44 million mostly due to unfavorable market conditions, which resulted in weaker pricing for welded and seamless pipe, coupled with higher raw materials prices. Gross profit margin declined to 10% in the first quarter of 2014 from 15% in the fourth quarter of 2013.

Adjusted EBITDA dropped by 51% quarter-on-quarter to $24 million following a decrease in gross profit. Adjusted EBITDA margin fell to 6% in the first quarter of 2014 from 11% in the prior quarter.

 

1Q 2014 vs. 1Q 2013

Revenue increased by 13% compared to the first quarter of 2013 due to higher seamless pipe volumes.

Gross profit grew by 21% year-on-year. Gross profit margin remained flat at 10% compared to the first quarter of 2013.

Adjusted EBITDA increased by 21% compared to the first quarter of 2013 following the growth in gross profit. Adjusted EBITDA margin improved to 6% in the first quarter of 2014 from 5% in the first quarter of 2013.

 

Europe

1Q 2014 vs. 4Q 2013

Revenue decreased by 5% quarter-on-quarter to $67 million as a result of lower steel billet sales.

Gross profit fell by 15% from the fourth quarter of 2013 to $13 million, largely due to lower gross profit of seamless pipe, primarily resulting from rising costs that were not offset by an increase in sales prices. Gross profit margin decreased to 20% in the first quarter of 2014 from 22% in the fourth quarter of 2013.

Adjusted EBITDA decreased by 24% over the fourth quarter of 2013 to $7 million following a decline in gross profit. Adjusted EBITDA margin fell to 11% in the first quarter of 2014 from 14% in the prior quarter.

 

1Q 2014 vs. 1Q 2013

Revenue fell by 15% compared to the first quarter of 2013 due to a significant drop in steel billet volumes.

Gross profit increased by 11% year-on-year due to the growth in seamless pipe sales. Gross profit margin improved to 20% in the first quarter of 2014 from 15% in the first quarter of 2013.

Adjusted EBITDA increased by 26% year-on-year due to the gross profit growth. Gross profit margin improved to 11% in the first quarter of 2014 from 7% in the first quarter of 2013.

 

1Q 2014 Market Conditions

Russia

In the first quarter of 2014, the Russian pipe market decreased by 3% from the prior quarter mainly as a result of seasonal decline of the welded industrial pipe market. The year-on-year decrease amounted to 2% and was mainly driven by lower seamless OCTG and line pipe consumption as a result of weaker drilling activity in the first quarter of 2014 compared to the same period of 2013.   

Demand for seamless OCTG pipe in the first quarter of 2014 increased by 14% over the prior quarter primarily due to the seasonal stock-up period by the oil and gas majors. The seamless OCTG pipe market decreased by 13% compared to the first quarter of 2013.  

The LD pipe market in Russia in the first quarter of 2014 decreased by 5% compared to the prior quarter mainly as a result of a reduction in pipeline construction activity by Gazprom. The year-on-year growth of 18% was the result of a growing demand from Gazprom?s South Stream project commenced in early 2013.

In the first quarter of 2014, the seamless industrial pipe market in Russia increased by 7% over the prior quarter and by 3% compared to the same period of 2013 mainly as a result of higher sales to distributors. The welded industrial pipe market decreased by 10% quarter-on-quarter and by 3% year-on-year mainly due to seasonal factors and lower construction activity in the first quarter of 2014.

 

America

In the first quarter of 2014, certain energy commodity prices increased over the prior quarter and compared to the same period of 2013, with average Henry Hub (HH) natural gas prices increasing by 49% from the fourth quarter of 2013 and by 35% year-on-year to $5.20/MMBtu. The growth in prices was mainly due to abnormal draw-downs in natural gas storage as a result of an abnormally long winter.  

Nevertheless the economics for oil drilling continue to be more attractive than those for natural gas drilling, and a shift from natural gas to oil drilling continues. According to Baker Hughes, the average number of oil rigs increased by 49 rigs compared to the prior quarter and by 102 rigs year-on-year and. In contrast, the average number of gas rigs decreased by 26 rigs over the prior quarter and by 79 rigs year-on-year.

According to Preston Pipe Report, welded OCTG shipments increased by 3% quarter-on-quarter and by 13% year-on-year, while seamless OCTG shipments decreased by 6% over the prior quarter and increased by 17% year-on-year. The opposite trend in the last quarter can be explained by the continuing shift from natural gas to oil drilling, which generally requires lower grade pipe.

According to Pipe Logix, in the first quarter of 2014, quarter-on-quarter welded OCTG prices decreased by 1% and seamless OCTG prices decreased by 2%, due to price pressure from unfairly traded imports.   Year-on-year, prices decreased 4% and 5%, respectively. Line pipe prices have remained relatively flat. Shipments of welded mostly low-priced OCTG imports increased by 3% over the prior quarter and by 17% year-on-year.

 

Europe

In the first quarter of 2014, demand for seamless pipe slightly increased quarter-on-quarter and year-on-year mainly due to distributors stocking up their inventories while pipe consumption still remained at a low level. End-users continued to focus on strict inventory management and mostly spot orders, anticipating more favorable payment terms, that negatively affected pipe prices.

 

FY 2014 Outlook

For the full year 2014, the Company observes an increase of the pipe market in Russia mainly due to higher consumption of oil and gas pipe grades as a result of horizontal drilling growth and further development of unconventional oil and gas reserves. Moreover, possible commencement of Gazprom?s Eastern program could significantly contribute to further market growth.   

In the U.S. TMK expects further improvement in drilling activity throughout 2014, as well as in the percentage of horizontal and directional rigs, which now make up 78% of the total U.S. rig count. Recent cut-backs in welded OCTG production by key domestic players, along with possible reductions in welded OCTG imports in anticipation of the final decision on the OCTG trade case, should bring inventory levels down which could trigger possible price improvement.

The environment in the European pipe market, which is going through a lasting recession, will remain largely unchanged in 2014 compared to 2013.

For the second quarter of 2014 TMK expects an improvement of results compared to the first quarter of 2014. TMK believes the second half 2014 results could exceed the results for the first half of 2014 given the start of the Gazprom?s Eastern program and other positive developments of external factors in Russia and the U.S.

 

 

 

1Q 2014 IFRS Financial Statements are available at:

http://www.tmk-group.com/files/IFRS_TMK_3m2014_usd.pdf  

 

1Q 2014 IFRS Results Conference Call:

 

TMK?s management will hold a conference call to present the first quarter financial results today, May 23, 2013, at 09:00 New York / 14:00 London / 17:00 Moscow.

 

To join the conference call please register on-line

https://eventreg1.conferencing.com/webportal3...onf=190573              

or dial:

 

International call-in Number:         +44 20 7031 0088

US call-in Number:                         +1 334 323 6201

Conference ID :                                944935

(We recommend that participants register on-line to avoid waiting in a queue or to start dialing in 5-10 minutes prior to ensure a timely start to the conference call)

 

The conference call replay will be available through May 30, 2014:

 

UK replay number:                          +44 20 7031 4064

US toll replay number:                    +1 954 334 0342

Replay access code:                       944935

 

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For further information regarding TMK please visit www.tmk-group.com or download the YourTube   iPad application from the   App Store https://itunes.apple.com/ru/app/yourtube/id51...?mt=8&ls=1

or contact:

 

TMK IR Department:

Marina Badudina

Tel: +7 (495) 775-7600

IR@tmk-group.com

 

TMK PR Department:

Ilya Zhitomirsky

Tel: +7 (495) 775-7600

PR@tmk-group.com

 

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TMK (www.tmk-group.com)

TMK (LSE: TMKS) is a leading global manufacturer and supplier of steel pipes for the oil and gas industry, operating 28 production sites in the United States, Russia, Canada, Romania, Oman, UAE, and Kazakhstan and two R&D centers in Russia and the USA. In 2013, TMK?s pipe shipments totaled 4.3 million tonnes. The largest share of TMK?s sales belongs to high margin oil country tubular goods (OCTG), shipped to customers in over 80 countries. TMK delivers its products along with an extensive package of services in heat treating, protective coating, premium connections threading, warehousing and pipe repairing.

 

TMK?s securities are listed on the London Stock Exchange, the OTCQX International Premier trading platform in the U.S. and on the Moscow Exchange MICEX-RTS.

 

TMK?s assets structure by division:

 

?   Russian division : ?    Volzhsky Pipe Plant; ?    Seversky Tube Works ; ?    Taganrog Metallurgical Works ; ?    Sinarsky Pipe Plant ; ?    TMK-CPW; ?    TMK-Kaztrubprom; ?    TMK-INOX; ?    TMK-Premium Service; ?    TMK Oilfield Services.

?   American division : ?    1 2 plants of TMK IPSCO; ?    OFS International LLC. ?   European division : ?    TMK-ARTROM; ?    TMK- RESITA . ?   Middle East Division: ?        TMK GIPI (Oman); ?        Threading & Mechanical Key Premium LLC (Abu-Dhabi).