Revenue

Sales Volumes

In 2010, TMK’s sales volumes grew in all reporting segments. The following table shows TMK’s pipe sales volumes by reporting segment for the twelve-month periods ended 31 December:

  2010 2009 Change Change
  in thousand tonnes in %
Russia 2,989 2,297 692 30%
America 804 358 446 125%
Europe 169 114 55 48%
TOTAL PIPES 3,962 2,769 1,193 43%

The strongest sales growth in 2010 derived from large diameter pipes as well as OCTG and line pipes. The table below presents pipe sales volumes by product type for the twelve-month periods ended 31 December:

  2010 2009 Change Change
  in thousand tonnes in %
OCTG 1,478 1,037 441 43%
Line 761 502 259 52%
Large Diameter 700 311 389 125%
Industrial 1,023 919 104 11%
TOTAL PIPES 3,962 2,769 1,193 43%

TMK’s sales volumes reached 3,962 thousand tonnes in 2010 or 43% more than in the same period of the last year. Sales of OCTG (seamless and welded) and large diameter pipe constituted the majority of the total increase in sales volumes in 2010, making a 43% and 125% growth, respectively.

Russia. In 2010, the Russian division achieved a year-on-year 30% increase in sales volumes. It mainly resulted from an increase in pipes supplied to the oil and gas companies as previously postponed projects revived in 2010. TMK’s sales volumes of large diameter pipe grew by 125% in 2010 in comparison with 2009. TMK managed to increase production and supplies of large diameter pipe in 2010 as a result of the successful commissioning of the large diameter mill at Volzhsky in 2008. Sales of OCTG and line pipe in the Russian division in 2010 grew by 10% and 49%, respectively. The PQF mill put into operation at TAGMET contributed to this increase. However growth in OCTG and line pipe sales was partly offset by restricted production capacities and a slowdown in sales resulted from reconstruction of a seamless hot-rolling mill at Volzhsky plant. TMK is a leading pipe producer in the Russian seamless OCTG market accounting for a 60% market share in 2010. Given the on-going competition, sales volumes of industrial pipe, which are not TMK’s first-strategy, were slightly above last-year sales.

America. The American division more than doubled its sales volumes in 2010 in comparison to 2009 — to 804 thousand tonnes. The American division’s share of TMK’s total sales volumes increased from 13% in 2009 to 20% in 2010. The key reasons for the increase in sales were (a) a substantial increase in onshore oil and gas drilling activity in the NAFTA region, (b) growth in unconventional drilling activity, mainly in the shale gas sector, and (c) the introduction of countervailing duties on the importation of Chinese pipes. In the second half of 2009 and in 2010, the U.S. government implemented certain measures against low-cost Chinese pipe products resulting in imposition of countervailing duties which caused a reduction in the import of Chinese OCTG and line pipe. TMK’s sales of seamless and welded OCTG increased by 150% in 2010 as compared to 2009. Based on TMK’s estimates, TMK IPSCO OCTG market share increased from 10% in 2009 to 14% in 2010. Sales volumes of industrial pipe grew by 42% in 2010 as compared to 2009.

Europe. Pipe sales volumes in the European division increased by 48% year-on-year. The majority of the European division sales are in Europe. The growth was derived from the overall recovery of demand in the European automotive and engineering industries in 2010 as compared to 2009. Thus TMK recorded growth in sales volumes of industrial pipe by 74% in 2010 as compared to 2009. The European division’s share of TMK’s total sales volumes was 4% in both 2010 and 2009.

Revenue

Driven largely by the growth in sales volumes, revenue also increased significantly in 2010. The table below presents revenue by reporting segment for the twelve-month periods ended 31 December:

  2010 2009 Change Change
  in millions of U.S. dollars in %
Russia 3,998 2,639 1,359 51%
America 1,324 655 669 102%
Europe 256 167 89 53%
TOTAL REVENUE 5,578 3,461 2,117 61%

Sales growth in the American and Russian markets were the most significant in 2010. The following table presents revenue by geographic region (based on the location of the customer) for the twelve-month periods ended 31 December:

  2010 2009 Change Change
  in millions of U.S. dollars in %
Russia 3,484 2,170 1,314 61%
America 1,435 739 696 94%
Europe 399 272 127 47%
Central Asia and Caspian region 161 134 27 20%
Other regions 99 146 (47) (32)%
TOTAL REVENUE 5,578 3,461 2,117 61%

In 2010, TMK’s revenue from sales of pipe products increased significantly by 64% to U.S.$5,305 million compared to 2009 primarily because of sales volume growth. Revenue from other operations that arise, among others, from sales of billets, rendering of pipe-related services, rent provided and sales of other services, increased by 21% in 2010 as compared to 2009.

Russia. Revenue generated by sales of pipe products in the Russian division increased by 51% in 2010 as compared to 2009 mainly due to increased sales volumes and selling prices for pipe products. The portion of an increase in revenue attributable to changes in sales volumes accounted for U.S.$765 million. Changes in selling prices and product mix contributed U.S.$389 million to total growth in the Russian division revenue. Other revenue grew by U.S.$34 million mainly due to an increase in revenue from pipe-related services rendered, such as protective coating, repair and field services. The effect of translation from the functional to presentation currency11 accounted for a U.S.$171 million increase.

America. In 2010, the American division revenue from sales improved, posting 102% growth as compared to 2009 due to substantially recovered drilling activity in the NAFTA region. Sales volumes accounted for a U.S.$695 million contribution to the increase in sales. The growth was slightly offset by a U.S.$11 million decline due to changes in product mix and a decrease in selling prices. As a result of the global economic downturn, selling prices decreased sharply in the second half of 2009 and only started to recover in the second half of 2010, resulting in lower average selling prices in 2010 as compared to 2009. Other revenue decreased by U.S.$15 million.

Europe. TMK achieved 49% increase in the European division revenue from sales of pipe products in 2010 as compared to 2009 due to demand recovery in the automotive and engineering industry in Europe. The portion attributable to changes in sales volumes accounted for U.S.$65 million growth. Prices for pipe products decreased sharply in the second part of 2009. In 2010, growth in average selling prices for pipe products combined with product mix contributed a U.S.$12 million increase in revenue. Other revenue, which constituted 20% of the division revenue, grew by U.S.$24 million mainly due to growing billets sales. The growth of the European division sales was offset by a U.S.$12 million decrease in the effect of translation from the functional to presentation currency.

11For the purposes of this management’s discussion and analysis the translation effect on revenues/costs and incomes/expenses illustrates an influence of different rates used for translation of such revenues/costs or incomes/ expenses from functional to presentation currency in different reporting periods

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