Gross Profit

The following table shows gross profit and gross margin by for twelve-month periods ended 31 December:

  2010 2009 Change
  in millions of U.S. dollars in % in millions of U.S. dollars in % in millions of U.S. dollars
Russia 933 23% 538 20% 395
America 301 23% (13) (2)% 314
Europe 59 23% 31 19% 28
TOTAL GROSS PROFIT 1,293 23% 556 16% 737

In 2010, ТМК’s gross profit increased by 133% or U.S.$737 million as compared to 2009, and amounted to U.S.$1,293 million. Gross margin grew from 16% in 2009 to 23% in 2010. It reflects the growth in sales volumes and prices, high capacity utilisation, improved fixed production costs absorption ratio.

Russia. Gross profit in the Russian division grew 1.7 times in 2010 and reached U.S.$933 million reflecting enhanced production and successful selling activity in the recovering principal pipe markets. The increased share of high-margin large diameter pipe in TMK’s sales had a solid impact on the gross profit.

America. Outstanding sales and production growth in the American division positively affected gross profit through the overall revenue growth, as well as improved production overhead absorption rates resulted from extended and more efficient utilisation of production capacities. However, these positive developments were partially offset by the combined effect of changes in selling prices and product mix as selling prices in the USA started to recover only in the second half of 2010. The combination of all the factors allowed the American division to earn U.S.$301 million of the gross profit in 2010 as compared to U.S.$13 million loss in 2009.

Europe. In 2010, the European division achieved high operating results both in production and sales of pipe products and billets. However a slight increase in the sales share of billets (which generate lower margins than pipes) in the European division sales had a moderate negative impact on the average gross margin.

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