Investor Presentaiton
Management's Discussion and Analysis
Nine months ended September 30, 2011
In January 2011, we completed the offering of 7.75% loan participation
notes in the amount of U.S.$500 million due in January 2018. The notes
have been admitted for trading on the London Stock Exchange. The
proceeds from the issuance were used to refinance existing indebtedness.
In July 2011, we fully repaid 10% loan participation loans in the amount of
U.S.$187 million.
Capital expenditure
A comprehensive renovation of production facilities performed by us during
the past years resulted in a considerable increase in the efficiency of
seamless and large-diameter welded production processes and advanced
product quality.
The key projects planned for the next several years include:
replacement of the open hearth furnaces with EAF steelmaking
facilities at Tagmet with an annual steel-making capacity of 400
thousand tonnes; the project is planned to be completed in 2013;
construction of a new Fine Quality Mill ("FQM") at Seversky with an
annual seamless pipe production capacity of 600 thousand tonnes and
completion in 2013;
installation of additional nondestructive testing instrumentation,
construction of the new hydro-press, new pipe-threading and coupling-
threading facilities at Sinarsky to further improve quality of OCTG
produced at the works; the project is planned to be completed in 2012.
Other investment projects started in the first nine months of 2011:
construction also began on a line to produce premium threaded casing
at the Orsk Machine-Building Plant, with a total capacity at 30
thousand tonnes per year. Project completion is scheduled for 2011
and will strengthen the premium segment of the business.
The following projects will enable TMK IPSCO to strengthen its position in
the segment of premium connections for horizontal and directional drilling
in North America:
at TMK IPSCO, construction continued of the ULTRA Premium
Connections threadshop line which was started at the Wilder plant
(Kentucky, USA) at the end of 2010;
consolidation of threading operations at TMK IPSCO's production
facility located in Odessa, Texas is also underway.
Development trends
In the fourth quarter of 2011, we expect a slowdown in project-driven
demand (such as for large-diameter pipes) as well as in demand driven by
general macroeconomic factors (for industrial pipes). At the same time, we
expect increase in sales volumes, as well as product mix improvement
compared to the third quarter 2011. In addition, positive effect on the
financial performance in the fourth quarter 2011 and first quarter 2012 is
expected from the currently observed downtrend in raw materials prices.
The U.S. OCTG market outlook remains positive for the fourth quarter of
2011. Despite economic uncertainty and commodity price volatility, the rig
count is expected to remain strong as operators continue to shift away from
dry gas and focus on oil and liquids production.
For the full year of 2011, we expect steady growth of operational
performance and principal financial indicators as compared to the prior
year.
We observe different development trends in the Russian pipe market in
2012. E&P budgets of Russian oil companies are expected to grow in 2012
driven by sustainably high oil prices. Demand for large-diameter pipe in
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