TMKS.L Regulatory News (TMKS)

27 Feb 2007 10:00

OAO TMK27 February 2007 February 27, 2007 OAO TMK Trading Update OAO TMK ("TMK" or "the Company"), one of the world's largest oil and gas pipeproducers, and the market leader of the Russian pipe industry, today providesthe following trading update in advance of the publication of its preliminaryresults for the year ended 31st December 2006, which will be announced in May2007. Overall trading for 2006 has been in line with expectations and revenues areexpected to be approximately 3.3 billion USD. During 2006 the Company hasexperienced a material improvement in margins. In accordance with managementexpectations, the EBITDA margin for the full year, whilst not quite reflectingthe same as for the first half of 2006, will represent a substantial increase inmargin over the full year 2005. As previously stated, in 2006 TMK's plants shipped more than 3 million tonnes oftubular goods, representing around a 3% increase over 2005. Within that figure,OCTG shipment volumes (products with higher added value) increased by over 16%.This growth was achieved at existing production facilities while the strategicinvestment program, which will add more than 1.1 million tonnes of seamlesscapacity by 2010, was being implemented. Volumes of the pipes shipped by TMK's plants in 2006 (K, tonnes) 2006 2005 Variance, %---------------------- ----------- ----------- --------------Seamless pipes 1 944 1 877 +3.6% incl. OCTG 955 818 +16.7%Welded pipes 1 074 1 047 +2.6%---------------------- ----------- ----------- --------------Total, pipes 3 018 2 924 +3.2%---------------------- ----------- ----------- -------------- In 2006 there was a strong demand for TMK's products from both Russian andforeign customers, and the Company does not expect the market environment todeteriorate in the near future. In 2006 TMK increased its share of sales outside Russia. While the overallgrowth of shipment volumes in 2006 was over 3%, shipments outside Russiaincreased by more than 8%. The region where shipment volumes grew most was theUnited States, where the increase was more than 90%. Shipments to the MiddleEast and Gulf States increased by approximately 7%. The largest customers for TMK's seamless pipes in the Russian market wereSurgetneftegas, TNK-BP, Lukoil, Gazprom and Tatneft. These companies account for28.6% of the total seamless pipes shipment volumes. The main customer for TMK's welded pipes is Gazprom which accounts for 25% ofthe total welded pipe shipment volumes. In 2006 TMK managed to secure higher prices for its products against aggregatedworld prices. TMK's prices for OCTG increased by between 15-20% during 2006,substantially ahead of the world price trend. Seamless line pipe prices grew byabout 20% in the Russian market, and prices for industrial seamless pipes grewby between 15-20%. Growth in electric resistance welded (ERW) average and small diameter industrialpipe prices, which was a reflection of the growth of investment intoinfrastructure projects and of the construction boom in Russia, increased bybetween 25-30% during the year. Despite some decrease in the overallprofitability shown in the EBITDA, which was the result of an increasedpercentage of these pipes in the total shipment volumes, absolute EBITDA forthese pipes rose, which contributed to the absolute growth of the EBITDA as awhole. In 2006 there was a considerable increase in the price of scrap. Prices in theRussian market increased by between 25-30% which affected the increase inproduction costs in the second half of 2006. The Company believes that the priceincrease in 2006 closed the gap between Russian and export prices for scrap andit does not expect any significant price increase in 2007 and beyond. Rises in prices for other raw materials (strips, pig iron and purchased billets)were not more than 15% in 2006. TMK has balanced the rise in the price of rawmaterials by increasing its prices for tubular goods. The Company expects that the impact of fundamental indicators defining thedemand for tubular goods will continue in 2007 and that prices for iron rawmaterials will stabilise close to the existing levels. The Company believes thatthe expected rise in prices for gas and electricity will not render anysignificant impact on TMK's indicators, as the costs of these, within theCompany's overall production costs is not significant. More than 300 million USD was invested in 2006 within the framework of thestrategic investment program, with all the projects being implemented on timeand within budget. Approximately 30% of the strategic investment program, whichruns until 2010, has been financed to date. In 2006 two continuous casting machines of one million tonnes capacity each werelaunched at Seversky Pipe Plant and Taganrog Metallurgical Works. TMK is alsocontinuing to upgrade its high value-added, seamless pipe production capacity. OAO TMK Founded in 2001, TMK (LSE: TMKS) is the largest pipe producer in Russia and oneof the three global market leaders. TMK GDRs and common shares are traded on theLondon Stock Exchange and Russian Trading System. In 2006 the total volume of pipes shipped reached over 3 million tonnes. TMKsupplies pipes to companies in more than 60 countries. TMK production facilities are located in Russia and Romania: • Volzhsky Pipe Plant • Seversky Pipe Plant • Taganrog Metallurgical Works • Sinarsky Pipe Plant • Orsk Engineering Plant • SC TMK-ARTROM SA • SC TMK-Resita SA. For further information please contact: TMK IR Department: Natalia Dokuchaeva/Alexei Ratnikov Tel: +7 495 775 7660 Email: ir@tmk-group.com Gavin Anderson & Company: Dick Millard/Michael Turner Tel: +44 207 554 1400 Email: tmk@gavinanderson.co.uk This information is provided by RNS The company news service from the London Stock Exchange