TMK ANNOUNCES 3Q 2012 AND 9M 2012 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 interim consolidated IFRS financial results for the nine months ending September 30, 2012.Summary 3Q 2012 and 9M 2012 Results(In millions of $, unless stated otherwise) 3Q 20122Q 2012Change, % 9M 20129M 2011Change, %Sales, thousand tonnes1,0501,101-5% 3,1563,168-Revenue1,6171,781-9% 5,0565,151-2%Gross profit 352389-10% 1,1521,1153%Income before tax94106-12% 351398-12%Net income6976-10% 250279-10%Earnings per GDR[1], basic, U.S.$ 0.320.36-11% 1.161.28-9%Adjusted EBITDA[2]243290-16% 810827-2%Adjusted EBITDA margin, % 15%16% 16%16% 3Q 2012 HighlightsIn line with management’s expectations, the Company experienced slowing sales in the third quarter of 2012 resulting in decreased total pipe sales of 5% quarter-on-quarter to 1,050 thousand tonnes. The decline was mainly due to lower Russian seamless pipe sales caused by major repairs at several Russian plants and a reduction in U.S. welded pipe sales as a result of softening market conditions. Due to the decline of seamless pipe sales traditionally experienced in Russia during the third quarter, the Company preplanned major repairs at the Russian plants. Third quarter revenue was $1,617 million, a decrease of 9% over the second quarter of 2012. The decline reflects lower seamless volumes, unfavorable changes in pricing and sales mix as well as the impact of currency translation[3].Adjusted EBITDA decreased by 16% quarter-on-quarter to $243 million being negatively affected by lower sales and weaker product mix globally as well as lower margins in the American and European divisions. Consolidated adjusted EBITDA margin was 15%. Net income was $69 million for the third quarter as compared to $76 million in the second quarter of 2012. Net income adjusted for the gain/(loss) on changes in fair value of the derivative instrument[4], amounted to $67million; adjusted net income margin was 4% for the third quarter of 2012.In the third quarter, net debt increased by $117 million and amounted to $3,686 million as of September 30, 2012 due to appreciation of the Russian rouble against the U.S. dollar compared to June 30, 2012. Net Debt-to-EBITDA ratio[5] remained flat at 3.6x. The share of short-term loans and borrowings was 24% as of September 30, 2012; loans with a fixed interest rate represented 84% of total debt. TMK’s weighted average nominal interest rate increased from 6.87% as of June 30, 2012 to 7.00% as of September 30, 2012. 9M 2012 HighlightsSales VolumesTotal pipe sales remained almost flat compared to the first nine months of 2011 and amounted to 3,156 thousand tonnes. Seamless pipe sales increased by 6% compared to the first nine months of 2011 and amounted to 1,876 thousand tonnes. Seamless OCTG pipe volumes increased by 16% year-on-year mainly on the back of growing drilling activity in Russia.Welded pipe sales decreased by 9% year-on-year and amounted to 1,280 thousand tonnes. Welded OCTG and line pipe sales increased by 9% and 23% respectively while LD pipe sales declined as a result of Russian customers delaying new pipeline projects. FinancialsRevenue decreased by 2% year-on-year to $5,056 million mainly due to the negative impact of currency translation. Sales of seamless pipe, the core business of the Company, generated 62% of total revenue.Adjusted EBITDA decreased by 2% year-on-year to $810 million while gross profit increased by 3%. Higher volumes and better pricing of seamless pipe were offset by the negative effect of currency translation and higher operating expenses. Adjusted EBITDA margin amounted to 16% year-to-date.Net income was $250 million for the first nine months of 2012 as compared to $279 million for the first nine months of 2011. Net income adjusted for the gain/(loss) on changes in fair value of the derivative instrument, amounted to $251 million; adjusted net income margin equaled 5% for the first nine months of 2012.Net repayment of borrowings totaled $73 million for the first nine months of 2012 compared to $37 million for the same period in 2011.Recent DevelopmentsIn August 2012, TMK signed a three-year agreement with Halliburton International Inc. to provide threading services. In September 2012, TMK-INOX commissioned a new line manufacturing stainless steel and alloy welded precision pipes. TMK expects to produce several thousand tonnes of high-tech welded stainless steel and alloy pipes annually. In October 2012, TMK started shipments of LD and seamless line pipes to be used in construction of deep water pipelines at Lukoil’s oil and gas condensate deposit in the North Caspian Sea. TMK expects to supply over 70 thousand tonnes of pipe over the one and a half year contract period.In October 2012, TMK IPSCO hosted an open house at its Research and Development Center in Houston, Texas. The new state-of-the-art facility was built to enhance the level of technical support, strengthen overall product performance by developing innovative designs and perform quality testing. In November 2012, the extraordinary general shareholders’ meeting approved an interim dividend payment for the first six months of 2012 in the amount of 1.50 Russian roubles ($0.05) per ordinary share in the total amount of 1.4 billion Russian roubles ($44.8 million at the exchange rate at the date of approval). 3Q and 9M 2012 Segment Results(In millions of $, unless stated otherwise) 3Q 20122Q 2012Change, % 9M 20129M 2011Change, %Sales volumes (thousand tonnes) Russia797816-2% 2,3332,384-2% Americas214237-10% 6926477% Europe 3948-19% 131137-4%Revenue Russia1,1321,237-9% 3,5013,704-5% Americas410448-8% 1,2981,15013% Europe7596-22% 257298-14%Adjusted EBITDA Russia190204-7% 571572- Americas4268-39% 196201-2% Europe 1017-40% 4353-20% RussiaIn the third quarter of 2012, revenue for the Russian division decreased by 9% to $1,132 million compared to the prior quarter, mainly due to lower seamless volumes as a result of major repairs at several Russian plants and the impact of currency translation. Adjusted EBITDA amounted to $190 million, a decrease of 7% compared to the second quarter of 2012 following the decline in revenue, however partially compensated by favorable effect from lower purchase prices for raw materials. For the first nine months of 2012, revenue of the Russian division decreased by 5% to $3,501 million due to the negative effect of currency translation and a decline of welded pipe volumes as a result of a decrease in LD pipe sales. Adjusted EBITDA remained flat at $571 million compared to the first nine months of 2011 as the negative effect was compensated by improved margins. AmericasIn the third quarter of 2012, the American division revenue declined by 8% to $410 million compared to the prior quarter, primarily due to lower welded volumes and, to a lesser extent, price reductions across the welded pipe business. Continued pressure from imports, now coupled with a softer drilling environment and higher inventory levels, drove the decline in welded pipe prices. Adjusted EBITDA fell by 39% to $42 million compared to the second quarter of 2012, mainly as a result of unfavorable sales mix, lower pricing and major repairs at several pipe mills.For the first nine months of 2012, the American division revenue increased by 13% and amounted to $1,298 million mainly due to higher volumes in welded pipes, as well as better pricing in both the welded and seamless businesses. Adjusted EBITDA was fairly stable, declining by 2% to $196 million. The favorable items impacting revenue were, however, offset by negative mix and higher cost for scrap used in production and operational downtime. EuropeIn the third quarter, revenue of the European division declined by 22% to $75 million compared to the prior quarter due to lower sales and pricing of seamless pipe as a result of challenging macroeconomic conditions that persist in the European Union. Adjusted EBITDA fell by 40% to $10 million due to the above mentioned reasons. For the first nine months of 2012, revenue of the European division decreased by 14% to $257 million primarily due to the unfavorable currency translation effect while sales of seamless industrial pipe remained almost flat. Adjusted EBITDA declined by 20% to $43 million. 3Q and 9M 2012 Market ConditionsRussiaThe Russian pipe market was growing throughout the third quarter of 2012, mainly due to stronger seamless industrial and welded line pipe demand. In the third quarter of 2012, the seamless OCTG market in Russia remained strong. Third quarter Russian oil production increased by 2% compared to the second quarter of 2012. Moreover, for the first nine months of 2012, the total footage of oil wells drilled in Russia increased by 7% year-on-year. In the third quarter of 2012, the industrial seamless and welded pipe market in Russia experienced a quarter-on-quarter growth, largely due to high seasonal construction activity in Russia as well as growing demand from the machine building industry. AmericasOCTG demand in the U.S. saw a steady decline throughout the third quarter of 2012. According to the Baker Hughes rig count, the U.S. finished the quarter at 1,848 active drilling rigs, down 6% from the second quarter of 2012. With low natural gas prices, the U.S. gas rig count continued to decline 19% in the third quarter of 2012 compared with the prior quarter. The strong oil rig count growth seen earlier in the year did not continue in the third quarter, as the U.S. oil rig count fell 1% compared to the second quarter of 2012. According to Pipe Logix, in the third quarter of 2012 U.S. industry OCTG shipments increased by 5% as compared to the third quarter of 2011 and were down 8% compared to the second quarter of 2012. Per the OCTG Situation Report, the average OCTG inventory for all products continued to increase and rose above the normal level of months of supply. Although import shipments were slightly below the first and second quarters of 2012, imports continued to exceed domestic shipments in the third quarter of 2012. EuropeIn the third quarter of 2012, the European market conditions further deteriorated due to continued macroeconomic concerns, the Eurozone debt crisis and weakening demand from mechanical engineering, construction and power generation industries. Customers continued to keep inventories at a minimum level and are seeking lower purchase prices. 4Q 2012 and 2012 OutlookThe Russian division continues to have a strong order backlog for the remainder of 2012 and the beginning of 2013, particularly in OCTG and line pipe, as Russian oil and gas companies continue to implement drilling programs. The Company continues to be positive about the long-term U.S. market outlook; however, the recent dynamics were mixed as customers were adjusting buying behavior going through the third quarter of 2012. The U.S. market environment in the fourth quarter of 2012 is expected to remain challenging due to a lower rig count, a high level of imports and customers’ focus on inventory management. Despite certain challenges on the U.S. and European markets, strength in Russian demand for oil and gas pipe should allow the Company to demonstrate stronger results in the fourth quarter compared to the third quarter of 2012. Overall, full year 2012 EBITDA is expected to be slightly better than 2011. 9M 2012 IFRS Financial Statements are available at:http://www.tmk-group.com/files/IFRS_TMK_9m2012_usd_en.pdf For further information regarding TMK please visit www.tmk-group.com or contact: TMK IR Department:Alexey Ratnikov Marina Badudina Tel: +7 (495) 775-7600 Farand Pawlak Tel: +1 (630) 874-6442 IR@tmk-group.com TMK PR Department:Ilya ZhitomirskyTel: +7 (495) 775-7600PR@tmk-group.comTMK (www.tmk-group.com) TMK is a leading global manufacturer and supplier of steel pipes for the oil and gas industry, operating 24 production sites in the United States, Russia, Romania and Kazakhstan and two R&D centres in Russia and the USA. In 2011, TMK’s pipe shipments totaled 4.23 million tonnes. The largest share of TMK’s sales belongs to high margin oil country tubular goods (OCTG), shipped to customers in 85 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 ordinary shares are listed on Russia’s major stock exchange – MICEX-RTS. Its GDRs are traded on the London Stock Exchange, and its ADRs – on the OTCQX International Premier trading platform in the U.S. TMK’s production assets structure: Ø Russian division:· Volzhsky Pipe Plant; · Seversky Tube Works; · Taganrog Metallurgical Works; · Sinarsky Pipe Plant; · TMK-Kaztrubprom. Ø American division:· 11 plants of TMK IPSCO.Ø European division:· TMK-ARTROM;· TMK-RESITA.Ø TMK-INOX; Ø TMK-Premium Service;Ø TMK Oilfield Services. Note: Certain monetary amounts, percentages and other figures included in this press release are subject to rounding adjustments. On occasion, therefore, amounts shown in tables may not be the arithmetic accumulation of the figures that precede them.[1] One GDR represents four ordinary shares. [2] Adjusted EBITDA is determined as profit/(loss) for the period excluding finance costs and finance income, income tax (benefit)/expense, depreciation and amortization, foreign exchange (gain)/loss, impairment/(reversal of impairment) of non-current assets, movements in allowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associate and other non-cash items.[3] For the purposes of this press release, the effect of currency translation on revenue/costs and income/expense illustrates an influence of different rates used for translation of such revenue/costs or incomes/expenses from functional to presentation currency in different reporting periods.[4] For the purposes of this press release, net income has been adjusted for the gain on changes in fair value of the derivative financial instrument to reflect management’s opinion in respect of the treatment of the conversion option. [5]Net-Debt-to-EBITDA ratio is defined as Net Debt at the end of the given reporting date divided by the Adjusted EBITDA for the 12 months immediately preceding the given reporting date.
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