Investor Presentaiton
Management's Discussion and Analysis
Nine months ended September 30, 2011
Russia. In the first nine months of 2011, Adjusted EBITDA increased 30%
or U.S.$134 million. Higher pace of cost growth as compared to that of the
revenue growth was partially compensated by the decrease in share of
selling, general and administrative expenses in revenue. As a result, the
Adjusted EBITDA margin decreased from 16% to 15%.
America. Adjusted EBITDA grew 5% or U.S.$9 million in the nine months
of 2011. Adjusted EBITDA margin decreased from 20% to 18% following a
decline in gross profit margin from 22% to 20%.
Europe. The growth of Adjusted EBITDA margin from 10% to 18% mostly
resulted from an increased share of certain high-margin orders related to
industrial heat-treated alloy pipe in the division's sales.
Liquidity and capital resources
Cash flows
The following table illustrates total cash flows for the periods presented
below:
Net cash provided by operating activities
Nine-month period ended
30 September
36%
2011
2010
Change
Change
in millions of U.S. dollars
in millions of U.S. dollars
in %
580
270
310
115%
Net cash used in investing activities
(294)
(216)
(78)
Net cash used in financing activities
(294)
(159)
(135)
85%
Decrease in cash and cash equivalents
(8)
(105)
98
(93)%
Effect of exchange rate changes
4
(3)
7
233%
Cash and cash equivalents at the beginning
of year
158
244
(86)
(35)%
Cash and cash equivalents at period end
153
136
17
13%
Operating activities
Compared to the first nine months of 2010, a cash inflow provided by
operating activities grew 115% to U.S.$580 million in the first nine months
of 2011.
Net cash provided by operating activities before changes in working capital
increased from U.S.$649 million in the first nine months of 2010 to
U.S.$827 million in the corresponding period of 2011. The increase was
mainly attributable to a pre-tax income of U.S.$398 million in the first nine
months of 2011 as compared to U.S.$158 million in the first nine months of
2010. Cash flows in the amount of U.S.$162 million were used to finance
working capital as compared to U.S.$370 million in the corresponding
period of 2010. Working capital increased in both periods in response to
growing production and sales activities.
Investing activities
In the first nine months of 2011, net cash used in investing activities
equalled to U.S.$294 million, or 36% higher than in the corresponding
period of 2010. In the first nine months of 2011, significant payments
related to certain capital expenditure projects were made, particularly, the
construction of the electric arc furnace at Tagmet and the modernisation of
our seamless pipe production line with the new FQM mill at STZ.
Financing activities
In the first nine months of 2011, net cash used in financing activities
amounted to U.S.$294 million as compared to U.S.$159 million in the first
nine months of 2010.
The increase was largely due to net cash repayment of debt (U.S.$37
million) compared to net cash obtained to finance our capital requirements
(U.S.$115 million) in the first nine months of 2010. We spent U.S.$229
million on interest payment, or 16% less compared to the corresponding
period of 2010 as a result of lower interest rates negotiated with our
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