OAO TMK revenue dropped on 19.1% in 2016 while EBITDA Margin increased slightly on 1.4 pp from 13.9% to 15.2%

13 Mar 2017 • About OAO TMK ($TMKS) • By InTwits

OAO TMK reported 2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

OAO TMK is a company in decline: 2016 revenue growth was -19.1%, 5 years revenue CAGR was -13.1%
OAO TMK has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.7%. At the same time it's in pair with industry average of 6.5%.
CAPEX is quite volatile: 187 in 2016, 208 in 2015, 293 in 2014, 397 in 2013, 445 in 2012
The company has business model with low profitability: ROIC is at 7.5%
It operates with high leverage: Net Debt/EBITDA is 5.2x while industry average is 2.9x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

OAO TMK ($TMKS) key annual financial indicators

mln. $	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	6,688	6,432	6,009	4,127	3,338	-19.1%
Gross Profit	1,483	1,358	1,169	845	704	-16.7%
SG&A	667	649	596	438	394	-10.2%
EBITDA	999	927	780	572	508	-11.1%
Net Income	277	214	-216	-363	167	-145.9%
Balance Sheet
Cash	225	93	253	305	277	-9.4%
Short Term Debt	1,044	370	737	575	247	-57.1%
Long Term Debt	2,817	3,296	2,459	2,201	2,650	20.4%
Cash flow
Capex	445	397	293	208	187	-10.4%
Ratios
Revenue growth	-1.0%	-3.8%	-6.6%	-31.3%	-19.1%
EBITDA growth	-2.1%	-7.1%	-15.9%	-26.7%	-11.1%
Gross Margin	22.2%	21.1%	19.5%	20.5%	21.1%	0.6%
EBITDA Margin	14.9%	14.4%	13.0%	13.9%	15.2%	1.4%
Net Income Margin	4.1%	3.3%	-3.6%	-8.8%	5.0%	13.8%
SG&A, % of revenue	10.0%	10.1%	9.9%	10.6%	11.8%	1.2%
CAPEX, % of revenue	6.7%	6.2%	4.9%	5.0%	5.6%	0.5%
ROIC	11.2%	9.8%	9.0%	8.1%	7.5%	-0.6%
ROE	14.9%	10.6%	-13.3%	-38.9%	22.1%	61.1%
Net Debt/EBITDA	3.6x	3.9x	3.8x	4.3x	5.2x	0.8x

Revenue and profitability

OAO TMK's Revenue dropped on 19.1% in 2016. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased slightly on 1.4 pp from 13.9% to 15.2% in 2016.

Gross Margin increased slightly on 0.61 pp from 20.5% to 21.1% in 2016. SG&A as a % of Revenue increased slightly on 1.2 pp from 10.6% to 11.8% in 2016.

Net Income marign surged on 13.8 pp from -8.8% to 5.0% in 2016.

Capital expenditures (CAPEX) and working capital investments

In 2016 OAO TMK had CAPEX/Revenue of 5.6%. The company showed small CAPEX/Revenue decline of 0.58 pp from 6.2% in 2013 to 5.6% in 2016. Average CAPEX/Revenue for the last three years was 5.2%.

Return on investment

The company operates at good ROE (22.13%) while ROIC is low (7.48%). ROIC decreased slightly on 0.60 pp from 8.1% to 7.5% in 2016. ROE surged on 61.1 pp from -38.9% to 22.1% in 2016.

Leverage (Debt)

Debt level is 5.2x Net Debt / EBITDA and 5.7x Debt / EBITDA. Net Debt / EBITDA surged on 0.8x from 4.3x to 5.2x in 2016. Debt increased on 4.3% in 2016 while cash decreased on 9.4% in 2016.

Appendix 1: Peers in Industrial Metals & Mining

Below you can find OAO TMK benchmarking vs. other companies in Industrial Metals & Mining industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Base Resources Ltd ($BSE)				399.7%	16.2%
Cheliabinsk Elektrolit Zink Plant ($CHZN)	2.4%	-0.1%	26.4%	45.5%
Norsk Hydro Asa ($NHY)		1.1%	20.1%	12.6%	-6.5%
Afarak Group ($AFRK)		5.4%	27.4%	8.7%	-18.2%
Vimetco Nv ($VICO)	-13.4%	-6.5%	-12.8%	-5.3%
Median (15 companies)	-13.4%	0.3%	2.4%	-10.6%	-5.6%
OAO TMK ($TMKS)		-3.8%	-6.6%	-31.3%	-19.1%

Top companies by Gross margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mmc Norilsk Nickel ($MNOD)	49.1%	43.4%	52.2%	55.7%
Severstal PJSC ($SVST)	23.5%	29.9%	34.4%	40.4%	39.6%
Novolipetsk Iron And Steel Corp ($NLMK)	23.8%	19.4%	28.3%	31.4%	33.6%
Magnitogorsk Iron & Steel Works ($MMK)	15.5%	14.9%	21.9%	30.6%	32.2%
Cheliabinsk Elektrolit Zink Plant ($CHZN)	17.7%	15.1%	28.6%	24.8%
Median (13 companies)	14.8%	14.9%	18.0%	13.5%	16.8%
OAO TMK ($TMKS)	22.2%	21.1%	19.5%	20.5%	21.1%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mmc Norilsk Nickel ($MNOD)	38.6%	29.2%	46.8%	47.0%
Base Resources Ltd ($BSE)			-1.8%	37.7%	35.8%
Severstal PJSC ($SVST)	14.9%	19.3%	26.4%	32.4%	31.2%
Magnitogorsk Iron & Steel Works ($MMK)	13.1%	14.0%	19.5%	28.3%	34.5%
Novolipetsk Iron And Steel Corp ($NLMK)	15.6%	13.8%	21.8%	24.3%	25.4%
Median (15 companies)	12.9%	12.1%	12.6%	17.3%	21.9%
OAO TMK ($TMKS)	14.9%	14.4%	13.0%	13.9%	15.2%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
First Quantum Minerals ($FQM)	46.5%	73.2%	81.7%	72.5%	56.0%
Mmc Norilsk Nickel ($MNOD)	22.3%	17.1%	10.8%	19.0%
Cheliabinsk Elektrolit Zink Plant ($CHZN)	7.0%	7.9%	9.9%	8.1%
Novolipetsk Iron And Steel Corp ($NLMK)	12.0%	6.9%	5.4%	7.7%	7.3%
Ezz Steel ($AEZD)	2.3%	3.9%	6.4%	6.8%
Median (15 companies)	7.0%	7.7%	6.4%	6.3%	7.8%
OAO TMK ($TMKS)	6.7%	6.2%	4.9%	5.0%	5.6%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mmc Norilsk Nickel ($MNOD)	21.8%	14.2%	34.1%	31.7%
Severstal PJSC ($SVST)	10.3%	9.6%	17.7%	30.3%	29.7%
Zibao Metals Recycling Hldgs Ltd ($ZBO)	41.7%	56.6%	55.8%	26.6%	0.9%
Cheliabinsk Elektrolit Zink Plant ($CHZN)	6.2%	-2.7%	25.6%	24.4%
Magnitogorsk Iron & Steel Works ($MMK)	1.8%	1.4%	9.1%	18.1%	26.7%
Median (15 companies)	5.4%	4.1%	7.5%	5.6%	4.5%
OAO TMK ($TMKS)	11.2%	9.8%	9.0%	8.1%	7.5%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Vimetco Nv ($VICO)	7.7x		10.9x	14.6x
Ezz Steel ($AEZD)	4.8x	3.6x	19.4x	13.3x
First Quantum Minerals ($FQM)	0.0x	2.5x	4.0x	10.5x	4.5x
Base Resources Ltd ($BSE)				4.4x	3.7x
Posco ($PIDD)	3.3x	3.9x	3.7x	3.6x	3.4x
Median (14 companies)	1.9x	2.0x	0.8x	1.0x	0.3x
OAO TMK ($TMKS)	3.6x	3.9x	3.8x	4.3x	5.2x

OAO TMK stock price chart

OAO TMK financials

mln.	FY2010	FY2011	FY2012

Revenue	5,579	6,754	6,688
EBITDA	900.4	1,020	998.7
Net income	104.3	380.1	276.9
CAPEX	314.1	402.5	445.3
Debt	3,852	3,767	3,860
Cash	157.5	230.6	225.1

About OAO TMK

OAO TMK produces, sells, and exports steel pipes for the oil and gas industry primarily in the Russian Federation, the Americas, and Europe. The company offers seamless and welded oil country tubular products used for drilling, equipping, and operation of oil and gas wells; and seamless and welded line pipes for use in infield pipelines, storage tank farms, loading terminals, and distribution points. It also provides seamless industrial pipes that are used in the chemical, petrochemical, food, and nuclear industries, as well as for the production of steam boilers, bearings, and various machine parts and components; and welded industrial pipes for use in engineering, construction, housing, and utilities sector, as well as for other applications. In addition, the company offers welded large diameter pipe that are used for the construction of oil and gas trunk pipelines, oil field pipelines, general purpose pipelines, and pipelines for heat supply networks and nuclear power stations; and premium connections for use in the drilling, operation, and maintenance of oil and gas wells. Further, it provides oilfield services; and services in heat treating, protective coating, premium connections threading, warehousing, and pipe repairing. The company also serves chemical and petrochemical, energy and machine-building, construction and housing utilities, shipbuilding, aviation and aerospace, and agriculture industries. OAO TMK was founded in 2001 and is based in Moscow, the Russian Federation.