Blow it while it's hot

The situation allowed TMK to achieve good results

The Pipe Metallurgical Company, which went public last year, did not disappoint its investors. Net profit for the year was the highest in the company's history, increasing by 81.2% compared to the previous year, to $460.6 million, which was officially announced yesterday. Dividends will also increase: the company’s management is ready to allocate 30% of net profit for this, and not 25%, as TMK’s policy provides. Thus, shareholders can receive 138 million dollars, of which almost 97 million will go to the main shareholder of the company - Dmitry Pumpyansky , who controls 77% of TMK shares (the remaining 23% are in free float).

Deputy General Director for Strategy and Development Vladimir Shmatovich spoke about the company’s financial success last year during a telephone conference. He said that the main factors for the growth in profits were the very favorable market conditions in the sector, an increase in demand for pipes, mainly from the oil and gas complex, the expansion of the company’s field of activity (including the acquisition last year of two plants in Romania), an increase in total volume production of products with higher added value.

However, he noted that financial indicators were more influenced by rising product prices than by an increase in production volumes. “Changing the structure and increasing sales efficiency allowed us to increase EBITDA (pre-tax profit) by almost 1.5 times,” states Mr. Shmatovich. He admitted that the physical volume of sales is growing “not as quickly as we would like, since capacities are almost fully utilized due to the good conditions in the oil and gas industry.”

At the end of last year, pipe production increased by 3.2%, to 3.018 million tons, sales - by 1.9%, to 2.997 million tons. At the same time, TMK’s sales revenue last year increased by 15.2%, to 3.385 billion dollars, EBITDA - by 49.2%, to 794 million dollars. The main costs, which account for 71% of the cost of pipe production, according to Mr. Shmatovich, remain the costs of raw materials.

In the future, the company expects to increase the share of income from the sale of its products abroad and intends to take part in the supply of large-diameter pipes to consumers in Southeast Asia and the Caspian region.

This year, the company expects to improve its results and increase revenue to $4 billion, and EBITDA to $1 billion. “The way we performed in the first quarter and continue to perform in the second suggests that this milestone is quite achievable,” says Mr. Shmatovich. The company expects to increase pipe production this year compared to 2006 by 8-10%. But it intends to develop and grow not only at the expense of internal resources. “We are looking at opportunities for inorganic growth,” said Mr. Shmatovich, confirming the fact of negotiations with the Ukrainian group Interpipe about the possibility of a merger. At the same time, he emphasized that the negotiations are “in the initial stage; it is not yet possible to talk about the configuration of the transaction, the fact or even the likelihood of it.”

Anna LANDER