Financial Presentation 1Q 217 IFRS Results May 18, 217
Disclaimer No representation or warranty (express or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, none of the Company, or any of its shareholders or subsidiaries or any of such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this presentation. This presentation contains certain forward-looking statements that involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. OAO TMK does not undertake any responsibility to update these forward-looking statements, whether as a result of new information, future events or otherwise. This presentation contains statistics and other data on OAO TMK s industry, including market share information, that have been derived from both third party sources and from internal sources. Market statistics and industry data are subject to uncertainty and are not necessarily reflective of market conditions. Market statistics and industry data that are derived from third party sources have not been independently verified by OAO TMK. Market statistics and industry data that have been derived in whole or in part from internal sources have not been verified by third party sources and OAO TMK cannot guarantee that a third party would obtain or generate the same results. 2
1Q 217 Summary Financial Results and Market Update 3
US$ mln EBITDA margin, % US$ mln Thousand tonnes US$ mln 1Q 217 vs 4Q 216 Summary Financial Highlights Sales were down QoQ, mainly due to lower LDP volumes at the Russian division 9-4% QoQ Revenue increased QoQ, due to a significant revenue growth at the American division 1, 5% QoQ 6 75 3 884 848 5 25 92 944 4Q216 1Q217 4Q216 1Q217 Adjusted EBITDA remained nearly flat, as favourable market conditions enabled the American division to offset the Russian division s weaker performance Net profit was $42 million compared to $84 million in 4Q216. Higher net profit for 4Q 216 was attributed to the disposal of some of the Company s subsidiaries 1% QoQ Decreased 2x QoQ 15 16% 15% 18% 15% 9 1 12% 6 5 14 142 9% 6% 3% 3 84 42 Source: TMK data 4Q216 1Q217 % 4Q216 1Q217 4
US$ mln EBITDA margin, % US$ mln Thousand tonnes US$ mln 1Q 217 vs 1Q 216 Summary Financial Highlights Sales remained nearly flat YoY 9 Nearly flat YoY Revenue increased YoY, positively impacted by rouble appreciation against the US dollar and higher volumes at the American division 1, 24% YoY 6 75 3 852 848 5 25 761 944 1Q216 1Q217 1Q216 1Q217 Adjusted EBITDA growth was attributable to the overall stronger performance of the American division Net profit increased 3 times to $42 million 15 1 5 15% YoY 16% 15% 123 142 18% 15% 12% 9% 6% 45 36 27 18 Increased 3x YoY 42 3% 9 14 Source: TMK data 1Q216 1Q217 % 1Q216 1Q217 5
km/d 27 28 29 21 211 212 213 214 215 216 217E 218E Energy Mln tonnes Non-Energy Russian Market Overview Pipe market in Russia 12 1 8 6 4 Key considerations 1Q 217 vs 4Q 216 In 1Q 217, the Russian pipe market contracted by 8% overall compared to the previous quarter, due to weaker demand for LDP and welded industrial pipe. OCTG consumption increased by 12% quarter-onquarter. 2 Against a 3% decrease in drilling activity in Russia, the share of horizontal drilling continued to rise, from 35% in 4Q 216 to 39% in 1Q 217. Source: TMK estimates Russian drilling activity remains strong 8 7 6 5 4 3 2 1 Source: CDU TEK 21 211 212 213 214 215 216 1Q 216 4Q 216 1Q 217 1Q 217 vs 1Q 216 In 1Q 217, the Russian pipe market declined 18% year-on-year mostly due to lower consumption of welded pipe, and LDP in particular. At the same time, the OCTG market grew 14% compared to the same period of 216, alongside a 5% rise in drilling activity in Russia, with the share of horizontal drilling increasing from 36% in 1Q 216 to 39% in 1Q 217. 6
Absolute inventory, mln tonnes Months of Inventory US Rig count Crude oil price ($/Bbl) US Market Overview Rising oil prices followed by improvement in rig count 2,4 2, 1,6 1,2 8 4 Jan-9 Aug-1 Apr-12 Dec-13 Aug-15 Mar-17 Source: Baker Hughes, Bloomberg Inventory levels showed a steep decline but the market is still oversupplied 3. 2.5 2. 1.5 1..5. Source: Preston Pipe & Tube Report Oil Gas Crude Oil WTI Spot Monthly Absolute Inventory 12 1 8 6 4 2 Months of Inventory 12 Jan-1 Mar-11 May-12 Jul-13 Oct-14 Dec-15 Feb-17 9 6 3 Key considerations 1Q 217 vs 4Q 216 The average number of rigs in 1Q 217 increased by 26% compared to the prior quarter (Baker Hughes), as oil prices remained stable. OCTG shipments increased by 36% quarter-onquarter (Preston Pipe Report) and OCTG inventories decreased to an average 3.7 months compared to5.3 in the previous quarter. Average composite OCTG seamless and welded pipe prices increased by 9% and 17% respectively compared to 4Q 216 (Pipe Logix). 1Q 217 vs 1Q 216 The average rig count increased 35% for 1Q 217 compared to the same period of 216 (Baker Hughes). Domestic OCTG shipments more than doubled against the same period of 216, driven by strong demand resulting from growing drilling activity. Average composite OCTG seamless and welded pipe prices increased 6% and 15% respectively compared to 1Q 216 (Pipe Logix). OCTG inventories decreased to an average 3.7 months compared to 9.4 in 1Q 216. 7
1Q 217 vs 4Q 216 Results 8
Thousand tonnes Thousand tonnes 1Q 217 vs 4Q 216 Sales by Division and Product Group Sales by division 8 6 4 2-1% 747 675 38% 93 128 45 45 4Q216 1Q217 Russian division sales decreased QoQ, mostly due to lower LDP volumes. American division sales increased QoQ, as a result of higher pipe volumes overall. European division sales remained nearly flat QoQ. Sales by product group 7 6 4% Seamless pipe sales increased QoQ, mostly due to higher volumes at the Russian and American division. 5 4 3 2 1 637 663-25% 247 186 Welded pipe sales were down QoQ, mostly due to weaker LDP demand at the Russian division. Total OCTG sales demonstrated a 13% growth, with the most additions at the Russian division. Seamless Welded 4Q216 1Q217 Source: TMK data 9
US$ mln US$/tonne 1Q 217 vs 4Q 216 Revenue by Division Revenue Revenue per tonne* 8-2% 1,4 1% 1,2 9% 6 1, 1% 4 2 739 727 39% 14% 17 122 41 46 4Q216 1Q217 8 6 4 2 989 1,78 1,318 1,326 888 897 4Q216 1Q217 * Revenue /tonne for the Russian and American divisions is calculated as total revenue divided by pipe sales. Revenue for the European division is calculated as total revenue divided by pipe+billet sales Results for 1Q 217 at the Russian division reflected weaker LDP sales, resulting from the completion or rescheduling of a number of major pipeline construction projects. In 1Q 217, revenue at the American division increased, due to a significant increase in pipe sales overall. In 1Q 217, revenue at the European division increased, as a result of higher seamless pipe sales and stronger pricing. Russian division revenue per tonne increased QoQ partially as a result of a positive effect of currency translation. American division revenue per tonne increased QoQ, as a result of improved pricing situation. European division revenue per tonne increased QoQ, due to higher prices for seamless industrial pipe. Source: Consolidated IFRS financial statements, TMK data Note: Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums. 1
US$ mln % 1Q 217 vs 4Q 216 Adjusted EBITDA by Division Adjusted EBITDA Adjusted EBITDA margin 15-11% 2% 19% 18% 11 15% 1% 14% 11% 7 144 127 5% 5% 3-1 -14% -9 9 6 5 4Q216 1Q217 % -5% -1% -8% 4Q216 1Q217 Russian division Adjusted EBITDA decreased QoQ, due to higher raw materials prices and decline in LDP sales. The American division EBITDA significantly improved QoQ, as a result of higher prices and stronger sales. European division Adjusted EBITDA decreased QoQ, mainly due to higher scrap prices which were not offset by higher pipe prices. Russian division Adjusted EBITDA margin decreased QoQ due to growth in raw materials prices and lower share of LDP in total sales. American division Adjusted EBITDA significantly improved and amounted to 5% in 1Q 217. European division Adjusted EBITDA margin decreased QoQ, mainly due to higher scrap prices. Source: TMK Consolidated IFRS financial statements, TMK data Note: Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums. 11
1Q 217 vs 1Q 216 Results 12
Thousand tonnes Thousand tonnes 1Q 217 vs 1Q 216 Sales by Division and Product Group Sales by division 8 6 4 2-11% 759 675 158% 6% 5 128 43 45 1Q216 1Q217 Russian division sales decreased YoY, mainly affected by lower LDP volumes. A significant YoY growth in rig count combined with E&P spending increase in the North American market led to a substantial increase in pipe sales at the American division. European division sales increased due to improved demand in the European market. Sales by product group 8 17% 6 Seamless pipe volumes increased YoY, driven by growth at the Russian and especially American divisions. 4 2 568 663 284-34% 186 Welded pipe sales decreased YoY, largely due to a sharp decline in LDP volumes at the Russian division. Total OCTG sales increased by 34% YoY, as a result of a significant growth both at the Russian and American division. Seamless 1Q216 Welded 1Q217 Source: TMK data 13
US$ mln US$/tonne 1Q 217 vs 1Q 216 Revenue by Division Revenue Revenue per tonne* 8 11% 1,5 1% 6 1,2 25% -6% 9 4 2 655 727 161% 12% 6 3 862 1,78 1,39 1,326 954 897 17 41 46 65 1Q216 1Q217 1Q216 1Q217 * Revenue/tonne for the Russian and American divisions is calculated as total revenue divided by pipe sales. Revenue for the European Division is calculated as total revenue divided by pipe+billet sales The YoY revenue growth for the Russian division was largely a reflection of the rouble appreciation against the US dollar. Revenue for the American division almost tripled YoY, as a result of a significant increase in pipe volumes coupled with stronger pricing. Revenue for the European division increased YoY, due to stronger pipe prices and higher seamless pipe sales. Russian division revenue per tonne increased YoY, primarily due a positive effect of currency translation. American division revenue per tonne grew as a result of better pricing. European division revenue per tonne decreased YoY, due to less favorable product mix. Source: Consolidated IFRS financial statements, TMK data Note: Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums. 14
US$ mln % 1Q 217 vs 1Q 216 Adjusted EBITDA by Division Adjusted EBITDA Adjusted EBITDA margin 15-14% 23% 23% 1 5 148 127-32 9 6-18% 5 2% 17% 14% 11% 8% 5% 2% -1% 18% -48% 5% 15% 11% -5 1Q216 1Q217-4% 1Q216 1Q217 Russian division Adjusted EBITDA decreased YoY, due to higher costs of raw materials and lower LDP sales. American division Adjusted EBITDA significantly improved YoY, following a strong growth in sales and pricing. European division Adjusted EBITDA remained nearly flat compared to 1Q 216. Russian division Adjusted EBITDA margin decreased YoY, due to the growth in raw materials prices and unfavorable product mix resulting from lower LDP sales. American division Adjusted EBITDA significantly improved and amounted to 5% in 1Q 217. European division Adjusted EBITDA margin decreased YoY, mostly due to higher scrap prices. Source: TMK Consolidated IFRS financial statements, TMK data Note: Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums. 15
Seamless Core to Profitability SEAMLESS U.S.$ mln (unless stated otherwise) 1Q217 QoQ, % YoY, % Sales - Pipes, kt 663 4% 17% Revenue 714 13% 37% Gross profit 169 5% 2% Margin, % 24% Avg revenue/tonne (US$) 1,78 9% 17% Avg gross profit/tonne (US$) 255 1% 3% 1Q 217 gross profit breakdown Welded 13% Other operations 3% Seamless 84% WELDED Sales - Pipes, kt 186-25% -34% Revenue 177-19% -14% Gross profit 26 32% 195% Margin, % 15% Avg revenue/tonne (US$) 953 8% 32% Avg gross profit/tonne (US$) 139 75% 35% Sales of seamless pipe generated 76% of total Revenue in 1Q 217. Gross Profit from seamless pipe sales represented 84% of 1Q 217 total gross profit. Gross Profit Margin from seamless pipe sales amounted to 24% in 1Q 217. Source: Consolidated IFRS financial statements, TMK data Note: Certain monetary amounts, percentages and other figures included in this presentation are subject to rounding adjustments. Totals therefore do not always add up to exact arithmetic sums. 16
US$ mln Debt Maturity Profile as at March 31, 217 Debt maturity profile as at March 31, 217 6 EUR RUB 522 USD 5 448 453 4 35 235 3 154 5 257 222 214 222 443 2 59 2 2 257 1 82 29 185 9 84 28 155 21 29 29 6 44 8 3 84 4 4 22 22 22 22 22 1 7 18 12 13 25 25 25 1 22 22 22 22 22 22 22 22 1 4 13 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4Q 3Q 223 225 217 218 219 22 221 As at March 31, 217, Net Debt amounted to US$2,64 mln Over US$1bn reduction in Net Debt over the past 3 years In April 217, TMK placed a 5 billion rouble 1-year bond with 9.75% coupon rate The terms of several loan facilities renegotiated in September 216 and December 216: With Sberbank, all short-term loans in an aggregate amount of approximately U.S.$27 m refinanced with new facilities maturing in 219 With Gazprombank, the maturity of U.S.$4m term loan facilities extended from June 217 to December 221 Credit Ratings: S&P: B+ Moody s: B1 Debt currency structure RUB 49% EUR 2% USD 49% Source: TMK management accounts (figures based on non-ifrs measures), TMK estimates Source: TMK management accounts 17
Outlook In Russia, TMK anticipates seamless OCTG pipe consumption to remain strong in 217 with the potential for a moderate growth against 216. At the same time, TMK expects LDP consumption in 217 to remain at low level due to the completion or rescheduling of a number of major pipeline construction projects. TMK believes the oil and gas industry in the United States and Canada will demonstrate further recovery, with OCTG consumption in North America growing and inventories remaining at pre-downturn levels. Supported by the announced pricing increases, the Company anticipates the American division s financial performance to further strengthen considerably in 2Q-4Q 217, assuming a stable oil price and a constant or softening HRC price. For FY 217, industrial pipe consumption in the European pipe market is expected to increase and support further growth in prices. TMK reiterates its previous guidance for FY 217, anticipating broadly flat margins and overall stronger financial results compared to FY 216, driven by a significantly improved performance of its American division. 18
Thank you TMK Investor Relations 4/2a, Pokrovka Street, Moscow, 1562, Russia +7 (495) 775-76 IR@tmk-group.com