TMK Announced 9M 2011 IFRS Results

TMK, JSC, one of the world’s leading producers of tubular products for the oil and gas industry, announced its interim consolidated IFRS financial results for the nine months ending September 30, 2011.

9M 2011 Highlights

Financials:

Revenue increased by 31% year-on-year to U.S. $5,151 million driven mainly by an improvement in pricing and product mix. Sales of seamless pipe, a core business of the Company, generated 57% of total revenue.

Gross profit increased to U.S. $1,115 million, a year-on-year increase of 22%, the result of increased sales volume and stronger pricing. Gross profit from seamless pipe sales represented 73% of total gross profit. Gross profit margin declined to 22% compared to 23% in the first nine months of 2010 as a result of increased cost of principal raw materials that outpaced the growth in selling prices of the Company’s pipe products. At the same time, gross profit margin of seamless pipe increased from 24% in the first nine months of 2010 to 28% in the first nine months of 2011.

Adjusted EBITDA increased from U.S. $649 million in the first nine months of 2010 to U.S. $827 million in the first nine months of 2011. Adjusted EBITDA margin was 17% for the first nine months of 2010 declining to 16% for the first nine months of 2011.

Net income was U.S. $ 279 million as compared to net income of U.S. $102 million in the first nine months of 2010, due to higher gross profit and lower net finance costs. As TMK’s management believes that the IFRS accounting treatment of the conversion option of the convertible bond does not reflect the expected outflow of resources under the conversion rights, considering Net income adjusted for the gain on changes in the fair value of the derivative financial instrument as an important supplemental measure of performance. Net income adjusted for the gain on changes in the fair value of the derivative financial instrument equaled U.S. $235 million as compared to U.S. $92 million in the first nine months of 2010. Adjusted net income margin increased to 5% in the first nine months of 2011 from 2% in the relevant period of 2010.

Net debt decreased by U.S. $ 99 million compared to December 31, 2010 and amounted to U.S. $3,612 million.

Total financial debt decreased by 6% from U.S. $ 4,017 million as of June 30, 2011 to U.S. $3,769 million as of September 30, 2011 and slightly declined compared to U.S. $3,872 as of December 31, 2010. The amount of cash used for net repayment of debt in the first nine months of 2011 equaled U.S. $37 million.

Sales Volumes:

Total pipe sales increased by 11% to 3,168 k tons, mainly due to increases in both seamless and welded line pipe sales in the Russian and American divisions.

Seamless pipe sales increased by 13% compared to the first nine months of 2010 and amounted to 1,763 k tons. Seamless OCTG and line pipe sales volumes increased by 6% and 22%, respectively.

Welded pipe sales increased by 9% to 1,405 k tons on the back of robust demand for large-diameter pipe in Russia and higher sales volumes of line pipe in Russia and the U.S. Large-diameter and line pipe sales increased by 13% and 26%, respectively.

Key Developments:

In June 2011, the annual general meeting of shareholders approved a final dividend for the full year 2010 in the amount of RUB 797 million (U.S. $28 million) or RUB 0.85 per share (U.S. $0.03 per share). Payment was made in August 2011.

In October 2011, TMK commissioned a premium threading line for casing at Orsky Machine Building Plant which is part of TMK’s oilfield services group. The effective capacity of the new threading line is 24 k tons per year. Production of casing with gas tight connections will allow the company to expand its product line and enhance its ability to offer innovative products for oil and gas wells and related infrastructure development and services.

In November 2011, an extraordinary general meeting of shareholders approved an interim dividend for 2011 in the amount of RUB 872 million (U.S. $28 million) or RUB 0.93 per share (U.S. $0.03 per share).