Investor Presentaiton
Management's Discussion and Analysis
Nine months ended September 30, 2011
large-diameter welded pipe gross margin was partially offset by the
growth in gross margin of seamless OCTG and line pipe.
The increase in gross profit was mainly attributable to the growth in selling
prices for seamless pipe that outpaced the growth in the average cost per
tonne, that together with changes in the product mix contributed U.S.$138
million. However gross profit per tonne of welded pipe, which was lower in
the first nine months of 2011, and the effect of changes in the product mix
resulted in a U.S.$90 million decrease in gross profit.
Gross profit growth attributable to higher sales volumes of seamless and
welded pipe amounted to U.S.$46 million and U.S.$34 million,
respectively.
Gross profit from other operations declined U.S.$21 million. The effect of
translation from the functional to the presentation currency resulted in a
U.S.$40 million growth in the gross profit of the Russian division.
America. Gross profit in the American division grew 8%, or U.S.$18
million, in the first nine months of 2011 as compared to the corresponding
period of 2010 as a result of rising prices and sales volumes of pipe
products. A decrease in the gross margin of welded pipe sales, partly offset
by an increase in the gross margin of seamless pipe sales, resulted in a
decrease in the division's gross margin from 22.0% in the first nine months
of 2010 to 20.2% in the first nine months of 2011.
Increased selling prices for tubular products and changes in the product mix
contributed U.S.$43 million to the growth of seamless pipe gross profit.
Gross profit on sales of welded pipe decreased U.S.$6 million in the first
nine months of 2011 as compared to the corresponding period of 2010,
reflecting increased prices for our principal raw materials that were not
outpaced by the growth in selling prices for our pipe products, as well as a
lower share of high-margin welded OCTG pipe in the division's sales.
In the first nine months of 2011, higher sales volumes of seamless and
welded pipe resulted in a U.S.$8 million and U.S.$4 million growth of the
division's gross profit, respectively.
However the division's gross profit from other operations declined U.S.$31
million, as threading capacities were intensively used for pipes
manufactured by TMK production subsidiaries, including plants located in
Russia and Romania. As a result, sales of own-produced pipe with ULTRA
premium connection increased, and revenue from pipe threading services to
external customers declined.
Europe. In the first nine months of 2011, gross margin in the European
division was 27.0% compared to 23.7% in the first nine months of 2010,
reflecting a favorable market situation, and, in particular, an increased share
of high-margin orders related to industrial heat-treated alloy pipe. An
increase in gross profit per tonne of seamless pipe sold and higher sales
volumes accounted for a U.S.$29 million and U.S.$3 million increase,
respectively, in the division's total gross profit. Gross profit of steel billets
was up U.S.$3 million. The effect of translation from the functional to the
presentation currency resulted in a U.S.$5 million growth in gross profit.
The following table represents our gross profit by group of products for the
periods presented below:
Seamless pipe
Welded pipe
Nine-month period ended
30 September
2011
2010
in millions of
in %
U.S. dollars
in millions of
U.S. dollars
in %
Change
in millions of
U.S. dollars
816
27.7%
516
24.2%
300
289
14.7%
336
21.0%
(47)
GROSS PROFIT - PIPES
Other operations
1,106
22.5%
853
22.8%
253
9
3.9%
60
30.1%
(51)
TOTAL GROSS PROFIT
1,115
21.6%
913
23.2%
202
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