TMK, a Russian company that is one of the largest producers of pipes for the oil and gas sector worldwide, ended 2009 with a loss of USD 324 million (International Financial Reporting Standards). In the first quarter of 2010, the company’s revenue increased to about USD 1.3 billion. The EBITDA figure exceeded USD 200 million.

Even while the revenue from TMK’s sales in 2009 turned out to be higher that what was foreseen by industry analysts, the company’s EBITDA proved to be lower than what was expected. At the end of 2009, TMK’s total indebtedness was RUR 3.5 billion. The mean interest rate on the debt at the end of 2009 was 10.7 percent, compared to some 12.3 percent in June of 2009.

The company’s cash flow generated by its operations was USD 852.3 million, an amount higher than the 2008 figure of 739.5 million. At the same time, the cash flow resulting from the company’s operations prior to changes in working capital went down by 68.7 percent to end at USD 328.1 million.

The principal reason for the decrease is that TMK incurred a loss of USD 426.8 (before taxes) in 2009. In 2008, the company had a profit of USD 308.1 million before taxes. Several factors exacerbated the situation: revenues decreased; depreciation and amortization expenses went up, as did financing costs. TMK also recognized property losses, as well as impairment losses to its plants, equipment, and goodwill. The release of working capital in the amount of USD 557.6 million boosted the company’s results.

Over the course of 2010, TMK anticipates that its sales will go up 20 percent, and that its production facilities will operate at 70 percent of their capacity.

The rising hydrocarbons prices and higher use of production capacity will, in turn, push up the prices for oil and gas tubing and casing of small and medium diameter. It is expected that prices on these products will rise by 10 to 15 percent in the second quarter.

As Russia continues with its pipeline projects, including the Bovanenkovo-Ukhta and the Sakhalin-Khabarovsk-Vladivostok projects, as well as the oil-transporting BTS-2 and ESPO-2 pipelines, high demand for large pipes will also persist throughout 2010.

In 2009, the company arranged several acquisitions. TMK bought a 1.21-percent stake in Sinarsky (total TMK stake of 94.16 percent), a 0.69-percent stake in Seversky (total share of 94.22 percent), a 0.12-percent stake in TAGMET (total share of 96.06 percent), and a 0.51-percent stake in TMK-Resita (full ownership).

EBITDA

For 2010, TMK expects that its EBITDA margin will be between 15 and 17 percent. In the first quarter of the year, TMK compensated the increases in price on flat products by raising the price of its finished pipes.

The company expects that the scrap metals price will continue to escalate in the near future. The rising cost of production materials will then be passed on to consumers.  

The quantity of raw materials needed in the manufacturing of seamless pipe is insignificant, so TMK relies primarily on the scrap steel that it purchases for manufacturing that type of products.

As the situation currently stands, TMK intends to invest USD 300 million during 2010 for fixed asset development. Capex stood at USD 412.3 million last year.

Dividends

TMK’s management suggested that shareholders should vote to forgo the payment of dividends in 2009. The recommendation rested on the argument that TMK needs to lessen its debt burden. In September of 2008, the company paid out a dividend of RUR 1.75 per share for a total disbursement of RUR 1.53 billion. Dividend payments equaled approximately one-third of the company’s profits computed in accordance with International Financial Reporting Standards. Minimum dividends are 25 percent of net profits.  

TMK owns production facilities in Russia, Kazakhstan, the United States, as well as Romania. The company’s principal beneficiary is Mr. Dmitry Pumpyansky, who also serves as the chairman of the board of directors. Approximately 23 percent of the company’s shares are traded on the stock market.