Gross profit

The following table shows gross profit and gross margin by reporting segment for the periods presented:

  Year ended December 31  
  2011   2010   Change
  in millions of U.S. dollars in % in millions of U.S. dollars in % in millions of U.S. dollars
Russia 1,036 22% 932 23% 104
America 311 20% 302 23% 9
Europe 100 27% 59 23% 40
GROSS PROFIT 1,446 21% 1,293 23% 153

In 2011, gross profit increased 12% or $153 million as compared to 2010 and amounted to $1,446 million. The gross margin decreased to 21% in 2011.

Russia. The gross margin in the Russian division declined from 23% in 2010 to 22% in 2011, reflecting a lower gross margin contribution from large-diameter welded pipe as a result of completion of certain highermargin projects. The projects included long-distance delivery terms which resulted in higher selling prices and additional selling and distribution expenses. However, the decrease in the gross margin of large-diameter welded pipe was partially offset by the growth in the gross margin of seamless OCTG and seamless 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; together with changes in product mix this contributed $161 million. However the lower gross profit per tonne of welded pipe resulted in a $123 million decrease in gross profit.

An increase in sales volumes accounted for a $58 million growth in the gross profit of seamless pipe. The gross profit of welded pipe, however, declined $18 million as a result of an unfav orable volume effect.

Gross profit from other operations declined $8 million. The effect of translation from the functional to the presentation currency resulted in a $34 million growth in the gross profit of the Russian division.

America. Gross profit in the American division grew 3% or $9 million in 2011 as compared to 2010. A decrease in the gross margin of both welded and seamless pipe sales caused the division’s gross margin to fall from 23% in 2010 to 20% in 2011.

An increase in sales volumes contributed $19 million and $9 million to the gross profit of seamless and welded pipe, respectively.

In 2011, the higher gross profit per tonne of seamless pipe resulted in a $23 million growth of the division’s gross profit. However, the difficulties in recovering the significant increase in coil costs adversely influenced gross profit on sales of welded pipe and resulted in a $10 million decrease. This was driven by the serious impact of Korean imports, which deflated market pricing on welded carbon casing pipe, and a lower share of welded OCTG in total sales volumes of welded pipe.

The division’s gross profit from other operations declined $32 million mainly due to less threading services rendered and changes in the product mix. Product mix of premium connections applied to customer-owned pipe worsened as a result of lower volumes of the more profitable premium connections for pipe used in shale plays offset by increased volumes of less profitable premium connections for pipe used in oil basins.

Europe. In 2011, gross margin in the European division was 27% as compared to 23% in 2010, reflecting the 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 and higher sales volumes accounted for a $31 million and $3 million increase, respectively, in the division’s total gross profit. Gross profit of steel billets was up $2 million. The effect of translation from the functional to the presentation currency resulted in a $4 million growth in gross profit.

The following table represents our gross profit by group of products for the periods presented:

  Year ended December 31  
  2011 2010 Change
  in millions of U.S. dollars in % in millions of U.S. dollars in % in millions of U.S. dollars
Seamless pipe 1,074 28% 752 26% 322
Welded pipe 344 14% 477 20% (133)
GROSS PROFIT — PIPE 1,418 22% 1,229 23% 189
Other operations 29 9% 65 24% (36)
TOTAL GROSS PROFIT 1,446 21% 1,293 23% 153

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