Earnings Release • Mar 5, 2015
Earnings Release
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05.03.2015 09:59
Dissemination of a Regulatory Announcement, transmitted by EquityStory.RS, LLC - a company of EQS Group AG. The issuer is solely responsible for the content of this announcement. ---------------------------------------------------------------------------
TMK ANNOUNCES 4Q 2014 AND FY 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 audited consolidated IFRS financial results for the twelve months ending December 31, 2014.
Summary 4Q and FY 2014 Results
(In millions of U.S.\$, unless stated otherwise)
| 4Q | 3Q | Change, | FY | FY | Change, | |
|---|---|---|---|---|---|---|
| 2014 2014 | U.S.\$ mln | 2014 2013 | U.S.\$ mln | |||
| Sales, thousand tonnes | 1,237 1,065 | 172 | 4,402 4,287 | 115 | ||
| Revenue | 1,500 1,526 | (26) | 6,009 6,432 | (423) | ||
| Gross profit | 309 | 294 | 15 | 1,169 1,358 | (188) | |
| Foreign exchange gain / | (198) (73) | (125) | (301) (49) | (252) | ||
| (loss), net | ||||||
| Income / (loss) before | (265) | 2 | (267) | (201) 312 | (514) | |
| tax | ||||||
| Net income / (loss) | (254) (7) | (246) | (217) 215 | (431) | ||
| Earnings / (loss) per | (1.1 (0.0 | (1.14) | (1.0 0.99 | (1.99) | ||
| GDR(1), basic, U.S.\$ | 7) | 4) | 0) | |||
| Ajusted EBITDA(2) | 227 | 202 | 25 | 804 | 952 | (148) |
| Adjusted EBITDA margin, % 15% | 13% | 13% | 15% |
Note: Certain monetary amounts, percentages and other figures included in this press release are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums.
(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 (except for provision for bonuses), (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/loss of associates and other non-cash items. 4Q 2014 Highlights
Sales
| Sales (thousand tonnes) | 4Q 2014 | 3Q 2014 | Change, |
|---|---|---|---|
| % | |||
| Seamless | 702 | 585 | 20% |
| Welded | 534 | 480 | 11% |
| Total | 1,237 | 1,065 | 16% |
Total pipe sales increased by 16% compared to the previous quarter totaling 1,237 thousand tonnes, the result of higher large-diameter pipe (LDP) volumes along with stronger sales of seamless pipe in the Russian division.
Seamless pipe volumes rose by 20% from the prior quarter to 702 thousand tonnes, due to higher seamless OCTG and line pipe sales in the Russian division, following seasonally stronger demand. Seamless OCTG sales grew by 13% compared to the third quarter of 2014.
Welded pipe sales increased by 11% from the third quarter of 2014 to 534 thousand tonnes, as a result of higher volumes of LDP in Russia and welded OCTG in the U.S.
Sales
| Sales (thousand tonnes) | FY 2014 | FY 2013 | Change, |
|---|---|---|---|
| % | |||
| Seamless | 2,560 | 2,422 | 6% |
| Welded | 1,842 | 1,866 | -1% |
| Total | 4,402 | 4,287 | 3% |
by the Rouble's depreciation against the U.S. Dollar. TMK's weighted average nominal interest rate increased by 54 basis points compared to December 31, 2013 reaching 7.26%.
Recent Developments
4Q 2014 and FY 2014 Segment Results
(In millions of U.S.\$, unless stated otherwise)
| 4Q 2014 3Q 2014 Change, % | FY | FY Change, % | ||||
|---|---|---|---|---|---|---|
| Sales (thousand tonnes) | 2014 2013 | |||||
| Russia | 912 | 772 | 18% 3,198 3,085 | 4% | ||
| America | 277 | 249 | 11% 1,019 1,027 | -1% | ||
| Europe | 47 | 44 | 8% | 185 | 175 | 5% |
| Revenue | ||||||
| Russia | 948 | 1,014 | -6% 3,973 4,483 | -11% | ||
| America | 492 | 441 | 12% 1,766 1,665 | 6% | ||
| Europe | 60 | 72 | -17% | 270 | 284 | -5% |
| Gross Profit | ||||||
| Russia | 224 | 222 | 1% | 891 1,092 | -18% | |
| America | 75 | 56 | 33% | 223 | 212 | 5% |
| Europe | 11 | 16 | -33% | 55 | 54 | 3% |
| Adjusted EBITDA | ||||||
| Russia | 162 | 151 | 7% | 614 | 776 | -21% |
| America | 59 | 42 | 41% | 159 | 145 | 10% |
| Europe | 6 | 9 | -33% | 32 | 31 | 3% |
4Q 2014 vs. 3Q 2014
Revenue decreased by \$65 million or 6% to \$948 million from the third quarter of 2014, mainly as a result of a negative effect of currency translation, which totaled \$283 million. Excluding this negative effect revenue growth would have amounted to \$218 million.
Gross profit increased by \$2 million or 1% to \$224 million, due to stronger volumes of LD pipe, resulting in a better product mix of welded pipe,
higher seamless OCTG and line pipe sales. Gross profit growth was offset by a negative effect of currency translation in the amount of \$64 million. Gross profit margin increased to 24% from 22% in the prior quarter.
Adjusted EBITDA increased by \$11 million or 7% to \$162 million compared to the third quarter of 2014. Adjusted EBITDA margin increased to 17% compared to 15% in the prior quarter.
FY 2014 vs. FY 2013
Revenue dropped by \$510 million or 11% year-on-year to \$3,973 million, largely due to a negative currency translation effect in the amount of \$788 million. Excluding this effect revenue would have increased by \$278 million.
Gross profit decreased by \$201 million or 18% year-on-year to \$891 million, mainly as a result of a negative currency translation effect and higher raw materials prices. Gross profit margin decreased to 22% from 24% for the full year 2013.
Adjusted EBITDA fell by \$162 million or 21% year-on-year to \$614 million, due to a decrease in gross profit partially offset by lower selling, general and administrative expenses. Adjusted EBITDA margin declined to 15% compared to 17% for the full year 2013.
America
4Q 2014 vs. 3Q 2014
Revenue increased by \$51 million or 12% quarter-on-quarter to \$492 million, due to higher volumes, and in particular, strong growth of seamless and welded OCTG sales.
Gross profit increased by \$19 million or 33% quarter-on-quarter to \$75 million, due to a favorable sales mix of welded pipe resulted from higher volumes of welded OCTG. Gross profit margin increased to 15% from 13% in the third quarter of 2014.
Adjusted EBITDA grew by \$17 million or 41% quarter-on-quarter to \$59 million following an increase of gross profit. Adjusted EBITDA margin improved to 12% compared to 9% in the prior quarter.
FY 2014 vs. FY 2013
Revenue grew by \$102 million to \$1,766 million, a 6% increase compared to the previous year, the result of higher seamless OCTG volumes.
Gross profit increased by \$12 million or 5% year-on-year and amounted to \$223 million. The growth was due to stronger OCTG sales, offset by higher raw materials prices and weaker sales of welded pipe.
Adjusted EBITDA increased by \$14 million or 10% year-on-year to \$159 million, as a result of higher gross profit and lower selling, general and administrative expenses, along with other operating expenses. Adjusted EBITDA margin remained almost flat compared to the full year 2013 and amounted to 9%.
Europe
4Q 2014 vs. 3Q 2014
Revenue decreased by \$12 million or 17% quarter-on-quarter to \$60 million, mainly due to a negative effect of currency translation and lower steel billets sales.
Gross profit fell by \$5 million or 33% quarter-on-quarter to \$11 million on the back of unstable economic situation in the European market. Gross profit margin fell to 18% from 23% in the third quarter of 2014.
Adjusted EBITDA went down by \$3 million to \$6 million, a 33% drop compared to the prior quarter, following a decrease in gross profit. Adjusted EBITDA margin fell to 11% from 13% in the previous quarter.
FY 2014 vs. FY 2013
Revenue fell by \$15 million or 5% year-on-year to \$270 million, primarily due to a decrease in steel billets sales.
Gross profit increased by \$1 million or 3% year-on-year to \$55 million. Gross profit margin rose to 21% from 19% for the full year 2013, as a result of a higher share of seamless pipe in total volumes.
Adjusted EBITDA remained almost flat compared to the full year 2013 and amounted to \$32 million. Adjusted EBITDA margin improved to 12% compared to 4Q and FY 2014 Market Conditions
Russia
In the fourth quarter of 2014, the Russian pipe market increased by 5% compared to the previous quarter. For the full year 2014, the Russian pipe market rose by 9% year-on-year. Such growth in both periods was mainly the result of higher consumption of LD pipe.
In the fourth quarter of 2014, the seamless OCTG market in Russia increased by 8% quarter-on-quarter, largely as a result of seasonally stronger demand. For the full year 2014, seamless OCTG consumption decreased by 6% compared to the previous year, due to a 5% decline in drilling activity.
The fourth quarter 2014 LD pipe market rose by 44% over the prior quarter. Average growth for the full year 2014 was similar and also amounted to 44%. Such a strong increase for both periods was largely driven by higher demand from Gazprom and Transneft projects.
In the fourth quarter of 2014, the seamless line pipe market increased by 16% quarter-on-quarter, while the welded line pipe market decreased by 17% for the same period. At the same time, for the full year 2014, both seamless and welded line pipe markets grew by 5% and 9% year-on-year respectively. Demand for line pipe was mainly driven by higher pipeline construction activity in Russia.
In the fourth quarter of 2014, the seamless and welded industrial pipe market decreased by 19% and 14% respectively compared to the third quarter of 2014, partially due to seasonally lower demand from the construction sector. For the full year 2014, seamless industrial pipe consumption declined by 4% year-on-year, while welded industrial pipe market grew by 4% over the same period.
According to Baker Hughes, in the fourth quarter of 2014, the average rig count remained relatively flat compared to the prior quarter. A slight decrease in the oil rig count, as crude oil prices began to fall, was offset by a 5% growth in the natural gas rig count. For the full year 2014, the average rig count increased by 6% year-on-year from 1,761 for the full year 2013 to 1,862 for the full year 2014, due to an increase in oil drilling activity.
Further to an increase in rig count, more pipe per rig was used, as operators continued to drill more horizontal wells, which typically consume more pipe. Year-on-year, the combined horizontal and directional rig count grew from 75% of total rigs for the full year 2013 to 80% for the full year 2014.
Line pipe shipments in the fourth quarter of 2014 were down by 2% compared to the previous quarter, while full year 2014 shipments decreased by 7% compared to the full year 2013, due to reductions in 2014 pipeline construction projects.
According to Pipe Logix, fourth quarter 2014 average welded and seamless OCTG prices increased by 2% each, while yearly average prices rose by 2% and 1% respectively for the full year 2014 compared to the full year 2013. Line pipe market prices were both slightly down for the fourth quarter of 2014 compared to the previous quarter and for the full year 2014 compared to the full year 2013.
In the fourth quarter of 2014, European steel pipe demand remained weak with end-users focusing on spot orders in anticipation of more favorable payment terms and customers maintaining their inventories at a minimum level. For the full year 2014, the reduced demand and overcapacity led to stronger competition in the European market and downward pressure on prices. Additional challenges came from rising imports of seamless and welded pipe from non-EU countries.
In the first quarter of 2015, TMK observes a high utilization rate of its production facilities in Russia, due to seasonally stronger demand from the oil and gas majors and greater pipeline construction activity. TMK already increased prices to the most of its customers, to largely offset input cost inflation in Roubles. Overall, the Company expects the Russian division EBITDA to stay approximately in line with the fourth quarter of 2014.
For the full year 2015, the Company foresees the Russian pipe market to
remain stable, largely due to further growth of the LD pipe market as a result of the commencement of Power of Siberia project, continued construction of Bovanenkovo-Ukhta, South Corridor and a number of other projects, along with substantial demand for maintenance needs of Gazprom and Transneft. For the full year 2014, pipe imports in Russia fell by more than 20% year-on-year and TMK believes the market share of imported pipe will continue to decrease throughout 2015. This will enable the Company to continue substituting the imported products in the short-term, and increase its pipe sales in the Russian market. Based on the stable market conditions, TMK will aim at increasing its Rouble prices to maintain the margins for the full year 2015.
In the U.S., a drop of around 570 rigs since the beginning of 2015 is resulting in a sharp decline in demand for OCTG, as companies adjust inventories to lower drilling activity. TMK expects to see a slight OCTG demand improvement during the second half of 2015, when companies should begin to restock in anticipation of a recovery in oil and natural gas drilling activity. However, given an excess of domestic capacity and a stronger U.S. Dollar, which favors imports, the Company expects pipe prices to remain under pressure throughout 2015. Outside of the energy industry, as the U.S. economy continues to expand, TMK expects to see an increase in demand for industrial products.
For the full year 2015, the Company expects the situation on the European pipe market to remain challenging due to lower end-users consumption and market overcapacity.
In 2015, the Company will keep further deleveraging as its priority. Capex is expected to decrease by 25%-30% compared to the full year 2014.
***
4Q and FY 2014 IFRS Financial Statements are available at: http://www.tmk-group.com/media_en/texts/34/tmk_ifrs_y2014_en_usd.pdf
4Q 2014 and FY 2014 IFRS Results Conference Call:
TMK's management will hold a conference call to present the fourth quarter and full year 2014 financial results today, March 5, 2015, at 09:00 New York / 14:00 London / 17:00 Moscow.
To join the conference call please dial:
UK Local: +44 20 7136 6283 UK Toll Free: 0800 279 4841 Russia: +7 495 213 0979 U.S. Local: +1 718 354 1359 U.S. Toll Free: 1 877 280 2342 Conference ID: 7255989 (We recommend that participants to start dialing-in 5-10 minutes prior to ensure a timely start of the conference call)
The conference call replay will be available through March 10, 2015:
UK Local: +44 20 3427 0598 UK Toll Free: 0800 358 7735 U.S. Local: +1 347 366 9565 U.S. Toll Free: 1 866 932 5017 Access Code: 7255989
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/id516074932?mt=8&ls=1
or contact:
TMK IR Department: Marina Badudina Tel: +7 (495) 775-7600 [email protected]
TMK PR Department: Ilya Zhitomirsky Tel: +7 (495) 775-7600 [email protected]
***
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 2014, TMK's pipe shipments totaled 4.4 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: | American division: | ||||
|---|---|---|---|---|---|
| Volzhsky Pipe Plant; | 12 plants of TMK IPSCO; | ||||
| Seversky Tube Works; | OFS International LLC. | ||||
| Taganrog Metallurgical | European division: | ||||
| Works; | TMK-ARTROM; | ||||
| Sinarsky Pipe Plant; | TMK-RESITA. | ||||
| TMK-CPW; | Middle East Division: | ||||
| TMK-Kaztrubprom; | TMK GIPI (Oman); | ||||
| TMK-INOX; | Threading & Mechanical Key Premium LLC (Abu | ||||
| TMK-Premium Service; | Dhabi). | ||||
| TMK Oilfield Services. |
05.03.2015 The EquityStory.RS, LLC Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de
| Language: | English | |||
|---|---|---|---|---|
| Company: | OAO TMK | |||
| 40/2a Pokrovka | ||||
| 105062 Moscow | ||||
| Russia | ||||
| Phone: | +7 495 775-7600 | |||
| Fax: | +7 495 775-7601 | |||
| E-mail: | [email protected] | |||
| Internet: | tmk-group.com | |||
| ISIN: | US87260R2013 | |||
| Category Code: | MSC | |||
| TIDM: | TMKS | |||
| Sequence Number: | 2550 | |||
| Time of Receipt: | March 05, 2015 09:58:33 | |||
| End of Announcement | EquityStory.RS, LLC News-Service |
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