OREANDA-NEWS. October 19, 2009. OAO “TMK” (TMK), a leading global producer of steel pipes for the oil and gas industry, today announces its unaudited IFRS financial results for the six months ended June 30, 2009.


1H 2009 Highlights (vs. 1H 2008)
Financials:

• Revenue fell by 38% to USD 1,478.6 million.

• Gross profit decreased by 64% to USD 223.9 million

• Adjusted EBITDA, excluding non-cash items,1 declined by 65% to USD 145.9 million.

• Adjusted EBITDA, including certain non-cash items, decreased by 72% to USD 113.0 million as a result of a decrease in revenue and gross profit.

• Despite a net loss of USD 203.8 million the Company generated net operating cash flow of USD 286.0 million.

• EBITDA is often used as a surrogate for operating cash flow. Gross margin and EBITDA were depressed through the use of historic cost accounting during a period of declining prices for both raw materials and finished product, whereby sales are matched with costs incurred when market prices were higher. Operating cash flow outperformed EBITDA because of the reduction in working capital, and in particular of inventories, caused largely by the declining prices.

• Net Debt increased to USD 3,560 million following the exercise of the option to acquire remaining ownership interest in US tubular assets from Evraz in January 2009. In the prior year the liability under the option was not classified as debt. Had it been classified as debt as of December 31, 2008, TMK’s net debt would have been USD 3,571 million compared to USD 3,560 million as of June 30, 2009. Therefore, in spite of the challenging market environment, the Company decreased its net debt by USD 10 million during the first 6 months of 2009.

Sales Volumes:

• Total pipe sales volumes declined by 20% to 1.2 million tonnes, including 760 thousand tonnes of seamless pipes.

• Seamless pipe sales volumes declined by 23%. Higher margin seamless OCTG pipes showed more resilience and only declined by 2%, amounting to 448 thousand tonnes. Despite this decline, TMK increased its market share in Russia from 58% to 71% in this segment.

• Welded pipe sales volume declined by 15%, driven by a decrease in sales of both large-diameter and industrial welded pipes.

Refinancing:

• In January 2009, TMK borrowed USD 1,107.5 million from Gazprombank to refinance liabilities related to the acquisition of IPSCO.

• In March 2009, TMK borrowed USD 90.2 million from VTB. On March 24, 2009, the loan proceeds were used to redeem debt securities in the amount of 3,000,000 thousand Russian roubles.

Recent Developments:

• In August 2009 TMK amended its January agreement with Gazprombank, effectively extending the loan term from 2.5 to 5 years and reducing interest rate. The facilities will be repaid in tranches starting from 2011.

• In August 2009, as a part of the offer to bondholders to amend the terms of the 2011 USD 600 million Eurobonds, TMK bought back 4,133 of 6,000 notes. Total payments of the Company related to this transaction amounted to USD 416 million.

• On September 29, 2009, TMK fully redeemed the 2009 USD 300 million Eurobonds through a one year loan provided by VTB. The loan, initially provided for one year, includes an option to extend the maturity date by up to 5 years.

• Between June and September 2009, TMK entered into several loan agreements with Sberbank for an aggregate amount of RUB 5.7 billion. The facilities have a maturity of 7 years.

• By October 1, 2009, TMK had successfully restructured most of its short-term debt.

Summary 1H 2009 Results

1H 2009

1H 2008

Change, %

Revenue

1,478.6

2,368.4

-37.6%

Gross profit

223.9

617.8

-63.8%

Profit (loss) before tax

(266.1)

240.4

n/a

Net profit (loss)

(203.8)

158.2

n/a

Earnings (loss) per GDR2, USD

(0.92)

0.68

n/a

Net cash flows from operating activities

286.0

403.6

-29.1%

Adjusted EBITDA, excluding non-cash items

145.9

417.8

-65.1%