19 Aug 2016 09:01
PAO TMK / Miscellaneous - Urgent PriorityTMK Announces 2Q and 1H 2016 IFRS Results 19-Aug-2016 / 10:01 CET/CESTDissemination 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. --------------------------------------------------------------------------- August 19, 2016 PRESS RELEASE TMK Announces 2Q and 1H 2016 IFRS Results Inside information: This announcement contains inside information. Forward-looking statements: The following contains forward-lookingstatements concerning future events. These statements are based on currentinformation and assumptions of TMK management concerning known and unknownrisks and uncertainties. PAO TMK ('TMK' or 'the Group'), one of the world's leading producers oftubular products for the oil and gas industry, today announces its interimconsolidated IFRS financial results for the six months ended June 30, 2016. 2Q and 1H 2016 Highlights Financial - Revenue at $853m in 2Q 2016, up by $91m q-o-q, and $1,614m for 1H 2016, down by $682m y-o-y - Adjusted EBITDA at $143m in 2Q 2016, up by $23m q-o-q, and $264m for 1H 2016, down by $93m y-o-y - Adjusted EBITDA margin at 17% in 2Q 2016 and 16% for 1H 2016 - Net profit at $57m in 2Q 2016 and $71m for 1H 2016 - Net debt at $2,497m as at June 30, 2016 - Net repayment of borrowings in 2Q 2016 amounted to $55m and $91m for 1H 2016 Developments - On August 16, 2016, the share capital of the Company was increased by 41,228,106 ordinary shares with a par value of RUB10 each, by means of an open subscription at a price of RUB71 per share. Outlook - TMK anticipates an improved EBITDA performance in 2H 2016 driven by a gradual improvement at the American division and stable results at the Russian division. The Company expects the FY 2016 EBITDA margin to remain flat compared to FY 2015. Alexander Shiryaev, CEO of TMK, said: 'I am pleased to report that a sustained focus on improving efficienciesthroughout the business and on optimising cost structure has enabled TMK toachieve stable results despite conditions in the US markets, which remainchallenging. Our diversified business model has continued to benefit us in times ofcurrency volatility and the management are confident that TMK is well-positioned to take advantage of anticipated increased demand from oil & gascustomers in our key markets of Russia and the US. TMK remains committed to de-leveraging and has set a target to achieve a2.5x Net Debt to EBITDA ratio. In order to achieve this target, the Companyaims to maximize its operating cash flows, further improve its workingcapital position and is considering different strategic options, amongothers share issue and disposals of certain assets of the Company,including international assets.'Group Summary 2Q and 1H 2016 Results (In millions of US$, unless stated otherwise) 2Q 1Q Change, 1H 2016 1H 2015 Change, 2016 2016 $ mln $ mlnSales 896 852 44 1,748 1,981 (233)(thousandtonnes),including:Seamless 598 568 30 1,167 1,234 (68)Welded 298 284 14 582 747 (166)Revenue 853 761 91 1,614 2,296 (682)Gross profit 191 154 37 345 493 (149)Gross profit 22% 20% 21% 21%margin, %Net profit 57 14 42 71 77 (6)Earnings per 0.23 0.06 0.17 0.29 0.35 (0.05)GDR(1),basic, U.S.$Adjusted 143 120 23 264 356 (93)EBITDA(2)Adjusted 17% 16% 16% 16%EBITDAmargin, % 2Q and 1H 2016 IFRS Financial Statements are available at:www.tmk-group.com/media_en/texts/34/IFRS_TMK_6m2016_USD_en.pdf Note: Certain monetary amounts, percentages and other figures included inthis press release are subject to rounding adjustments. Totals therefore donot 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 excludingfinance 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 andprovisions (except for provision for bonuses), (gain)/loss on disposal ofproperty, plant and equipment, (gain)/loss on changes in fair value offinancial instruments, share of (profit)/loss of associates and other non-cash items. 2Q and 1H 2016 Review Market 2Q 2016 vs. 1Q 2016 In 2Q 2016, the Russian pipe market contracted by 8% compared to theprevious quarter, mostly due to weaker LDP demand as a result of lowerpurchasing activity by Gazprom. The OCTG market decreased by 16% quarter-on-quarter, predominantly due to the structural changes in OCTG demand,weighted more towards smaller diameter pipes specifically supplied forhorizontal drilling in existing vertical wells. In the US, the average number of rigs in 2Q 2016 fell by 24% compared tothe prior quarter (Baker Hughes). OCTG shipments decreased by 43% quarter-on-quarter (Preston Pipe Report). At the same time, OCTG inventoriesincreased to an average 10.8 months compared to 9.5 in the previousquarter. In 2Q 2016, the European pipe market remained nearly unchanged compared tothe previous quarter, with low pipe consumption, strong competition andhigh import volumes, which continued to put pressure on prices. 1H 2016 vs. 1H 2015 The Russian pipe market decreased by 6% year-on-year, due to weaker LDPdemand in 1H 2016 compared to the record high volumes in 1H 2015. OCTGconsumption increased by 6% compared to the same period of 2015, supportedby the growth of drilling activity in Russia by 17% year-on-year. In the US, the average number of rigs in 1H 2016 fell by 57% compared to 1H2015 (Baker Hughes), following a continued decline in oil prices. OCTGshipments decreased by 66% year-on-year (Preston Pipe Report). OCTGinventories increased to an average 10.2 months compared to 8.2 in 1H 2015. There were no major changes in the European market in 1H 2016 compared to1H 2015. Financial 2Q 2016 vs. 1Q 2016 The Company's strong performance in 2Q 2016 reflected stable results at theRussian division and improved conditions at the American division as wellas a positive impact of currency translation, which resulted from roubleappreciation against the US dollar. Revenue increased by $91 million compared to 1Q 2016, mostly due to apositive effect of currency translation. Adjusted EBITDA grew by $23 million compared to the previous quarter,largely due to a positive effect of currency translation at the Russiandivision and lower selling expenses. The adjusted EBITDA margin improvedfrom 16% in 1Q 2016 to 17% in 2Q 2016. In 2Q 2016, net profit was $57 million compared to $14 million in theprevious quarter, as a result of stronger results overall. Total debt decreased marginally from $2,838 million as at March 31, 2016,to 2,829 million as at June 30, 2016. Net debt decreased by $110 million compared to March 31, 2016, and amountedto $2,497 million as at June 30, 2016. Net repayment of borrowings amountedto $55 million in 2Q 2016 compared to $37 million in the previous quarter. 1H 2016 vs. 1H 2015 For 1H 2016, revenue fell by $682 million year-on-year, mostly due to anegative effect of currency translation and weaker sales at the Americandivision, as a result of falling US drilling activity and low E&P spending. The same factors affected adjusted EBITDA for 1H 2016, which fell by $93million compared to the same period of last year. The adjusted EBITDAmargin remained flat at 16%. Total debt increased from $2,801 million as at December 31, 2015 to $2,829million as at June 30, 2016, as a result of rouble appreciation against theUS dollar. The weighted average nominal interest rate increased by 3 bps to9.09% as at the end of the reported period. Net debt remained marginally flat as at June 30, 2016 compared to December31, 2015, and amounted to $2,497 million. Net repayment of borrowingsamounted to $91 million for 1H 2016 compared to $228 million for 1H 2015. Capex for 1H 2016 was reduced to $63 million, compared with $98 million for1H 2015. Outlook In Russia, TMK anticipates 3Q 2016 sales to be lower compared to 2Q 2016,mostly due to seasonally weaker OCTG demand and pre-planned maintenanceworks at TMK's Russian plants. In 4Q 2016, the Company expects seasonallystrong OCTG demand as the Russian oil and gas majors begin to stock up onpipes. Margins at the Russian division are expected to be similar to FY2015, supported by strong OCTG demand and TMK's ongoing cost-cuttingprogram. In the US, TMK expects a moderate increase in drilling activity during thesecond half of the year. The Company anticipates demand for new productionand shipments to be somewhat dampened by the large distributor inventoriesbuilt up during 15 months' worth of declining rig count. As such, TMKexpects demand from oil and gas companies to continue to improve in thefourth quarter of the year, to coincide with the start of a gradualrecovery in prices. Industrial pipe consumption in the European pipe market will somewhatdecline in 3Q 2016, affected by the holiday season and a seasonal slowdownof business activity, while prices are expected to remain nearly flatquarter-on-quarter. In 4Q 2016, the Company expects an improvement in itssales and financial performance at the European division. Overall, TMK anticipates an improved EBITDA performance in 2H 2016 drivenby a gradual improvement at the American division and stable results at theRussian division. The Company expects the FY 2016 EBITDA margin to remainflat compared to FY 2015. 2Q and 1H 2016 Segment Results RUSSIAN DIVISION (In millions of US$, unless stated otherwise) 2Q 1Q Change, % 1H 2016 1H 2015 Change, % 2016 2016Sales 784 759 3% 1,543 1,615 (4)%(thousandtonnes)Revenue 731 655 12% 1,386 1,706 (19)%Gross 203 188 8% 391 431 (9)%profitGross 28% 29% 28% 25%profitmargin, %Adjusted 161 146 11% 307 324 (5)%EBITDAAdjusted 22% 22% 22% 19%EBITDAmargin, % 2Q 2016 vs. 1Q 2016 - Results for 2Q 2016 at the Russian division reflected a positive effect of currency translation. Excluding this effect, revenue would have been relatively flat quarter-on-quarter. - While the Company achieved higher sales of seamless and welded pipe, LD pipe sales represented a smaller share of the product mix. 1H 2016 vs. 1H 2015 - The weaker financial performance of the Russian division in 1H 2016 was mostly attributable to a negative effect of currency translation. Excluding this effect, revenue would have remained stable year-on-year and gross profit would have increased by $63 million compared to 1H 2015. - Higher prices and a favorable seamless pipe product mix contributed to the improved adjusted EBITDA margin in 1H 2016 compared to 1H 2015. AMERICAN DIVISION(In millions of U.S.$, unless stated otherwise) 2Q 2016 1Q 2016 Change, % 1H 2016 1H Change, % 2015Sales (thousand 65 50 31% 115 267 (57)%tonnes)Revenue 75 65 14% 140 477 (71)%Gross profit/ (21) (43) n/a (64) 33 n/a(loss)Gross profit (28)% (66)% (46)% 7%margin, %Adjusted EBITDA (22) (32) n/a (54) 12 n/aAdjusted EBITDA (30)% (48)% (38)% 2%margin, % 2Q 2016 vs. 1Q 2016 - Increased sales of both seamless and welded pipe drove improved results at the American division in 2Q 2016, compared to 1Q 2016. 1H 2016 vs. 1H 2015 - Year-on-year, a significant fall in drilling activity combined with E&P spending cuts in the North American market led to a significant decline in OCTG sales at the American division, as well as a deterioration of the pricing environment. EUROPEAN DIVISION (In millions of U.S.$, unless stated otherwise) 2Q 2016 1Q 2016 Change, % 1H 2016 1H 2015 Change, %Sales 47 43 9% 90 100 (10)%(thousandtonnes)Revenue 47 41 13% 88 114 (22)%Gross profit 9 8 5% 17 29 (42)%Gross profit 19% 20% 19% 26%margin, %Adjusted 4 6 (30)% 10 20 (50)%EBITDAAdjusted 9% 15% 12% 18%EBITDAmargin, % 2Q 2016 vs. 1Q 2016 - In 2Q 2016, revenue at the European division increased as a result of higher seamless pipe sales compared to the prior quarter, while gross profit remained largely unchanged. 1H 2016 vs. 1H 2015 - Year-on-year performance at the European division was generally affected by lower seamless pipe sales and weaker pricing. 2Q and 1H 2016 IFRS Results Conference Call: TMK's management will hold a conference call to present 2Q and 1H 2016financial results today, August 19, 2016, at 09:00 New York / 14:00London / 16:00 Moscow. To join the conference call please dial: UK Local: +44 2030 432440UK Toll Free: 0808 238 1774Russia: +7 495 221 6523Russia Toll Free: 810 800 204 14011U.S. Local: +1 877 887 4163Conference ID: 23094931#(We recommend that participants start dialing-in 5-10 minutes in advance toensure a timely start for the conference call) *** For further information regarding TMK please visit www.tmk-group.com ordownload 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 BadudinaTel: +7 (495) 775-7600IR@tmk-group.com TMK PR Department:Alexander GoryunovTel: +7 (495) 775-7600PR@tmk-group.com International Media Relations:Andrew Hayes / Emily DillonTel: +44 (0) 20 7796 4133Edillon@hudsonsandler.com *** TMK (www.tmk-group.com) TMK (LSE: TMKS) is a leading global manufacturer and supplier of steelpipes for oil and gas industry, operating 30 production sites in the UnitedStates, Russia, Canada, Romania, Oman, UAE and Kazakhstan with two R&Dcenters in Russia and the USA. In 2015, TMK's pipe shipments totalled 3.87million tonnes. The largest share of TMK's sales belongs to high margin oilcountry tubular goods (OCTG), shipped to customers in over 80 countries.TMK delivers its products along with an extensive package of services inheat treating, protective coating, premium connections threading,warehousing and pipe repairing. TMK's securities are listed on the London Stock Exchange, the OTCQXInternational Premier trading platform in the U.S. and on the MoscowExchange 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 Works; TMK Completions.Sinarsky Pipe Plant; European division:TMK-CPW; TMK-ARTROM;TMK-Kaztrubprom; TMK-RESITA.TMK-INOX; Middle East Division:TMK-Premium Service; TMK GIPI (Oman).TMK Oilfield Services;TMK CHERMET. --------------------------------------------------------------------------- The EquityStory.RS, LLC Distribution Services include RegulatoryAnnouncements, Financial/Corporate News and Press Releases.Archive at www.dgap.de/ukreg --------------------------------------------------------------------------- Language: English Company: PAO TMK 40/2a Pokrovka 105062 Moscow Russia Phone: +7 495 775-7600 Fax: +7 495 775-7601 E-mail: tmk@tmk-group.com Internet: tmk-group.com ISIN: US87260R2013, RU000A0B6NK6 Category Code: MSCU TIDM: TMKS Sequence Number: 3327 Time of Receipt: 19-Aug-2016 / 09:59 CET/CEST End of Announcement EquityStory.RS, LLC News Service --------------------------------------------------------------------------- 494253 19-Aug-2016UK-Regulatory-announcement transmitted by DGAP - a service of EQS Group AG.The issuer is solely responsible for the content of this announcement.