Russia's largest oil and gas pipe producer TMK has released its unaudited financial results for the first six months of 2009 under International Financial Reporting Standards (IFRS).
Accordingly, in H1 2009, TMK's financial results were severely affected by a slump in demand and by the unfavorable pricing environment across major markets as a result of the sharp decline observed in global energy demand and oil and gas prices, which led to a $203.8 million net loss.
During the period in question, TMK's revenue decreased by 38 percent year on year and amounted to $1.48 billion due to a combination of lower average selling prices and lower sales volumes, while its gross profit went down by 64 percent year on year to $224 million as a result of selling prices decreasing more significantly than input prices, as well as the decline in sales volumes. Meanwhile, the company's H1 2009 adjusted EBITDA, including certain non-cash items, decreased by 72 percent year on year to $113 million.
In the first six months of 2009, TMK's total pipe sales declined by 20 percent to 1.195 million mt, including 760,000 mt of seamless pipes - down 23 percent, and 435,000 mt of welded pipes - down 15 percent, all compared to the same period last year. Higher margin seamless OCTG pipes showed more resilience and only declined by two percent, amounting to 448,000 mt, but, despite the decline, TMK managed to increase its market share in Russia from 58 percent to 71 percent in this segment.
During the period in question, sales of pipes produced at TMK plants in Russia and Kazakhstan decreased by 27 percent year on year to one million mt, sales of TMK Europe went down by 34 percent year on year to 55,000 mt, while sales of US-based TMK amounted to 133,000 mt compared to 441,000 mt in the second half of the previous year. In H1 2009, pipe prices in Russia declined by around 20-40 percent, while prices outside Russia fell by approximately 35-50 percent, as compared to the peaks reached in Q4 2008.
Accordingly, in the second half of the year, TMK expects a visible recovery in OCTG and line pipe demand in its core Russian market; "however, this might not be sufficient to bring 2009 annual volumes back to 2008 levels," reads the company's statement. In addition, the company says that it continues to see robust demand for longitudinal welded large diameter (LD) pipes in H2 2009, with bookings extending through the first half of 2010, and also a recovery of order activity for industrial products.
On the other hand, TMK said that the US oil and gas pipe market experienced a dramatic decline in H1, and in the second half of the year the company does not expect a recovery in US sales. "As long as such high levels of inventories remain on the ground and gas prices remain depressed, we do not expect to see a significant demand recovery before Q2 2010," reads the company's release.
TMK's net debt at the end of the first half this year stood at $3.56 billion, up 16 percent from the end of 2008.