DJ DGAP-Regulatory: TMK Announces 4Q 2014 and FY 2014 IFRS Results
OAO TMK / Miscellaneous
05.03.2015 09:59
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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.
Financials
- Revenue decreased by $26 million or 2% from the third quarter of 2014
to $1,500 million, mainly due to a negative effect of currency
translation which amounted to $289 million. Excluding this effect,
revenue would have grown by $263 million.
- Adjusted EBITDA increased by $25 million or 13% quarter-on-quarter to
$227 million, largely as a result of stronger sales of LDP, seamless
OCTG and line pipe in the Russian division, as well as higher volumes
of welded OCTG in the American division. Adjusted EBITDA margin grew to
15% compared to 13% in the third quarter of 2014.
- Net loss was $254 million as compared to a net loss of $7 million for
the third quarter of 2014. Foreign exchange loss in the fourth quarter
of 2014 was $198 million compared to $73 million in the previous
quarter.
- The Company recognized an impairment loss of $153 million, attributable
mostly to the goodwill of the American division. There were no
impairment charges in the third quarter of 2014.
- As of December 31, 2014, total debt decreased by $323 million to $3,223
million compared to $3,546 million as of September 30, 2014, influenced
by the Rouble's depreciation against the U.S. Dollar. TMK's weighted
average nominal interest rate increased by 17 basis points compared to
September 30, 2014 and amounted to 7.26%.
- Net debt fell by $539 million to $2,969 million as of December 31, 2014
compared to $3,508 million as of September 30, 2014. Net Debt-to-EBITDA
ratio improved to 3.69x as of the end of the fourth quarter compared to
4.26x as of September 30, 2014.
FY 2014 Highlights
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%
- Total pipe sales increased by 3% year-on-year to 4,402 thousand tonnes,
mainly as a result of stronger sales of seamless OCTG and line pipe.
- Seamless pipe volumes increased by 6% year-on-year to 2,560 thousand
tonnes, mostly due to higher sales of seamless OCTG in the Russian and
American divisions. Seamless OCTG sales grew by 7% compared to the
previous year.
- Welded pipe sales decreased by 1% year-on-year to 1,842 thousand
tonnes, as higher LDP and welded OCTG volumes were offset by weaker
sales of welded line and industrial pipe.
Financials
- Revenue fell by $423 to $6,009 million, a 7% decrease over the prior
year, mainly due to a negative effect of currency translation in the
amount of $790 million. Excluding this effect, revenue would have
increased by $367 million year-on-year.
- Adjusted EBITDA decreased by $148 million or 16% year-on-year to $804
million, mainly due to a negative effect of currency translation and
higher raw materials prices in the Russian division. Adjusted EBITDA
margin was 13% compared to 15% for the full year 2013.
- Net loss was $217 million compared to a net income of $215 million for
the full year 2013. The financial result was negatively affected by a
foreign exchange loss in the amount of $301 million compared to $49
million for the full year 2013, and the $153 million impairment loss.
- As of December 31, 2014, total debt decreased by $471 million to $3,223
million compared to $3,694 million as of December 31, 2013, influenced
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%.
- As of the end of 2014, net debt decreased by $631 million to $2,969
million compared to $3,600 million as of December 31, 2013. Net
Debt-to-EBITDA ratio improved to 3.69x as of December 31, 2014 from
3.78x as of December 31, 2013.
Recent Developments
- In October 2014, TMK put into operation a new FQM pipe rolling mill at
Seversky pipe plant with a total production capacity of around 600
thousand tonnes. As a result, incremental increase of the Company's
total seamless pipe capacity will amount to around 250 thousand tonnes.
- In November 2014, TMK supplied a complete set of high-tech tubular
products and equipment to Surgutneftegaz, which will be used in a drill
column of about 5,000 meters.
- In December 2014, TMK won Transneft's LDP tender for a total volume of
more than 31,583 tonnes, to be supplied within January-April 2015.
- In December 2014, the extraordinary general shareholders' meeting
approved an interim dividend payment for the first six months of 2014
in the amount of RUB 393,786,159.48 ($7 million at the exchange rate as
of the date of approval).
- In December 2014, TMK closed the public offering of additional shares,
raising total proceeds of RUB 5.5 bln, which represents a 5.476% share
in the Company.
- In February 2015, TMK redeemed its 5.25% Convertible Bonds due 2015
convertible into GDRs each representing four ordinary shares of TMK. To
redeem the bonds TMK used cash accumulated from operating and financial
activities, including a four-year USD denominated credit facility from
one of the leading Russian commercial banks. TMK has no more
international public debt maturing before 2018.
- In February 2015, TMK acquired a 100% interest in
ChermetServis-Snabzhenie for a total amount of around RUB 2.73 billion.
ChS-Snabzhenie had been the main scrap supplier to TMK steel mills for
the last several years and fully covered the Company's needs in scrap.
4Q 2014 and FY 2014 Segment Results
(In millions of U.S.$, unless stated otherwise)
4Q 2014 3Q 2014 Change, % FY FY Change, %
2014 2013
Sales (thousand tonnes)
Russia 912 772 18% 3,198 3,085 4%
America 277 249 11% 1,019 1,027 -1%
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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%
Russia
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
11% for the full year 2013.
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.
America
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.
Europe
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.
1Q and FY 2015 Outlook
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
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