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Investor Presentaiton

Management's Discussion and Analysis Nine months ended September 30, 2011 An increase in prices for energy and utilities consumed in the pipe and steel production process resulted in the energy costs growth of U.S.$22 million in the first nine months of 2011 compared to the corresponding period of 2010. In the first nine months of 2011 compared to the corresponding period of 2010, on average, the electricity and natural gas tariffs in the Russian division increased 14% and 15%, respectively. In the American division, the average electricity tariff increased marginally and the average natural gas tariff decreased 7% due to the regressive tariffs system. The average electricity and natural gas tariffs in the European division were up 37% and 13%, respectively. The effect of translation from the functional to the presentation currency accounted for a U.S.$14 million increase in energy costs. Depreciation Depreciation expenses increased U.S.$34 million in the first nine months of 2011 compared to the corresponding period of 2010. The effect of translation from the functional to the presentation currency accounted for a U.S.$9 million increase. The principal share of the remaining growth relates to the reduction of the estimated useful lives of some open-hearth furnaces, pilger mill and 2520 welded pipe mill in the Russian division due to the planned replacement of this equipment with the new one before the end of the initially assessed useful lives. Other costs Other costs include repair and maintenance, contracted manufacture, transportation among production sites, taxes and other expenses. Growth of other expenses was consistent with the operating activity dynamics. The effect of translation from the functional to the presentation currency accounted for a U.S.$8 million increase. Change in finished goods and work in progress The gradual growth of finished goods and work in progress balances for the first nine months of 2011 and 2010 reflects growing prices for raw materials and tubular products as well as the increased stock driven by the growth of sales volumes. Gross profit The following table shows gross profit and gross margin by reporting segment for the periods presented below: Nine-month period ended 30 September 2011 2010 Change in millions of in millions of in % in % U.S. dollars U.S. dollars in millions of U.S. dollars 802 21.7% 656 23.6% 146 233 20.2% 215 22.0% 18 80 27.0% GROSS PROFIT 1,115 21.6% 41 913 23.7% 39 23.2% 202 Russia America Europe In the first nine months of 2011, gross profit increased 22% or U.S.$202 million as compared to the first nine months of 2010, and amounted to U.S.$1,115 million. The gross margin decreased to 21.6% in the first nine months of 2011. Russia. The gross margin in the Russian division declined from 23.6% in the first nine months of 2010 to 21.7% in the first nine months of 2011, reflecting lower gross margin of large-diameter welded pipe, in particular, as a result of completion of some higher-margin projects. The projects included long-distance delivery terms which resulted in higher selling prices and additional selling and distribution expenses. However the decrease in 11
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