Investor Presentaiton
Finance costs, net
Management's Discussion and Analysis
Nine months ended September 30, 2011
Finance costs decreased 19%, or U.S.$56 million, in the first nine months of
2011 compared to the corresponding period of 2010. In 2010, we negotiated
lower interest rates for the existing loans with major creditors and attracted
lower interest rate loans to refinance the existing debt. Consequently, the
weighted average nominal interest rate declined gradually to 7.02% as of
September 30, 2011 compared to 8.57% as of September 30, 2010. A
decline in the amount of unamortised debt issue costs absorbed in the
income statement in the first nine months of 2011 also decreased our
finance costs.
Finance income increased 74% to U.S.$25 million in the first nine months
of 2011, primarily due to the growing dividend income.
As a result, net finance costs decreased U.S.$66 million, or 24%, in the first
nine months of 2011 compared to the corresponding period of 2010.
Income tax
TMK, as a global company with production facilities and trading companies
geographically diversified and located in Russia and the CIS, the United
States, and Europe, is exposed to taxes charged to businesses in those
countries. In both the first nine months of 2011 and 2010, the following
corporate income tax rates were in force in the countries where most of our
production plants are located: 20% in Russia, 35% (federal tax rate) in the
United States, 16% in Romania.
In the first nine months of 2011, a pre-tax income of U.S.$398 million was
reported as compared to U.S.$158 million in the corresponding period of
2010. As a result, in the first nine months of 2011 an income tax expense of
U.S.$120 million was recognised compared to U.S.$56 million in the first
nine months of 2010. Our effective income tax rate declined from 35% to
30%, which is now closer to a normal level of income tax rate of the Group
considering the fiscal residence structure of the Group's assets. The
effective income tax rate declined due to, first, the growth in the pre-tax
income, second, lower level of non-deductible expenses, and, third, a
decreased share of the pre-tax income of the U.S. entities.
Net income
As a result of the above-mentioned factors, net income in the amount of
U.S.$279 million was recognised in the first nine months of 2011 as
compared to U.S.$102 million in the corresponding period of 2010. Net
income adjusted to the gain on changes in the fair value of the derivative
financial instrument amounts to U.S.$235 million. (See "Gain on changes
in fair value of derivative financial instrument" for reasons of using such
non-IFRS measure.) Adjusted net income margin¹ increased to 5% in the
first nine months of 2011 from 2% in the corresponding period of 2010.
Adjusted EBITDA
Adjusted EBITDA margin slightly decreased from 17% in the first nine
months of 2010 to 16% in the nine months of 2011. The following table
represents information about Adjusted EBITDA by reporting segments:
1
Russia
America
Europe
TOTAL ADJUSTED
EBITDA
Nine-month period ended
30 September
2011
2010
Change
Change
in millions of U.S. dollars
572
439
in millions of U.S. dollars
134
in %
30%
201
192
9
5%
53
18
35
192%
827
649
177
27%
Adjusted net profit margin is calculated as a quotient of Net Income adjusted for gain on changes in fair value of
derivative instrument divided by Revenue.
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