Page 1

October 2011

SCM PROFITS ANNOUNCED

w w w. s c m . c o m . u a

NEWS

SCM Profits Approach $1.3bn The SCM Group has announced that consolidated profit before taxes reached nearly $1.3bn in 2010. The SCM Group Consolidated Fact file 2010 4Assets – $22.788bn 4Gross income – $12.819bn 4Profit before taxes – $1.299bn 4Income tax – $0.449bn 4Capital investments made – $1.119bn

Oleg Popov, the CEO of SCM, said the figures illustrate

the group’s overall success in weathering the global economic downturn. The data is prepared in line with IFRS and audited by PricewaterhouseCoopers. It is the seventh successive year that the Group’s financial affairs have been met this international standard and been ratified by an international consultancy. Mr Popov said, “The increase in our key indicators was driven primarily by two factors. First, 2010 marked the year of recovery of SCM

market positions after the recession in the global and Ukrainian steel markets. Second, Ilyich Steel Plant joined the SCM Group in the reporting year.” In 2011, he said, the priorities of the SCM, the biggest Ukrainian financial and industrial group, will remain unchanged. “We will channel the profit into modernisation and organic development of the Group’s assets. Health and safety at work, environmental protection and employee

4Oleg Popov, CEO of SCM development have been and will be among SCM’s main priorities,” added Mr Popov.

The Metinvest Group has successfully completed its consolidation with Ilyich Steel Plant. As a result, Ilyich Steel Plant joined the Metinvest Group, and Clarendale Limited, with Vladimir Boyko being the main beneficiary, became one of the group’s shareholders. Following the additional issue 71.25% of Metinvest B.V. (Metinvest Group’s holding company) is owned by SCM, 23.75% - by SMART and 5% - by Clarendale Limited. Also, the parties agreed a five-year investment pro-

gramme for Ilyich Steel Plant worth over $3bn. Metinvest says the investment will serve to “reconstruct enterprises and modernise production.” It will also enable the Group to switch to converter steel production, increase annual steel output to 9m tonnes and introduce more modern health and safety systems. The Ilyich Steel Plant is one of Ukraine’s largest companies, producing steel plates for the shipbuilding industry as well as oil, gas and water pipes and gas cylinders. It is the only pro-

ducer of zink-plated cold-rolled sheets in Ukraine and supplies its products to over 50 countries. SCM’s shareholder Rinat Akhmetov said, “We have an ambitious goal – we want the salaries at our businesses to be the highest in the world. But to achieve that, we must win the ‘World Cup’ in production costs, the ‘World Cup’ in quality and the ‘World Cup’ in sales. This is our aspiration and our belief.” “Vladimir Boyko is our longterm and reliable strategic partner. We are confident that

his experience and professional expertise will help to meet the goals underlying the development strategy of the Metinvest Group,” he went on to say. Vadim Novinskiy, Chairman of the Supervisory Board of Smart Holding, added, “Metinvest has ambitious goals for the next five years – to double its steel output and become a leader of European mining and metals.” “I am sure that not only shareholders and employees, but the whole country will benefit from this,” he added.

SCM Shareholder Attends Investor Council Page 2

DTEK Founds New Oil and Gas Company Page 3

Metinvest Signs Deal With Air Liquide Page3

SCM Partners With European Training Foundation Page 4

Page 1

ILYICH CONSOLIDATION

Ilyich Steel Plant Consolidation Successful


SCM AT INVESTOR COUNCIL

NEWS October 2011 SCM Shareholder Attends Investor Council Meeting

4Rinat Akhmetov with delegates at a recent meeting of the Council of Domestic & Foreign Investors SCM’s shareholder Rinat Akhmetov attended the first plenary meeting of the Council of Domestic and Foreign Investors. The meeting, which was held in Kyiv and chaired by Ukrainian President Viktor Yanukovych, sought to debate ways of improving the investment climate in Ukraine. Mr Akhmetov said that the government and business communities share the same goal, adding, “We all want Ukraine to be a strong country with a strong economy.

We all want to create jobs and we all want our country to be free from poverty.” He believes that in order to achieve this objective of national wealth creation, Ukraine needs ‘real’ economic growth, which is impossible without domestic and international investment. The problem, he says, is that no one is likely to invest in an economy without a favourable investment climate. “What does an investor need? The rule of law, respect of private property rights,

the freedom of speech and freedom of the person, stability, transparency and predictability. And a level playing field for everybody,” stated Mr Akhmetov and added that this goal is hard to reach without deep reforms. “Reforms are the hardest and the most difficult way. But this is the only way to bring Ukraine to success. We all know very well that the President Yanukovych is going along the pathway to reforms,” he said in conclusion.

ESTA Holding Delivers Strong Growth PricewaterhouseCoopers, ESTA Group’s consolidated assets grew by 65% to $370.3m and net profit increased by 140% in 2010. The value of the real estate portfolio

ESTA HOLDING

ESTA Holding, which is responsible for strategic management of SCM Group’s real estate portfolio, issued its audited consolidated financials for 2010. According to the figures audited by

owned by the Group as at 31 December 2010 was estimated at $337.2m, which is $128.9m higher than a year before. The growth was driven by acquisition of new assets, capital investments in construction and an increase in the value of operating properties. “The efficient system of the Group’s portfolio management was a key factor underpinning the increase in business value and profits despite the challenging market situation,” stated Yulia Basistaya, Chief Financial Officer of ESTA Holding. FACT FILE Indicator, $ m Assets Sales revenues Net profit EBITDA

4Donbass Palace Hotel

Page 2

ESTA Holding

2010 370.3 25.9 15.0 3.9

Growth +65% +16% +140% +7%


October 2011

Metinvest Signs Long-Term Deal With Air Liquide gases to other industries in Ukraine. Guy Salzgeber, Air Liquide’s Vice President for North and Central Europe and a member of its executive committee, said, “We are greatly honoured that Metinvest has chosen Air Liquide as its long-term partner.” Igor Syry, CEO of Metinvest, commented, “In selecting Air Liquide, the world leader in the industrial gas market, to be our partner, we will benefit from their stateof-the-art technologies and operational standards in environmental and safety performance. The success of this project

DTEK Founds New Oil and Gas Company DTEK has established a new oil and gas company. The new firm, DTEK Oil and Gas LLC, will be responsible for the development of both offshore and onshore oil and gas projects. One of the overall aims is to reinforce the energy independence of the Ukrainian economy. Development of ‘non-conventional’ gas – coal bed methane, shale stratum and tight sandstone gas – will be one of the main business areas of the new company. Maxim Timchenko, CEO of DTEK, said, “For Ukraine, domestic gas production is

not only an issue of energy independence but also a pre-condition for economic growth, improved living standards for Ukrainians and a possibility for the country to become one of the European leaders in this field.”

SCM Launches Energy Efficiency Rating Pilot for Ukraine’s Regions SCM has launched a pilot project for rating energy efficiency in regions throughout Ukraine. The project will record the efficiency of energy use in each of the country’s regions by comparing energy consumption per actual production in various industries with the same indicators in the EU. The rating system will seek to identify areas where energy efficiency can be improved. Total investment in the pilot is estimated to be $50,000 with the first results expected in October 2011. SCM Director of Public Relations and Communications Natalia Yemchenko said, “Today, Ukraine is second last in the world in terms of energy consumption per US dollar of GDP, and Kyiv ranks last among 30 main European capitals in energy efficiency. The Ukrainian economy will not be competitive without changing this situation. For

SCM as a national investor this issue has been on the agenda for many years and every year the Group’s businesses invest over UAH 2 billion in environmental and resource savings.” “Our rating project will create a map featuring the energy efficiency capacity of Ukrainian regions,” she went on to say. “It will outline the areas where we can, and should, raise energy efficiency.” Valeriy Gladkiy, CEO of the BEST analytical centre, which is a partner in the project, said, “Until recently, energy efficiency has been neglected in Ukraine. Our methodology is based on best global practices of assessment of energy efficiency and I am confident that this rating system will clearly show ways in which we can boost energy efficiency in various sectors of the Ukrainian economy.”

will serve as a good example for the industrial development of Ukraine.”

4Igor Syry, CEO of Metinvest

Metinvest Commissions Affinity Mine The Metinvest Group has announced the commissioning of Affinity Mine, which is owned by its US-based subsidiary, United Coal Company. The move will enable the Group to substantially increase its inhouse production of coking coal. Overall, mining of coking coal at Metinvest is expected to increase by 7% to 6.2 Mtonnes in 2011, compared to 5.8 Mtonnes in 2010, and by another 5% to 6.5 Mtonnes in 2012. The news was welcomed by Igor Syry, CEO of Metinvest, who commented, “The provision of the highest possible quality of raw materials is essential for the improved efficiency of our steel production and maintaining high competitiveness levels for our finished products.” >> Continued on Page 4

ENERGY EFFICIENCY

Metinvest has signed a new long-term contract with Air Liquide, the world leader in gases for industry, health and the environment. Under the deal, Air Liquide will supply oxygen, nitrogen and argon for Yenakiyevo Steel Plant which is part of the Metinvest Group. Air Liquide plans to invest €100m in the construction of an air separation unit. Joint financing will be provided by the European Bank for Reconstruction and Development (EBRD). The unit is due to be completed by mid-2014 and Air Liquide will also supply

METINVEST, AIR LIQUIDE DEAL

NEWS

4Affinity Mine

Page 3


NEWS Metinvest Commissions Affinity Mine

AFFINITY MINE

- continued from page 3:

4The grand opening of Affinity Mine

DTEK RATINGS

SCM Partners With ETF SCM has joined forces with the European Training Foundation (ETF) to promote lifelong learning in Eastern Europe. The move follows a recent high-profile visit by ETF officials to Donetsk, where they discussed further education issues with other experts from Russia, Georgia, Armenia and Moldova, who also took part in the meeting. It was the first-ever visit to Donetsk by ETF representatives and the proposal will allow the Foundation to include the city in its global further education survey. Natalia Yemchenko, SCM Director of Public Relations and Communications, said, “Non-stop development of the job market and the creation of new and emerging occupations are equally important for both the education system and employers like ourselves. The problem is that the knowledge we receive is outdated quickly. As the biggest employer in the country we cannot afford to ignore this problem. Training and professional development of our employees is an integral part of the Group’s strategy.” She added, “We hope other Ukrainian employers will follow suit.”

4Natalia Yemchenko, SCM Director of Public Relations and Communications

October 2011

“High quality input is one of the prerequisites for the stable growth of our business as well as the development of those regions where we maintain a presence as well as the whole of Ukraine,” he went on to say. Further comment came from Dale Birchfield, President of Affinity Coal Company, who said, “We are very pleased that this project, which is comprised of four super sections and a state-of-the-art preparation plant, has been fully completed on time. The opening ceremony of the mine is the culmination of joint efforts by our committed employees, contractors and also the Norfolk Southern Railroad.”

SCM Speaks Out on Anti-Corruption Speaking at the 8th meeting of the UN Global Compact Working Group on AntiCorruption, SCM Director of International and Investor Relations Jock MendozaWilson said, “Corruption is a hot problem for many companies and countries. It impedes economic development and investment inflow and badly affects the welfare of citizens.” “Corruption is a crime, but unfortunately many people are not threatened with criminal penalty. So, our goal is to find alternative fighting methods,” he went on to say. “At SCM we have decided to stand

Fitch Revises Outlook on DTEK Holdings Ltd. to Positive Fitch Ratings revised DTEK Holdings Limited’s Outlook to Positive from Stable in July, following the agency’s rating action on Ukraine’s sovereign ratings. Ukraine’s Long-term foreign and local currency Issuer Default Ratings (IDRs) were affirmed at ‘B’ and Short-term foreign currency IDR at ‘B’. Ukraine’s Country Ceiling was affirmed at ‘B’. The ratings reflect DTEK’s leading positions in the Ukrainian coal mining, thermal power generation and distribution sectors, its competitive operating profile and cost position compared to its Ukrainian peers, as well as its long-term debt structure following the issue of $500m Eurobonds in April 2010.

For further information, or to subscribe, please contact: Jock Mendoza-Wilson, Director of International and Investor Relations System Capital Management, 117 Postysheva st., Donetsk 83001, Ukraine ir@scm.com.ua – www.scm.com.ua

against corruption using persuasion, not threats: we should tell officials, managers and officers why it’s important to keep away from murky schemes and how to fight corruption. It’s not easy to predict how effective this approach of using persuasion and education will be in changing behaviour, but we are determined to confront and tackle head on the tough fight against corruption,” Mr Mendoza-Wilson said. SCM is a signatory of the UN Global Compact, and Mr Mendoza-Wilson is the Chair of the United Nations Global Compact Network in Ukraine.

DTEK Holdings Ltd., July 2011 ratings

Long-term foreign currency IDR Affirmed at ‘B’; Outlook revised to Positive from Stable. The rating remains constrained by Ukraine’s Country Ceiling of ‘B’ Short-term foreign currency IDR Affirmed at ‘B’ Long-term local currency IDR Affirmed at ‘B+’; Outlook revised to Positive from Stable Senior unsecured foreign currency rating Affirmed at ‘B’; Recovery Rating of ‘RR4’ Short-term local currency IDR Affirmed at ‘B’ National Long-term rating Affirmed at ‘AA+ (ukr)’; Outlook Stable National senior unsecured rating Affirmed at ‘AA+ (ukr)’

SCM Investor Digest - October 2011  

Digest for investors