PAO TMK Unaudited Interim Condensed TMK Unaudited Interim Condensed Consolidated Financial Statements…

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  • PAO TMKUnaudited Interim CondensedConsolidated Financial StatementsThree-month period ended March 31, 2016

  • Ernst & Young LLCSadovnicheskaya Nab., 77, bld. 1Moscow, 115035, RussiaTel: +7 (495) 705 9700

    +7 (495) 755 9700Fax: +7 (495) 755 9701www.ey.com/ru

    , 115035, ., 77, . 1.: +7 (495) 705 9700

    +7 (495) 755 9700: +7 (495) 755 9701: 59002827

    A member firm of Ernst & Young Global Limited

    Report on review of interim condensed consolidated financial statements

    To the Shareholders and Board of Directors PAO TMK

    Introduction

    We have reviewed the accompanying interim consolidated statement of financial position of PAOTMK and its subsidiaries (Group) as of March 31, 2016 and the related interim consolidatedincome statement, interim consolidated statement of comprehensive income, interimconsolidated statement of changes in equity and interim consolidated statement of cash flows forthe three-month period then ended and condensed explanatory notes. Management isresponsible for the preparation and presentation of these interim condensed consolidatedfinancial statements in accordance with IAS 34, Interim Financial Reporting (IAS 34). Ourresponsibility is to express a conclusion on these interim condensed consolidated financialstatements based on our review.

    Scope of review

    We conducted our review in accordance with International Standard on ReviewEngagements 2410, Review of Interim Financial Information Performed by the IndependentAuditor of the Entity. A review of interim financial statements consists of making inquiries,primarily of persons responsible for financial and accounting matters, and applying analytical andother review procedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing and consequently does not enable us toobtain assurance that we would become aware of all significant matters that might be identifiedin an audit. Accordingly, we do not express an audit opinion.

    Conclusion

    Based on our review, nothing has come to our attention that causes us to believe thatthe accompanying interim condensed consolidated financial statements are not prepared, in allmaterial respects, in accordance with IAS 34.

    May 18, 2016

    Moscow, Russia

  • PAO TMK

    Unaudited Interim Condensed Consolidated Financial Statements

    Three-month period ended March 31, 2016

    Contents

    Unaudited Interim Consolidated Income Statement .................................................................... 4Unaudited Interim Consolidated Statement of Comprehensive Income ..................................... 5Unaudited Interim Consolidated Statement of Financial Position .............................................. 6Unaudited Interim Consolidated Statement of Changes in Equity ............................................. 7Unaudited Interim Consolidated Statement of Cash Flows ......................................................... 9

    Notes to the Unaudited Interim Condensed Consolidated Financial Statements ..................... 101) Corporate Information .......................................................................................................... 102) Significant Accounting Policies ............................................................................................ 103) Segment Information ............................................................................................................ 124) Cost of Sales ........................................................................................................................ 145) Selling and Distribution Expenses ........................................................................................ 156) General and Administrative Expenses................................................................................... 157) Research and Development Expenses ................................................................................... 158) Other Operating Income and Expenses ................................................................................. 159) Income Tax .......................................................................................................................... 1610) Acquisition of Subsidiaries ................................................................................................... 1611) Cash and Cash Equivalents ................................................................................................... 1712) Inventories ........................................................................................................................... 1713) Property, Plant and Equipment ............................................................................................. 1814) Goodwill and Other Intangible Assets .................................................................................. 1915) Trade and Other Payables ..................................................................................................... 2016) Provisions and Accruals ....................................................................................................... 2017) Interest-Bearing Loans and Borrowings ................................................................................ 2118) Fair Value of Financial Instruments ...................................................................................... 2119) Related Parties Disclosures ................................................................................................... 2320) Contingencies and Commitments.......................................................................................... 2421) Equity................................................................................................................................... 2622) Subsequent Events ................................................................................................................ 27

  • The accompanying notes are an integral part of these unaudited interimcondensed consolidated financial statements.

    4

    PAO TMK

    Unaudited Interim Consolidated Income Statement

    Three-month period ended March 31, 2016

    (All amounts in thousands of US dollars, unless specified otherwise)

    Three-month period ended March 31,NOTES 2016 2015

    Revenue 3 761,335 1,134,055Cost of sales 4 (607,519) (881,781)Gross profit 153,816 252,274

    Selling and distribution expenses 5 (58,825) (67,758)Advertising and promotion expenses (909) (1,786)General and administrative expenses 6 (48,185) (53,066)Research and development expenses 7 (3,255) (4,052)Other operating income/(expenses) 8 (6,692) (3,602)Operating profit 35,950 122,010

    Foreign exchange gain/(loss), net 49,420 (23,604)Finance costs (63,762) (66,449)Finance income 3,239 3,856Gain/(loss) on changes in fair value of derivative financial

    instruments 18 (17,585) Share of profit/(loss) of assoiates (63) 34Profit/(loss) before tax 7,199 35,847

    Income tax benefit/(expense) 9 6,992 (6,072)Profit/(loss) for the period 14,191 29,775

    Attributable to:Equity holders of the parent entity 15,412 30,104Non-controlling interests (1,221) (329)

    14,191 29,775

    Earnings/(loss) per share attributable to the equity holders ofthe parent entity, basic and diluted (in US dollars) 0.02 0.03

  • The accompanying notes are an integral part of these unaudited interimcondensed consolidated financial statements.

    5

    PAO TMK

    Unaudited Interim Consolidated Statement of Comprehensive Income

    Three-month period ended March 31, 2016

    (All amounts in thousands of US dollars)

    Three-month period ended March 31,NOTES 2016 2015

    Profit/(loss) for the period 14,191 29,775

    Items that may be reclassified subsequently to profit or loss:Exchange differences on translation to presentation currency (a) 17,220 (34,692)

    Foreign currency gain/(loss) on hedged net investment in foreignoperations (b) 21 (iii) 37,166 (34,787)

    Income tax (b) 21 (iii) (7,433) 6,95729,733 (27,830)

    Movement on cash flow hedges (a) 21 (iv) 27 (342)Income tax (a) 21 (iv) (10) 71

    17 (271)

    Other comprehensive income/(loss) for the period, net of tax 46,970 (62,793)Total comprehensive income/(loss) for the period, net of tax 61,161 (33,018)

    Attributable to:Equity holders of the parent entity 59,971 (30,513)Non-controlling interests 1,190 (2,505)

    61,161 (33,018)

    (a) Other comprehensive income/(loss) for the period, net of income tax, was attributable to equity holders of the parent entityand to non-controlling interests as presented in the table below:

    Three-month period ended March 31,2016 2015

    Exchange differences on translation to presentation currencyattributable to:

    Equity holders of the parent entity 14,809 (32,516)Non-controlling interests 2,411 (2,176)

    17,220 (34,692)Movement on cash flow hedges attributable to:Equity holders of the parent entity 17 (271)

    17 (271)

    (b) The amount of foreign currency gain/(loss) on hedged net investment in foreign operation, net of income tax, was attributableto equity holders of the parent entity.

  • The accompanying notes are an integral part of these unaudited interimcondensed consolidated financial statements.

    6

    PAO TMK

    Unaudited Interim Consolidated Statement of Financial Position

    as at March 31, 2016

    (All amounts in thousands of US dollars)

    NOTES March 31, 2016 December 31, 2015ASSETSCurrent assets

    Cash and cash equivalents 11 213,201 305,205Trade and other receivables 593,549 511,720Inventories 12 764,028 784,552Prepayments and input VAT 121,225 97,090Prepaid income taxes 15,667 15,915Other financial assets 179 1,707,849 172 1,714,654

    Non-current assetsInvestments in associates 1,044 1,033Property, plant and equipment 13 2,217,153 2,121,542Goodwill 14 87,517 83,189Intangible assets 14 273,278 277,821Deferred tax asset 182,277 185,497Other non-current assets 33,272 2,794,541 27,907 2,696,989

    TOTAL ASSETS 4,502,390 4,411,643

    LIABILITIES AND EQUITYCurrent liabilities

    Trade and other payables 15 578,977 541,949Advances from customers 101,176 139,720Provisions and accruals 16 28,112 32,314Interest-bearing loans and borrowings 17 592,180 591,262Finance lease liability 8,122 8,558Income tax payable 5,218 8,580Other liabilities 86 1,313,871 122 1,322,505

    Non-current liabilitiesInterest-bearing loans and borrowings 17 2,200,066 2,163,454Finance lease liability 37,516 37,914Deferred tax liability 92,673 109,564Provisions and accruals 16 24,088 20,694Employee benefits liability 19,190 17,665Other liabilities 39,384 2,412,917 25,205 2,374,496

    Total liabilities 3,726,788 3,697,001

    Equity 21Parent shareholders equity

    Issued capital 336,448 336,448Treasury shares (592) (592)Additional paid-in capital 257,352 257,222Reserve capital 16,390 16,390Retained earnings 1,118,891 1,103,479Foreign currency translation reserve (1,017,550) (1,062,092)Other reserves 10,859 721,798 10,842 661,697

    Non-controlling interests 53,804 52,945Total equity 775,602 714,642TOTAL LIABILITIES AND EQUITY 4,502,390 4,411,643

  • The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.7

    PAO TMK

    Unaudited Interim Consolidated Statement of Changes in Equity

    Three-month period ended March 31, 2016

    (All amounts in thousands of US dollars)

    Attributable to equity holders of the parent Non-

    controllinginterests

    TOTALIssuedcapital

    Treasuryshares

    Additionalpaid-incapital

    Reservecapital

    Retainedearnings

    Foreigncurrency

    translationreserve

    Otherreserves Total

    At January 1, 2016 336,448 (592) 257,222 16,390 1,103,479 (1,062,092) 10,842 661,697 52,945 714,642

    Profit/(loss) for the period 15,412 15,412 (1,221) 14,191Other comprehensive income/(loss)

    for the period, net of tax 44,542 17 44,559 2,411 46,970Total comprehensive income/(loss)

    for the period, net of tax 15,412 44,542 17 59,971 1,190 61,161

    Acquisition of non-controlling interests insubsidiaries (Note 21 v) 130 130 (331) (201)

    At March 31, 2016 336,448 (592) 257,352 16,390 1,118,891 (1,017,550) 10,859 721,798 53,804 775,602

  • The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.8

    PAO TMK

    Unaudited Interim Consolidated Statement of Changes in Equity

    Three-month period ended March 31, 2016 (continued)

    (All amounts in thousands of US dollars)

    Attributable to equity holders of the parent Non-

    controllinginterests

    TOTALIssuedcapital

    Treasuryshares

    Additionalpaid-incapital

    Reservecapital

    Retainedearnings

    Foreigncurrency

    translationreserve

    Otherreserves Total

    At January 1, 2015 336,448 (319,149) 485,756 16,390 1,495,465 (820,254) 9,968 1,204,624 66,236 1,270,860

    Profit/(loss) for the period 30,104 30,104 (329) 29,775Other comprehensive income/(loss)

    for the period, net of tax (60,346) (271) (60,617) (2,176) (62,793)Total comprehensive income/(loss)

    for the period, net of tax 30,104 (60,346) (271) (30,513) (2,505) (33,018)

    Contributions from non-controllinginterest owners 1,250 1,250

    Recognition of the change in non-controlling interests in the subsidiary asan equity transaction 237 237 (237)

    At March 31, 2015 336,448 (319,149) 485,993 16,390 1,525,569 (880,600) 9,697 1,174,348 64,744 1,239,092

  • The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

    9

    PAO TMK

    Unaudited Interim Consolidated Statement of Cash Flows

    Three-month period ended March 31, 2016

    (All amounts in thousands of US dollars)

    Three-month period ended March 31,NOTES 2016 2015

    Operating activitiesProfit/(loss) before tax 7,199 35,847

    Adjustments to reconcile profit/(loss) before tax to operatingcash flows:

    Depreciation of property, plant and equipment 46,794 50,196Amortisation of intangible assets 14 7,349 8,198(Gain)/loss on disposal of property, plant and equipment 8 1,873 557Foreign exchange (gain)/loss, net (49,420) 23,604Finance costs 63,762 66,449Finance income (3,239) (3,856)(Gain)/loss on changes in fair value of derivative financial

    instruments 18 17,585 Share of (profit)/loss of assoiates 63 (34)Allowance for net realisable value of inventory 20,267 (107)Allowance for doubtful debts 3,520 826Movement in provisions (2,683) (13,083)Operating cash flows before working capital changes 113,070 168,597

    Working capital changes:Decrease/(increase) in inventories 39,976 5,956Decrease/(increase) in trade and other receivables (32,500) (6,349)Decrease/(increase) in prepayments (16,770) 11,979Increase/(decrease) in trade and other payables (2,000) (46,262)Increase/(decrease) in advances from customers (44,751) (23,856)Cash generated from operations 57,025 110,065

    Income taxes paid (10,919) (14,358)Net cash flows from operating activities 46,106 95,707

    Investing activitiesPurchase of property, plant and equipment and intangible assets (23,785) (38,887)Proceeds from sale of property, plant and equipment 193 270Acquisition of subsidiaries 670Issuance of loans (15,303) (40)Proceeds from repayment of loans issued 193 300Interest received 2,676 1,880Net cash flows used in investing activities (36,026) (35,807)

    Financing activitiesProceeds from borrowi...

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