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TMK Announces 3Q and 9M 2018 IFRS Results

Steel News - Published on Mon, 19 Nov 2018

Image Source: TMK
PAO TMK announced its interim consolidated IFRS financial results for the third quarter of 2018 and nine months ended September 30, 2018. Alexander Shiryaev, CEO of TMK, said “TMK achieved solid financial performance in 9M 2018, despite lower results in the third quarter due to the planned upgrades at TMK’s key Russian assets and lower sales at the American division impacted by the inventory build-up in the U.S. in 2Q 2018. In 3Q 2018, we made further progress on our strategic objective of reducing our leverage to 3.Ox Net Debt/EBITDA as of FY 2019 with a 3.85x Net debt/EBlTDA ratio as of September 30, 2018. TMK continues to lead pioneering technological developments in the pipe industry, and this is particularly reflected in the agreement signed with Gazprom in October to develop state-of-the-art pipes with integrated sensors that will improve both the reliability of the pipes and general operational safety for our customer. We continue to work with Gazprom and a number of other key clients on tailored solutions to address the challenging geological conditions in which they operate."

3Q Revenue down 11% q-o-q at $1,207m, and 9M Revenue up 20% y-o-y at $3,835m
3Q Adjusted EBITDA down 17% q-o-q at $164m, and 9M EBITDA up 17% y-o-y at $522m
Adjusted EBITDA margin at 14% in 3Q 2018 and at 14% in 9M 2018
Net debt at $2,624m as at September 30, 2018
Net debt/EBlTDA ratio improved to 3.85x as at September 30, 2018

Major Developments

In August, TMK IPSCO successfully released the third of its TORQ ™ series of premium connections, the QX TORQ. The TORQ series of premium connections are used in challenging environments including extended-reach laterals, high pressure, and high temperature.

In August, TMK and AO New Forwarding Company (part of Globaltrans group) signed a five-year agreement for the rail transportation of cargo to and from the Volzhsky, Sinarsky and Seversky pipe plants, TAGMET and TMK's oil and gas service companies. Under the agreement, at least 70% of the freight rail transport needs of TMK’s production facilities will be met by New Forwarding Company. This will significantly improve the reliability of cargo transportation for TMK and its customers.

In October, TMK and Gazprom signed a technology roadmap agreement for the production of pipes with integrated recording, processing and switching components. TMK will develop innovative large diameter pipes with hyper-sensitive sensors embedded under the pipe coating to monitor pressure, temperature, pipe stress and deformation in real time for Gazprom. Each pipe will be fitted with a high-tech information tag, so that it can be individually identified within a pipeline. The new products will be used in areas of high seismic activity, active tectonic faults and unstable soils, and at points of intersection between gas pipelines and transportation lines. The innovative pipe is expected to improve the reliability and safety of gas pipelines, enable engineers to more accurately assess their technical condition and optimize troubleshooting, maintenance and repair costs.

In October, TMK shipped to Gazprom a batch of corrosion-resistant casing pipes of 13Cr steel with TMK UP PF threaded connections for the Kirinsky block deposits. These pipes were manufactured under the Future things' agreement with Gazprom, which was signed in October 2015. The agreement provides for the design, development and production of new types of pipe products to replace imported products in full compliance with special technical conditions required by Gazprom.

In November, TMK opened its new external coating facility at TMK IPSCO’s Wilder facility in Kentucky. The 250,000 tonnes of annual coating capacity for pipes up to 24 inches (609.6 mm) in diameter is available in Fusion Bond Epoxy (FBE), Abrasion Resistant Overcoat (ARO) and Specialty Coating. Coating protects line pipe against corrosion, mechanical damage, and weathering. The facility is certified to industry standards and end users’ specific standards, and uses cutting-edge quality and material inspection equipment. The launch will expand IPSCO's lineup of high value-added products and boost line pipe sales in the North American market.

Group Summary 3Q and 9M 2018 Results
(In millions of US$, unless stated otherwise)
(thousand tonnes)
(thousand tonnes)3Q 20182Q 2018Change9M 20189M 2017Change
Total sales9251076-14.00%298727987.00%
Including OCTG450489-8.00%13971.3017.00%
Gross profit221250-12.00%6926625.00%
Gross profit margin. %18.00%18.00% 18.00%21.00%
Adjusted EBITDA 0)164197-17.00%52244417.00%
Adjusted EBITDA margin, %14.00%15.00% 14.00%14.00%

TMK announced that “In 3Q, the Russian pipe market remained in line with the previous quarter. Higher demand for welded industrial pipe was offset by the Russian OCTG market declining 3% quarter-on-quarter following seasonally slower purchasing activity by the oil and gas companies. The share of horizontal drilling grew from 45% in 2Q 2018 to 52% in 3Q 2018. In the US drilling activity in 3Q remained solid, with the average number of rigs increasing 1% compared to the prior quarter (Baker Hughes). OCTG shipments declined 12% quarter-on-quarter (Preston Pipe Report), following the high buildup of inventories in the market that took place during 2Q 2018, ahead of the implementation of Section 232. In 3Q, European pipe producers continued to benefit from stable demand for seamless pipe from both the US and domestic customers and from a favourable pricing environment for tubular products.”

In 9M, the Russian pipe market grew 5% year-on-year, largely driven by higher demand for large diameter pipe. The market growth was partially offset by weaker OCTG consumption compared to 9M 2017. This was due to rising oil prices in 2017 that drove oil and gas companies to replenish their OCTG inventories at that time. Drilling activity in Russia increased 3% year-on-year, with the share of horizontal drilling growing from 40% in 9M 2017 to 48% in 9M 2018. In the US, the OCTG market fundamentals remain strong with a recovery in crude oil prices and higher E&P spending by the oil and gas companies. This resulted in an increased number of rigs and solid OCTG consumption, sustained by more wells per rig and longer laterals, despite short-term takeaway concerns in the Permian basin. In 9M 2018, conditions in the European pipe market noticeably improved compared to the same period of 2017, with higher pipe consumption from both US and domestic customers, increased capacity utilization and a better pricing environment.”

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Posted By : Ratan Singh on Mon, 19 Nov 2018
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