TMK, the country’s largest producer of steel pipes for the energy sector, swung to a first half net loss of $204 million and said Friday that while domestic demand would recover this year, U.S. sales would not.
The company’s auditors said there were doubts about TMK’s ability to “continue as a going concern” after it posted the loss and current liabilities exceeded assets by nearly $1 billion.
“Uncertainty and instability” in global markets have hurt the company in “all of its operating segments,” auditors Ernst & Young said in TMK’s first half results. TMK said it has a “realistic plan of action” to handle the situation.
Company spokesman Alexei Sotskov referred to a section of the report where the auditors said “the management has a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future” as well as a “realistic plan of action.”
But TMK, which became a major player in the U.S. market with the $1.25 billion purchase of IPSCO’s assets there last year, doesn’t expect the investments to bear fruit until next year.
“As long as such a high level of inventories remain on the ground and gas prices remain depressed, we don’t expect to see a significant demand recovery before the second quarter of 2010,” the company said.
The pipe maker, controlled by Dmitry Pumpyansky, also said adjusted earnings before interest, taxation, depreciation and amortization totaled $113 million in the first half, compared with $408 million a year earlier, and were below the $124 million forecast in a Reuters poll of analysts. But the net loss beat estimates, as analysts had predicted a $227 million deficit.
New orders at steel pipe makers dried up after oil prices plummeted from sky-high levels near $150, forcing global energy majors to postpone most new projects.
First half sales totaled $1.48 billion, down 38 percent from $2.37 billion a year ago. Net debt at the end of the first half was $3.56 billion, up 16 percent from the end of 2008.
The company did not provide any financial guidance, but it scheduled a conference call for Monday.
TMK’s first half sales in the domestic market, which accounted for 68 percent of revenues, declined to $814 million from $1.06 billion last year. In addition, the situation is improving in TMK’s core market, where sales of oil and gas as well as other pipes are expected to show a “visible recovery” in the second half of 2009.
TMK’s aggressive expansion into the U.S. market did not pay any dividends in the first half, where average selling prices slumped 20 percent from the July-December period last year.
Revenues amounted to $286.5 million, but TMK did not publish a year-earlier comparative figure.
The IPSCO acquisition was partly responsible for TMK’s sizeable debt burden, but it has increased the share of its long-term debt to 46 percent as of June 30, compared with 31 percent at the end of 2008.(Reuters, Bloomberg)
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