Selected financial data

Adjusted EBITDA

Reconciliation of income before tax to Adjusted EBITDA for the twelve months ended:

  December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2010
  in millions of U.S. dollars
Income before tax 544 425 443 318 185
Depreciation and amortisation 336 333 321 312 301
Finance costs, net 271 346 366 376 412
(Reversal of impairment)/Impairment of assets (68) 3 3 - -
(Gain)/loss on changes in fair value of derivative financial instrument (45) (22) 29 (18) 12
Foreign exchange loss/(gain), net 1 11 (29) 10 (10)
(Gain)/Loss on disposal of property, plant and equipment (17) (16) (15) 9 10
Movement in allowances and provisions 28 39 35 24 32
Other non-cash items - - - - -
Adjusted EBITDA 1,050 1,119 1,153 1,031 942

Adjusted EBITDA is not a measurement of our operating performance under IFRS and should not be considered as an alternative to gross profit, net profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of our liquidity. In particular, Adjusted EBITDA should not be considered to be a measure of discretionary cash available to invest in our growth. Adjusted EBITDA has limitations as analytical tool, and potential investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under IFRS. Some of these limitations include:

  • Adjusted EBITDA does not reflect the impact of financing or finance costs on our operating performance, which can be significant and could further increase if we were to incur more debt;
  • Adjusted EBITDA does not reflect the impact of income taxes on our operating performance;
  • Adjusted EBITDA does not reflect the impact of depreciation and amortisation on our operating performance. The assets which are being depreciated and/ or amortised will have to be replaced in the future and such depreciation and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from Adjusted EBITDA, it does not reflect our future cash requirements for these replacements; and
  • Adjusted EBITDA does not reflect the impact of other non-cash items on our operating performance, such as foreign exchange (gain)/loss, impairment/(reversal of impairment) of non-current assets, movements in adallowances and provisions, (gain)/loss on disposal of property, plant and equipment, (gain)/loss on changes in fair value of financial instruments, share of (profit)/ loss of associate and other non-cash items. Other companies in the pipe industry may calculate Adjusted EBITDA differently or may use it for other purposes, limiting its usefulness as comparative measure.

We compensate for these limitations by relying primarily on its IFRS operating results and using Adjusted EBITDA only supplementally.

Net Debt

Net debt has been calculated as of the dates indicated:

  December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011 December 31, 2010
  in millions of U.S. dollars
Short-term loans and borrowings 599 446 539 520 702
Long-term loans and borrowings 3,188 3,323 3,478 3,509 3,170
TOTAL DEBT 3,787 3,769 4,017 4,029 3,872
Net of:
Cash and short-term financial investments (235) (157) (174) (176) (161)
NET DEBT 3,552 3,612 3,843 3,853 3,711

Net Debt is not a measure under IFRS, and it should not be considered to be an alternative to other measures of financial position. Other companies in the pipe industry may calculate Net Debt differently and therefore comparability may be limited. Net Debt is a measure of our operating performance that is not required by, or presented in accordance with, IFRS. Although Net Debt is a non IFRS measure, it is widely used to assess liquidity and the adequacy of a company’s financial structure. We believe Net Debt provides an accurate indicator of our ability to meet our financial obligations, represented by gross debt, from available cash. Net Debt demonstrates investors the trend in our net financial position over the periods presented. However, the use of Net Debt assumes that gross debt can be reduced by cash. In fact, it is unlikely that all available cash will be used to reduce gross debt all at once, as cash must also be available to pay employees, suppliers and taxes, and to meet other operating needs and capital expenditure requirements. Net Debt and its ratio to equity, or leverage, are used to evaluate our financial structure in terms of sufficiency and cost of capital, level of debt, debt rating and funding cost.

These measures also make it possible to evaluate if our financial structure is adequate to achieve our business and financial targets. Our management monitors the net debt and leverage or similar measures as reported by other companies in Russia or abroad in order to assess our liquidity and financial structure relative to such companies. Our management also monitors the trends in our Net Debt and leverage in order to optimise the use of internally generated funds versus borrowed funds.

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