Overview of TMK’s Business

In 2010, TMK retained its leading market position among the world’s largest steel pipe manufacturers. The combination of global demand growth and TMK’s solid production base built in the previous years has allowed the Company to recover from the recent downfall in the economy. TMK is one of the principal suppliers of OCTG and line pipe to the oil and gas industry in Russia and the CIS and is seeking to become a leading supplier of these pipe products in the United States and globally.

In 2010, TMK sold 3,962 thousand tonnes of pipe products, including 2,119 thousand tonnes of seamless pipes. The Company’s sales volumes increased by 43% year-on-year as demand from principal end-markets was restored. Continuing market recovery after the recent financial and economic crisis resulted in worldwide growth of oil and gas exploration and production expenditure in 2010. Demand for seamless and welded pipe from oil and gas producers recovered substantially. Seamless and welded OCTG volumes grew from 1,037 thousand tonnes in 2009 to 1,478 thousand tonnes in 2010. With this growth in the pipe market, TMK’s share by sales volume (based on its own estimates) in the worldwide market for seamless pipe increased from 5% in 2009 to 6% in 2010. Seamless OCTG, the high margin products, comprised a 12% worldwide market share by sales volume in 2010 compared to 10% in 2009.

Work was recommenced on several large-scale pipeline construction projects in Russia in 2010 which brought a considerable growth in demand for large diameter pipe. The Company’s enhanced capacity, derived from the commissioning of a longitudinal large diameter pipe mill at Volzhsky plant in late 2008, allowed TMK to meet demand recovery. Thus TMK’s sales of large diameter pipe tripled in 2010.

TMK’s production facilities are geographically diversified with locations in Russia, the CIS, the USA and Eastern Europe. TMK’s sales outside Russia represented 37% and 33% of total sales volumes in 2010 and 2009, respectively. Sales of Russian produced pipes outside Russia constituted 12% and 16% of total sales volumes in 2010 and 2009, respectively.

As a result of growing demand in all pipe products markets, TMK’s total consolidated revenue increased by 61% and amounted to U.S.$5,578 million as compared to total consolidated revenue of U.S.$3,461 million in 2009. Adjusted EBITDA4 almost tripled from U.S.$328 million in 2009 to U.S.$942 million in 2010 due to increased sales volumes and better capacity utilisation. Adjusted EBITDA margin improved from 9% in 2009 to 17% in 2010.

4 See “Selected financial data” for calculation methodology.

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