TMK posts Q3 IFRS net profit of $69 mln, as forecast
MOSCOW. Nov 27 (Interfax) - TMK had net profit of $69 million to International Financial Reporting Standards (IFRS) in Q3 2012, the pipe maker said in a statement.
That was more than triple the result for the same three months of last year but more or less in line with the $68.7 million that analysts predicted in a consensus forecast for Interfax. The figure was down 10% quarter-on-quarter.
"Adjusted EBITDA decreased by 16% quarter-on-quarter to $243 million being negatively affected by lower sales and weaker product mix globally as well as lower margins in the American and European divisions. Consolidated adjusted EBITDA margin was 15%," the company said in a statement.
Third quarter revenue was $1.617 billion, a decrease of 9% over the second quarter of 2012. "The decline reflects lower seamless volumes, unfavorable changes in pricing and sales mix as well as the impact of currency translation,"
The analysts predicted EBITDA of $245.8 million and revenue of $1.625 billion.
"Despite certain challenges on the U.S. and European markets, strength in Russian demand for oil and gas pipe should allow the Company to demonstrate stronger results in the fourth quarter compared to the third quarter of 2012. Overall, full year 2012 EBITDA is expected to be slightly better than 2011," TMK said.
In the third quarter, net debt increased by $117 million and amounted to $3.686 billion as of September 30, 2012 due to appreciation of the ruble against the U.S. dollar compared to June 30, 2012. Net Debt-to-EBITDA ratio remained flat at 3.6x. The share of short-term loans and borrowings was 24% as of September 30, 2012; loans with a fixed interest rate represented 84% of total debt. TMK's weighted average nominal interest rate increased from 6.87% as of June 30, 2012 to 7.00% as of September 30, 2012.
"In line with management's expectations, the Company experienced slowing sales in the third quarter of 2012 resulting in decreased total pipe sales of 5% quarter-on-quarter to 1,050 thousand tonnes. The decline was mainly due to lower Russian seamless pipe sales caused by major repairs at several Russian plants and a reduction in U.S. welded pipe sales as a result of softening market conditions. Due to the decline of seamless pipe sales traditionally experienced in Russia during the third quarter, the Company preplanned major repairs at the Russian plants."
Net income was $250 million for the first nine months of 2012 as compared to $279 million for the first nine months of 2011. Net income adjusted for the gain/(loss) on changes in fair value of the derivative instrument, amounted to $251 million; adjusted net income margin equaled 5% for the first nine months of 2012.
Adjusted EBITDA decreased by 2% year-on-year in 9M to $810 million while gross profit increased by 3%. Higher volumes and better pricing of seamless pipe were offset by the negative effect of currency translation and higher operating expenses. Adjusted EBITDA margin amounted to 16% year-to-date.
Revenue decreased by 2% year-on-year to $5.056 billion, mainly due to the negative impact of currency translation. Sales of seamless pipe, the core business of the company, generated 62% of total revenue.
"The Russian pipe market was growing throughout the third quarter of 2012, mainly due to stronger seamless industrial and welded line pipe demand.
"In the third quarter of 2012, the seamless OCTG market in Russia remained strong. Third quarter Russian oil production increased by 2% compared to the second quarter of 2012. Moreover, for the first nine months of 2012, the total footage of oil wells drilled in Russia increased by 7% year-on-year.
"In the third quarter of 2012, the industrial seamless and welded pipe market in Russia experienced a quarter-on-quarter growth, largely due to high seasonal construction activity in Russia as well as growing demand from the machine building industry," the company said.
"OCTG demand in the U.S. saw a steady decline throughout the third quarter of 2012. According to the Baker Hughes rig count, the U.S. finished the quarter at 1,848 active drilling rigs, down 6% from the second quarter of 2012. With low natural gas prices, the U.S. gas rig count continued to decline 19% in the third quarter of 2012 compared with the prior quarter. The strong oil rig count growth seen earlier in the year did not continue in the third quarter, as the U.S. oil rig count fell 1% compared to the second quarter of 2012," the press release says.
In the third quarter of 2012, revenue for the Russian division decreased by 9% to $1.132 billion compared to the prior quarter, mainly due to lower seamless volumes as a result of major repairs at several Russian plants and the impact of currency translation. Adjusted EBITDA amounted to $190 million, a decrease of 7% compared to the second quarter of 2012 following the decline in revenue, however partially compensated by favorable effect from lower purchase prices for raw materials.
For the first nine months of 2012, revenue of the Russian division decreased by 5% to $3.501 billion due to the negative effect of currency translation and a decline of welded pipe volumes as a result of a decrease in LD pipe sales. Adjusted EBITDA remained flat at $571 million compared to the first nine months of 2011 as the negative effect was compensated by improved margins.
In the third quarter of 2012, the American division revenue declined by 8% to $410 million compared to the prior quarter, primarily due to lower welded volumes and, to a lesser extent, price reductions across the welded pipe business. Continued pressure from imports, now coupled with a softer drilling environment and higher inventory levels, drove the decline in welded pipe prices. Adjusted EBITDA fell by 39% to $42 million compared to the second quarter of 2012, mainly as a result of unfavorable sales mix, lower pricing and major repairs at several pipe mills.
For the first nine months of 2012, the American division revenue increased by 13% and amounted to $1,298 million mainly due to higher volumes in welded pipes, as well as better pricing in both the welded and seamless businesses. Adjusted EBITDA was fairly stable, declining by 2% to $196 million. The favorable items impacting revenue were, however, offset by negative mix and higher cost for scrap used in production and operational downtime.
In the third quarter, revenue of the European division declined by 22% to $75 million compared to the prior quarter due to lower sales and pricing of seamless pipe as a result of challenging macroeconomic conditions that persist in the European Union. Adjusted EBITDA fell by 40% to $10 million due to the above mentioned reasons.
For the first nine months of 2012, revenue of the European division decreased by 14% to $257 million primarily due to the unfavorable currency translation effect while sales of seamless industrial pipe remained almost flat. Adjusted EBITDA declined by 20% to $43 million.
TMK is a leading global manufacturer and supplier of steel pipes for the oil and gas industry, operating 24 production sites in the United States, Russia, Romania and Kazakhstan and two R&D centres in Russia and the USA. In 2011, TMK's pipe shipments totaled 4.23 million tonnes. The largest share of TMK's sales belongs to high margin oil country tubular goods (OCTG), shipped to customers in 85 countries. TMK delivers its products along with an extensive package of services in heat treating, protective coating, premium connections threading, warehousing and pipe repairing.
