Page 1


002

2010 Financial Results 2010

2009

Dynamics, %

Assets, $ MILLION

22,788

18,539

+22.92

8,151

+57.27

97

+776.29

1,735

+94.58

Sales volume, $ MILLION

12,819 Net profit, $ MILLION

850 EBITDA, $ MILLION

3,376


Contents

4

CEO Statement

28

Metals and mining

6

SCM Group events calendar 2010

36

Energy

41

Financial services

43

Telecommunications

45

Real estate

47

Media

52

Clay mining

54

Retail trade

10 About SCM Group 10

SCM Group history

13

Corporate culture: mission, vision, values

14

SCM Group management

20

SCM Group corporate structure – 2010

56

Petroleum products retailing

22

SCM Group corporate transformation program 2010

57

Heave Engineering

24

SCM Group business structure

60

Pharmaceuticals

61

Transport and logistics

62

Associated companies

64

Football

66 Corporate social responsibility and sustainable development 72 Key post-reporting period events – 2010

003

2010 financial results

International Financial Reporting Standards. Consolidated Financial Statements and Auditors’ Report

26 SCM Group business

2


CEO Statement Dear Colleagues and Partners,

1

004

While Ukraine remains the main focus of our activity and investment, we significantly expanded our presence in international markets.

Two years ago, in the midst of the global economic recession, I made a promise that SCM would emerge stronger, more effective, and better prepared for intensive growth after the recession ended. I am proud to let you know that is precisely what we have achieved. Our financial indicators in 2010 are close to prerecession levels. We have strengthened our competitive advantages, while continuing to invest in development. We enhanced our leadership and corporate culture, at the core of which is our management team. This is the basis for further sustainable growth in the new economic reality, where instability has become an integral part of our lives. In this new reality, to be successful, we continue to focus on investing in growth as we did previously, however, we have become more efficient, adaptive, and effective. We optimized the Group’s business portfolio, exited from non-core business areas, and prepared ourselves for entering new, promising areas. We secured control of our liquidity and this gave us financial mobility as the global and the national economies began to recover. As a result of these actions, SCM was successful in 2010, when we saw the first signs of the economic growth, and delivered results that make us rightly proud. Our revenue was $12,819m, profit was $850m, while more than $1,807m was paid in taxes, and approximately $1,162m was paid in remuneration to our employees. Additionally, we invested over $1,118m in the organic

growth of our business and a further $204m in mergers and acquisitions1. In 2010, Metinvest became the controlling shareholder in the Ilyich Steel Plant, based in Mariupol, one of Ukraine’s largest enterprises with a full metal production cycle. Acquiring the plant to become part of Metinvest Group was an important step in implementing SCM Group’s long-term strategy of enhancing vertical integration, achieving maximum production effectiveness in Ukraine, and strengthening our market position. The total volume of investment in the development of Metinvest Group in 2010 amounted to $582m (excluding M&A). During 2010, DTEK’s enterprises demonstrated significant growth. The volume of coal mined increased by almost 1.5m tonnes to 19.2m tonnes. One of the key growth factors was the increased investment in highly efficient mining equipment and innovative technologies during 2008-2010. The total output of DTEK’s power generation companies (including Dneproenergo) also increased by 34% to 30.7bn kW/hour, while the total volume of power distributed increased to 13.3bn kW/hour - a 13% increase compared to 2009. In the reporting year, our energy business strengthened its presence in international markets. DTEK exported approximately 2m  tonnes of coal, thus, exceeding the 2009 figure by almost two-fold. The coal was shipped to customers in Turkey, Bulgaria, Poland, Romania, India, USA, and Brazil.


SCM Group Public Report 2010

To manage its media assets in television and digital media, SCM created the Ukraine Media Group. This new holding includes: Ukraine Television Channel, Football sports channel, Donbass regional channel, Media Partnership sales house, and Digital Ventures (tochka.net portal). In 2010, we also made a decision to enter several new business areas, among which was pharmaceuticals. SCM Group acquired Pharmacy of Donbass, which owned a network of more than 120 pharmacies. To manage the new business area, Ukrainian Pharmacy Holding was created, with its strategic goals being to grow market share and geographical expansion. The decision was also made to organize transport and logistics into a separate business area, concentrated around Avlita Stevedoring Company, the company specializes in grain and metal transshipment through its facilities in the non-freezing Sevastopol Bay on the Black Sea. Overall, the reporting year helped us recognize that in the 21st century a successful business has to move forward, driven by two

In terms of business goals, SCM Group’s priorities for 2011 remained unchanged. They include the organic development of our existing assets, boosting their operational effectiveness, through continual investment in modernization and personnel development, as well as entering new and attractive sectors of economy which have significant growth potential. In 2011, the new sectors we will focus on will be agriculture and the expansion of our transportation business which we intend to grow and to add value. We will also strive for SCM’s growth to facilitate the development of the regions where we are present. This is not only due to the taxes and salaries we pay, we have been doing this since SCM Group was created2. At SCM, we feel that our success is connected with the way the society progresses. We know, every time our employee comes to a factory, goes down a mine, enters an office, or drives a excavator, that he or she is changing not only their lives, but the lives of hundreds of people. What we do and how we do it is important, not only for us and our employees, but also for hundreds and thousands of people outside SCM.

Sincerely, Oleg Popov Chief Executive Officer

2

What we want is to create a clear, direct connection between our economic growth and society’s social progress.

CEO Statement

To strengthen its position in the domestic financial market, SCM made a decision to consolidate First Ukrainian International Bank and Dongorbank into a single entity by merging Dongorbank into First Ukrainian International Bank. The consolidation is planned to be completed in the second half of 2011.

main goals. It has to grow shareholder value, while remaining a positive force of change in society. We at SCM consider both of these goals as strategic and are determined to further grow and develop in this new, balanced paradigm. Moreover, we believe that the value we create will be greater than merely the sum of SCM’s shareholder and societal value.

005

Also in 2010, DTEKbegan supplying power to consumers in Hungary, Slovakia, Romania, Moldova, and Belarus. Last year, DTEK exported 1.21bn kW/hour of power. The total investment in DTEK’s organic growth in 2010 amounted to $276m.


006

SCM Group events calendar 2010 January 15 January

4 March

Service-Invest (DTEK) completed the $4m reconstruction of Vozrozhdenie substation

Metinvest joined the UN Global Compact

26 January

DTEK’s corporate university was launched

DTEK joined EURACOAL, the European Association of Coal and Lignite producers

27 January SCM participated in the annual meeting of the World Economic Forum in Davos for the fourth consecutive year. SCM is a strategic partner of the Forum

27 January First Ukrainian International Bank completed the restructuring of its obligations to bond holders and creditors

February

17 March 22 March DTEK and Dnepropetrovsk National Mining University signed a long-term cooperation agreement

30 March DTEK, Kurakhovo (Donetsk Oblast) City Council, and USAID Municipal Heating Reform Project in Ukraine signed a memorandum of cooperation

April

12 April

Stepnaya mine (DTEK) put a new rock winding set into operation at its Unit #2

Yenakiyevo Steel Plant (Metinvest) successfully completed the product quality supervisory audit, conducted by CARES, the UK Certification Agency of Reinforcing Steels

24 February

12 April

Vega launched its services in Zhitomir, Uzhgorod, Rovno, and Khartsyzsk (Donetsk Oblast)

SCM Group established Mining Machines Company to become the holding for its heavy engineering businesses

March

20 April

3 March

SCM was ranked #1 in Gvardia Rating of Socially Responsible Companies for the third consecutive time

18 February

SCM Limited (Cyprus), a holding company, paid a further $82.9m installment on its $545m syndicated loan, secured in March 2007


SCM Group Public Report 2010

28 April DTEK successfully placed a $500m Eurobond issue with a 5-year term

30 April System Capital Management General Shareholders’ Assembly made a decision to allocate $92.4m of company profits for 2009 for business development

May 13 May SCM presented the results of the Ukrainian National Higher Educational Institutions Rating, Compass 2010 14 May The portfolio of individual clients’ deposits at First Ukrainian International Bank exceeded $500m

18 May Khartsyzsk Pipe Plant (Metinvest) completed the construction of new X80 straightseamed electro-welded large diameter steel piping production line

21 May ESTA Group completed the purchase of 50% stake in Kiev Hotel (Donetsk)

25 May Metinvest successfully placed a $500m Eurobonds issue with a 5-year term June 24 June Metinvest Eurasia opened a new warehouse in Mineral Waters (Russia)

July 13 July DTEK made a decision to invest $63m in Rovenkyanthracite and Sverdlovanthracite state-owned companies within the framework of renovation projects, using a publicprivate partnership mechanism 14 July DTEK joined EURELECTRIC, the association uniting the electricity industry companies in Europe

29 July Metinvest signed a $700m three-year syndicated pre-export loan facility august

SCM Group events calendar 2010

Yenakiyevo Steel Plant (Metinvest) launched the preparations to certify its environmental management system to ISO 14001:2004 standard

2 August Brusnytsya retail chain expanded adding stores in Kramatorsk (Donetsk Oblast), Melitopol (Zaporozhye Oblast), and 2 stores in Zaporozhye

007

22 April


008

September

November

2 September

4 November

SCM Limited (Cyprus), a holding company, paid a further $81m installment on its $545m syndicated loan, secured in March 2007

SCM made a decision to create Ukraine Media Group on the basis of Ukraine Television Channel

10 September The Supervisory Councils of First Ukrainian International Bank and Dongorbank made the decision to consolidate the banks by merging Dongorbank into First Ukrainian International Bank

10 November DTEK began exporting electric power to Belarus

22 September Pharmacy of Donbass became part of SCM Group 30 September Vesko (United Minerals Group) obtained the approval of the Anti-Monopoly Committee of Ukraine to concentrate a stake of more than 50% in the statutory capitals of Kerammekhanizatsiya and Capital-Service, which both specialize in the geological research of clay deposits 30 September DTEK and other SCM Group companies increased their stake in Zapadenergo’s statutory capital to 24.99%

30 September C4Gas S.A. (France), the main common sourcing portal of major European oil and gas companies, completed the certification procedure of Metinvest Group’s products and sales system

17 November Metinvest became the controlling shareholder of the Ilyich Steel Plant in Mariupol 19 November SCM celebrated its 10th anniversary 19 November Metinvest’s Makeyevka Steel Plant became the first company in Ukraine to launch the production of reinforcing bars with negative tolerance, according to DSTU 3760-2006 standard

29 November First Ukrainian International Bank became the first bank in Ukraine to be successfully audited for compliance with the international information security standard, PCI DSS december 1 December The Parallel chain of gas stations expanded, adding 3 new gas stations in Lugansk


SCM Group Public Report 2010

6 December Metinvest Group enterprises completed the registration procedure, in compliance with the EU’s REACH directive 9 December

22 December Metinvest began rolling reinforcing rods at Makeyevka Steel Plant

22 December

DTEK increased its share in Kievenergo statutory capital to 39.98%

SCM and Renaissance Credit Group signed an agreement for SCM to purchase a 100% stake in Renaissance Capital Bank (Ukraine)

17 December

31 December

ESTA Group purchased Kiev’s Central Univermag Shopping Mall

Ukraine Television Channel was ranked #2 among Ukraine’s television channels in 2010 (audience of 18 years+ in cities with population of 50,000+) – for the first time

17 December Brusnytsya retail chain expanded adding 3 stores in Kharkov and Kharkov Oblast and one store in Zaporozhye

20 December Mining Machines Company secured a $35m credit line from Prominvestbank

20 December

009

SCM Group events calendar 2010

DTEK signed an agreement with state-owned NEK Ukrenergo, securing access to the interstate electric power export networks for 2011


010

About SCM Group

SCM Group history System Capital Management (SCM) was founded by Rinat Akhmetov (100% owner) in 2000 in Donetsk, Ukraine. Its main purpose is to be a strategic investor in key segments of the Ukrainian economy. These are, primarily, mining, metals, and energy. Since its foundation, SCM has been developing its business, based on the industrial assets it owns and making large-scale investments, both in Ukraine and internationally. SCM is constantly seeking to expand its business by gaining presence in other dynamic sectors of economy including: banking, insurance, telecommunications, real estate, media, clay mining, heavy engineering, retail trade and others.


011


012

2000-2002 growing the portfolio SCM expands its investment portfolio. It is during this period that the company acquires most of its businesses and begins introducing a single standard of management across the Group.

2002-2004 investing During this period, the main focus is on establishing international standards of business management at all of the company’s key assets. Meanwhile, enterprises are modernized and production indicators are raised, where possible, using experience and know-how, accumulated by SCM professionals. The company begins to implement its long-term growth strategy and to increase the effectiveness of its business. This means building vertically-integrated industrial businesses and forming a team of world-class managers capable of running them.

2004-2006 expansion and transparency During this period, SCM begins actively expanding its corporate transformation program, aimed at increasing the effectiveness of the Group’s corporate structure and corporate governance. The first steps within the program’s framework are forming Metinvest and DTEK holdings to exercise strategic and operational management of the Group’s assets in metals, mining, and energy, respectively. During this period, SCM also actively invests in the new areas: media, real estate, and telecommunications. SCM also grows its presence in its main business areas: min-

ing, metals, energy, and financial sector. The company institutes the preparation of consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and begins the process of building a transparent business and management structure for the Group.

2007-2008 creating stability SCM group develops a distinct business development strategy. Business expansion is based on organic growth, as well as on new acquisitions in strategically important segments of the economy and industry (mining and metals, energy, financial sector, telecommunications, real estate, retailing, and others). Simultaneously, SCM begins exiting from sectors, presence in which does not comply with the approved business development strategy. During this period the Group also accumulates the necessary financial reserves to ensure business stability during volatile economic periods. At the foundation of this stability are balanced approach to doing business, effective and efficient decisionmaking, conservative approach to borrowing, clear priority setting, and, undoubtedly, the team of talented professionals.

2009-present time. Looking to the future By the 10th year of operations SCM becomes Ukraine’s largest private national investor. The Group’s share in the country’s GDP amounts to 7%, while its enterprises employ approxi-


SCM Group Public Report 2010

mately 200,000 people. SCM’s geography of presence includes Ukraine, Russia, Switzerland, Italy, Bulgaria, United Kingdom, and USA. In spite of the global economic changes, the Group’s approach to doing business remains unchanged: balanced diversification,

as well as long-term investment in businesses with high growth and ROI potential. The main goal also remains constant – to become not only Ukraine’s leading financial and industrial group, but also a truly competitive and successful global business.

Corporate culture: mission, vision, values The scm mission: success, together

ƒƒ constantly improving the processes and methods of doing business;

We invest in the continuous growth and effectiveness of our business, and through this support the economic and social development of society as a whole.

ƒƒ rational allocation and use of resources; ƒƒ seeking new opportunities; ƒƒ preparedness for change.

The scm values: effectiveness, professionalism, accountability Effectiveness as a means to achieve the best results in everything we do. For us, effectiveness is:

ƒƒ meeting the highest standards; ƒƒ stimulating initiative and innovation; ƒƒ investing in professional development and loyalty of employees; ƒƒ attracting and retaining highly qualified personnel; ƒƒ evaluating achievements fairly.

ƒƒ reaching the goals we set; ƒƒ applying contemporary technologies and approaches to doing business;

Accountability to our employees, our partners, our communities, and society as a whole.

About SCM Group

We build effective businesses and manage them according to the best world standards and practices, ensuring long-term returns on our investment and participation in the development of the regions in which we are present.

Professionalism in doing business, including investing in people and stimulating innovation and enthusiasm towards work. For us, there is particular importance in:

013

The scm vision: creating through development


OlegPopov

Margarita Povazhnaya

Chief Executive Officer

Chief Financial Officer

014

SCM Group management  CEO of SCM since January 2006.  2001-2006 – Executive Director of SCM.  2000 – Joined SCM as Deputy to the CEO.  1992-2000 – Worked in various government offices. Chairman of the Board of FC Shakhtar. Represents SCM interests on the Supervisory Boards of Metinvest, DTEK, First Ukrainian International Bank, Dongorbank, and Ukraine Media Group. Areas of responsibility: taking and approval of the key financial, investment, and personnel decisions, both directly at SCM and in the Group’s assets, as well as evaluating the performance of top management of these assets.

Education: Graduated from Donetsk State University in 1996. Graduated from Donetsk Polytechnical Institute in 1991.

 SCM’s Financial Director since September 2009.  July 2008 – September 2009 – Deputy Financial Director of SCM.  2003 – Joined SCM as Chief Accountant. Prior to joining SCM, Ms. Povazhnaya worked as Chief Accountant in various large Ukrainian companies (Scandic South, Artemovsk Champagne Winery, etc.). Started her career in 1996 by being accepted to the Donetsk Oblast State Tax Inspection as State Tax Inspector for the Individual Persons’ Audit Department. Member of Metinvest and DTEK Audit Committees. Chairs the Audit Committees of Bureau of Economic and Social Technologies (BEST) Analytical Center, and SCM Finance. Areas of responsibility: organizing tax and financial audit of SCM Company and SCM Group’s foreign assets, budgeting and cash flow planning for SCM Group.

Education: Graduated from Donetsk State University of Management with a postgraduate degree in 2008. Other credentials include: Ph.D. in Public Administration, International Financial Reporting ACCA Diploma, mini-MBA diploma. Graduated from Donetsk State Commercial University with major in Industrial Management in 1995.


SCM Group Public Report 2010

Amir Aysautov

Sergey Korovin

Metals and mining Business Development Director

Energy Business Development Director

 SCM Metals and mining Business Development Director since November 2009.  August 2008-November 2009 – Strategy and Investment Director, Clever Management.  2003-2008 – Senior Project Manager, McKinsey & Company, Moscow and Dubai offices. Represents SCM interests on the Metinvest Holding Supervisory Board. Areas of responsibility: strategy, investment, finance, and risk management for SCM’s metals and mining business.

 SCM Energy Business Development Director since March 2010.  2008-2010 – member of Microsoft Russia Board of Directors, responsible for cooperation with telecommunications sector.  2002-2008 – advanced from Consultant to Junior Partner in McKinsey & Company, Denmark and Moscow offices. Represents SCM interests on the DTEK Supervisory Board. Areas of responsibility: strategy, investment, finance, and risk management for SCM’s energy business.

Education:

About SCM Group

Graduated from Kazakhstan National Technical University with major in Economics and Enterprise Management in 2001.

Education: Graduated from Moscow State University named after M.V. Lomonosov with major in Computational Mathematics and Cybernetics in 1993.

015

Graduated from Georgetown University School of Business (Washington, USA) with an MBA in 2003.


016

Ilya Arkhipov

Nikolai Nesterenko

Business Development Director

New Business Development Director

 Business Development Director at SCM since November 2005.  2001-2005 Consultant, McKinsey & Co, Moscow.  2000-2001 – Operations Manager for Russia’s largest on-line auction resource, Molotok.ru for NetBridge, an internet company.  1995-2000 – Consultant, Coopers & Lybrand and PriceWaterhouseCoopers, Moscow. Represents SCM’s interests on the Supervisory Boards of Farlep-Invest, First Ukrainian International Bank, Dongorbank, ASKA Insurance Company. Areas of responsibility: participating in determining the Group’s business strategy for telecommunications, banking, and insurance sector.

Education: MBA from INSEAD (France), a leading European business school, in 2004. Graduated from the Plekhanov Academy of Economics in Russia as a Specialist in Enterprise Management in 1999.

 New Business Development Director at SCM since September 2007.  2002-2007 – Senior Manager for Strategy Development for a range of the Group’s new businesses, such as heavy engineering, real estate, etc.  2001 – Joined SCM as Manager of the Financial Control Department.  1997-2001 – Worked at Keramet Invest, having grown from Stock Broker to General Manager. Currently is heading ESTA Holding – SCM sectoral holding, managing its real estate projects, as well as is chairing the Supervisory Board of ESTA Property Management. Sits on the Supervisory Boards of SCM Group hotels. Areas of responsibility: determining SCM’s strategic business development in real estate, heavy engineering, pharmaceuticals, and transport sectors, as well as seeking new areas for investment.

Education: MBA from INSEAD (France), a leading European business school, in 2007. Graduated from the Financial Accounting Department of Donetsk State University in 1998.


SCM Group Public Report 2010

Yekaterina Lapshina

Natalia Yemchenko

Media Business Development Director

Public Relations and Communications Director

Areas of responsibility: strategy, investment, finance, and risk management for SCM’s media business.

Education: Graduated from the Russian Federation State Financial Academy with Masters Degree in Economics in 2005. Graduated from the Institute of International Economic Relations (Moscow) with a Bachelor’s Degree in Economics in 2003. Other credentials include: CMA (Certified Financial Manager) Certificate, 2nd level candidate for CFA (Certified Financial Analyst) Program.

Chairs the Audit Committee and the Editorial Council of Ukraine Television Channel. Areas of responsibility: communicating with stakeholders, including media, employees, residents in regions of company presence, government authorities, community organizations, and the general public, as well as company reputation management. Represents SCM’s interests on the Supervisory Board of Ukraine Media Group, as well as Chairs the Audit Committee and the Editorial Board of Ukraine Television Channel.

Education: Currently enrolled in EMBA program at INSEAD (France), a leading European business school. Graduated from Donetsk National University as a Specialist in Finance and Credit in 1998.

About SCM Group

Represents SCM’s interests on Supervisory Boards of the Group’s media businesses.

 Public Relations and Communications Director at SCM since December 2006.  2005-2006 – Public Relations Manager for SCM Group.  2003 – Joined SCM Group as a Sector Group Manger.  2001-2003 – Director, Keramet Invest.  1998-2001 – Financial Manager at KOLO, an investment company.

017

 Media Business Development Director at SCM since August 2010.  November 2008 - August 2010 – Investment Director and Junior Partner at Adela Holding Limited (Russia).  August 2006 - September 2008 – Deputy Business Development Director at Energoprom Management.  March 2004 - August 2006 – Senior Consultant at Ernst & Young.


018

Jock Mendoza-Wilson

Roman Bugayov

International and Investor Relations Director

Corporate Rights and Foreign Asset Management Director

 International and Investor Relations Director at SCM since 2006.  2005-2006 – Director of Corporate Communications for the SCM Group.  1989 – Launched his own PR consultancy in London.  1984 – Began his career with Ford Europe Company. Worked Regional Director for Middle East and North Africa at Promoseven Weber Shandwick PR (Dubai), later – as Regional Director for Eastern Europe at Mmd. Advised U.S. Government agencies on their public diplomacy programs in the Middle East.

 Corporate Rights and Foreign Asset Management Director at SCM since September 2007.  2005-2007 – Manager of the Corporate Rights Department for SCM Group.  2003 – Joined SCM Group as Economist.  2002-2003 – Economist at Keramet Invest.  1996-2002 – Worked in the Donetsk Oblast Office of the Anti-Monopoly Committee of Ukraine as a Specialist, Senior Specialist, then Department Manager. Serves as Director of a range of SCM’s foreign companies. Represents SCM interests on the Supervisory Board of DTEK. Sits on the Audit Committee of Ukraine Television Channel.

Areas of responsibility: developing and implementing communications strategies and programs, aimed at establishing contacts with both government authorities and NGOs; developing relations with international governments, business, and media, as well as maintaining relations with the investment and finance community.

Areas of responsibility: determining and implementing company policy regarding the management of corporate rights; organizing and handling operations involving corporate rights belonging to the company and its subsidiaries; and organizing the activities of foreign companies belonging to SCM.

Education:

Education:

Graduated as an Economist from Herriot-Watt University (Edinburgh, Scotland) in 1984.

Graduated from the Donetsk Institute of Entrepreneurship as a Specialist in Organizational Management in 2000, with major in Economic and Legal Aspects of Commercial Activity.


SCM Group Public Report 2010

Marta Moonen Human Resources Director

 Human Resources Director at SCM since August 2010.  2007 – Joined SCM as Human Resources Manager.  2005-2007 – Worked as Head of HR Department at Baker Tilly Ukraine.  2002-2004 – Worked as Leading HR Specialist at UTEL Telecommunications company. Areas of responsibility: personnel selection, development and implementation of human resources management policies, development of KPI for personnel evaluation and career planning, designing motivation, rotation, and promotion programs for personnel.

Education:

019

About SCM Group

Graduated from Kiev National Linguistic University with major in Organizational Management in 2008.


SCM Group corporate structure

020

3.1. Sectoral Holding Supervisory Board 2. Minority shareholders

when decision is made not to create a sectoral holding

3.2. Sectoral Holding Managing Company 3.3.Holding General Director

3.4.Holding Board

when decision is made to create a sectoral holding

3.1.1.Auditing Committee * Applies only to Metinvest and DTEK

3.1.2.Strategy and Investment Committee

3.1.3.Appointment and Compensation Committee

3.1.4. Health, Occupational Safety, and Environment Committee*

5. Operational companies

1. SCM Company 4. Supervisory Boards of Operational companies

SCM Group target corporate governance system


SCM Group Public Report 2010

The Supervisory Boards govern the sectoral holdings. These Boards include representatives of SCM, minority shareholders, and external experts. The members of each Board vote to elect a Chair from among their number. The Supervisory Boards determine business development areas and the standards for engaging in specific businesses; they approve strategies, budgets and major transactions, as well as oversee their implementation; they track business indicators, appoint top managers, establish incentives for them, and evaluate their performance. The members of the Supervisory Boards, along with independent experts, may also participate in specialized committees including: the Audit Committee, the Strategy and Investment Committee, the Appointment and Compensation Committee, and the Health, Occupational Safety, and Environment Committee. ƒƒ The Audit Committee prepares recommendations for the sectoral holdings’ Supervisory Boards regarding the approval

ƒƒ The Strategy and Investment Committee prepares and submits for review to the Supervisory Board the necessary recommendations regarding the opportunities for the holdings to be involved in investment projects and exit strategies for specific projects. The Committee also prepares recommendations regarding the strategic goals and objectives of the various holdings, as well as the implementation of agreements on mergers and acquisitions (M&A). ƒƒ The Appointment and Compensation Committee recommends to the Supervisory Boards candidates for management positions in the sectoral holdings. With this purpose in mind, the Committee organizes interviews with applicants for specific positions and decides whom to recommend for those positions. The Committee also prepares recommendations regarding the rotation of top managers within the sectoral holdings, proposes ways to incentivize top managers, as well as participates in shaping the corporate culture and staffing, and in determining the prospects for personal development of managers.

About SCM Group

As the majority shareholder and the main investor, SCM Group governs its sectoral holdings by delegating its representatives to sit on the respective Supervisory Boards. The participation of minority shareholders in the governance of these holdings is also executed through their representatives on the Supervisory Boards.

of accounting policy and procedures for preparing financial reports; the depth and accuracy of financial reporting provided by each holding; the reliability and effectiveness of the internal auditing system, internal oversight and risk management; the independence of internal and external audits; and ensuring compliance with the laws and norms governing business ethics.

021

SCM’s system of corporate governance is in line with the highest international standards and is based on world best practice. It allows the company to quickly and effectively make the decisions, necessary to ensure the stability and growth of all the Group’s sectoral holdings and business areas.


022

ƒƒ The Health, Occupational Safety, and Environment Committee was created to institute the highest health and occupational safety standards across the Group, as well as to control the environmental impact of the Group’s industrial enterprises. The Committee develops SCM Group’s strategy for the areas of its authority; prepares budgets to finance modernization of, and equipment purchase, for the Group’s industrial assets; ensures the compliance of all industrial enterprises with the approved health and safety standards; as well as annually submits the Group enterprises’ quarterly management reports to the Supervisory Board for review.

collegially. The Chair of the Executive Council is the General Director of the holding.

The General Director of a sectoral holding is appointed by the Supervisory Board and is tasked with managing the holding’s operations. As a member of the Board, this person takes an active part in the strategic planning of the holding’s activities.

For individual areas of business where there are no sectoral holdings, the system of corporate governance works through the immediate Supervisory Boards of the operating companies.

The Executive Council is the highest body in the operational management of the holding. Each holding’s Executive Council is established

The Supervisory Boards of operating companies are responsible for their sustainable financial and commercial growth, improved efficiency, and increased competitiveness of their operations. They keep track of the upholding of shareholder rights, make decisions regarding the time to hold General Shareholders’ Assemblies, establish the agenda for such assemblies, draft corporate policy, and so on. The members of the Supervisory Boards of operating companies are appointed by the Executive Council and are approved by the Supervisory Board of the relevant sectoral holding.

Through time, this corporate governance structure has demonstrated its effectiveness for achieving SCM Group’s goals and is being constantly improved.

SCM Group corporate transformation program 2010 Metals and mining Ilyich Steel Plant in Mariupol was acquired by Metinvest Group.

Energy DTEK Holdings B.V. (Netherlands) became a holding company for DTEK.

Metinvest Group completed the process of integrating Makeyevka Steel Plant into its Steel and Rolled Products Division.

DTEK and other SCM Group companies increased their stake in the statutory capital of Zapadenergo to 24.99%.


SCM Group Public Report 2010

SCM and Renaissance Credit Group signed an agreement for SCM to purchase a 100% stake in Renaissance Capital Bank (Ukraine). Telecommunications Within the framework of structural changes, the following companies became part of Farlep-Invest, managing company for Vega Telecommunications Group: Vilcom, Farlep, Matritsa, PP-Sveton, BTSTK, IP-Telecom, ORT-SOUTH, Telecom Ukraine, Optima Telecom-Crimea, Altek. Real Estate ESTA Group purchased the Kiev’s Central Univermag Shopping Mall. ESTA Group completed the purchase of 50% stake in Kiev Hotel (Donetsk). Media Ukraine Media Group was created to include Ukraine Television Channel, Football (Sport Television Channel), Donbass (Regional Television Channel), Media Partnership sales house, and Digital Ventures (www.tochka.net portal). SCM Group acquired a 22% stake in the statutory capital of Dnepropetrovsk Television Service.

UMBH Ltd. (Cyprus) increased its stake in Kamensky Heavy Engineering Plant (Russia) by participating in the statutory capital increase and purchasing a 6.58% stake, thus, increasing its shareholding to 82.74%. SCM completed purchase of a 6.4% stake in Donetskgormash Heavy Engineering Plant, thus, acquiring a controlling stake (50.05%) in the enterprise. Pharmaceuricals SCM Group made a decision to develop its pharmaceutical business by purchasing Pharmacy of Donbass Company, which owns a network of more than 120 pharmacies. To manage this business area, SCM created Ukrainian Pharmacy Holding. Transportation and Logistics SCM Group made a decision to develop transportation and logistics as separate business area and transferred its 100% stake in Avlita Stevedoring Company to SCM Ltd. At the same time a transportation business strategy is being developed.

About SCM Group

Financial Services SCM made a decision to consolidate First Ukrainian International Bank and Dongorbank into one organization.

Heavy Engineering SCM Group purchased 11.54% stake in Sverdlovskiy Heavy Engineering Plant and 4.57% stake in Donetskiy Energozavod Engineering Plant and now holds a 61.55% and 90.65%, respectively in these enterprises.

023

DTEK increased its stake in Kievenergo’s statutory capital to 39.98%.


SCM Group business structure – 2010 Metals & Mining

ENERGY

Metinvest

DTEK

Iron Ore Division

Coal Mining and Enrichment

ƒƒ Northern Ore Mining and Enrichment Plant (SevGOK) ƒƒ Central Ore Mining and Enrichment Plant (CGOK) ƒƒ Inguletsky Ore Mining and Enrichment Plant (InGOK)

ƒƒ Pavlogradugol ƒƒ Komsomolets Donbassa Mine ƒƒ Mospinskoye CEP ƒƒ Pavlogradskaya CEP ƒƒ Kurakhovskaya CEP

ƒƒ Danube Shipping and Stevedoring

ƒƒ Dobropolskaya CEP

Coke and Coal Division

Power Generation

ƒƒ Avdeyevka Coke and Chemical Plant (AKHZ) ƒƒ Krasnodonugol ƒƒ INKOR & Co

ƒƒ Oktyabrskaya CEP

Trading

ƒƒ YeMZ Group (Yenakiyevo Steel Plant, Metalen)

Banking ƒƒ First Ukrainian International Bank

VEGA Telecom­ munications Group

Investment projects ƒƒ Donbass Palace Hotel

ƒƒ Dongorbank

ƒƒ Opera Hotel ƒƒ Leonardo Business Center

Insurance

ƒƒ Kiev's Central Univermag Shopping Mall

ƒƒ ASKA

ƒƒ Office and logistics centers in Kiev and Donetsk

ƒƒ ASKA-Life

ESTA Property Management Ongoing projects ƒƒ Pushkinskiy multifunctional complex

ƒƒ PES Energougol

Steel and Rolled Products Division

REAL ESTATE

ESTA

Power Distribution

ƒƒ United Coal Company

ƒƒ Ilyich Steel Plant in Mariupol

Telecommuni­ cations

ƒƒ Vostokenergo

ƒƒ Service Invest

ƒƒ Azovstal Steel Plant

FINANCIAL SERVICES

ƒƒ Andreyevskiy multifunctional complex ƒƒ Kiev Hotel

ƒƒ DTEK Trading

Projects at devel­ opment stage

ƒƒ Power Trade

Alternative Energy

Land bank

ƒƒ Wind Power

ƒƒ Makeyevka Steel Plant ƒƒ Khartsyzsk Pipe Plant (KHTZ) ƒƒ Promet Steel JSC ƒƒ Metinvest Trametal S.p.A. ƒƒ Spartan UK Ltd ƒƒ Ferriera Valsider ƒƒ Prometei ƒƒ Skif Shipping

Pharmaceuticals

Ukrainian Pharmacy Holding

Transport and Logistics

Zdravitsa chain

024

Sales Department, Steel and Rolled Products Division ƒƒ Metinvest International S.A. ƒƒ Metinvest Ukraine ƒƒ Metinvest Eurasia ƒƒ Metinvest SMC

Avlita Dobri Liky chain Tsentralnaya Pharmacy


SCM Group Public Report 2010

MEDIA

Ukraine Media Group ƒƒ Ukraine Television Channel

Clay Mining

Retail Trade

United Minerals Group

Ukrainian Retail

Vesko

Brusnytsya Retail Chain

Ogneupornerud

ƒƒ Donbass Television Channel

Kerammekhanizatsiya

ƒƒ Digital Ventures

Heavy Engineering

Parallel

Mining Machines

Parallel Chain

Druzhkovka Heavy Engineering Plant

Gefest Chain

Druzhkovskoe Mines Management

ƒƒ Football Television Channel

Petroleum Products Retailing

PitStop Chain

Gorlovskiy Mashinostroitel Engineering Plant Donetskgormash Donetskiy Energozavod Engineering Plant

Capital-Service

Segodnya Multimedia

Kamensky Heavy Engineering Plant Sverdlovskiy Heavy Engineering Plant

ASSOCIATED COMPANIES* Mining Machines Engineering Technical Center

Metals & Mining: ƒƒ Zaporozhkoks (Zaporozhye Coke and Chemical Plant)

Mining Machines – Quality System

ƒƒ Donetskkoks (Donetsk Coke and Chemical Plant) ƒƒ Dokuchayevsk Flux and Dolomite Plant (DFDK) ƒƒ Novotroitskoye Mines Management ƒƒ Krivbassvzryvprom Explosives Company ƒƒ Krivoy Rog Iron Ore Plant

Energy: ƒƒ Dneproenergo ƒƒ Donetskoblenergo ƒƒ Kievenergo

Telecoms: ƒƒ Astelit ƒƒ MMDS Ukraine FC Shakhtar Donbass Arena

Other ƒƒ Krasnaya Polyana Sand Quarry ƒƒ Dnepropetrovsk Television Service *Associated companies – are businesses where SCM Group, in its role as an investor, is capable of significant influence, but where it does not exercise full control.

025

Football

About SCM Group

ƒƒ Zapadenergo


026

SCM Group bussiness

SCM Group consists of SCM, the managing company, and all businesses, in which SCM invests. The Group integrates over 100 enterprises and companies in Ukraine, Russia, Europe (Italy, Bulgaria, Great Britain, Switzerland), and the USA. SCM Group’s enterprises employ approximately 200,000 people.


027


Metals and mining. Metinvest 1

SCM Group’s 75% stake and Smart Group’s 25% stake represent statutory legal ownership structure of Metinvest as of December 31, 2010. Metinvest’s IFRS Financial Statements for 2010 were prepared, based on the share holdings structure, formed after the completion of the transaction for purchasing Ilyich Steel Plant in Mariupol, which is disclosed in Key postreporting period events 2010 chapter. 2

028

Main enterprises, consolidated in 2010 into Metinvest B.V. (Metinvest Group holding company) reporting, according to the IFRS.

Metinvest Group is an international vertically integrated metals and mining company which includes 37 enterprises in Ukraine, Europe, and the USA. The company controls every stage of the production cycle – from mining iron ore and coal, to coke and coking coal production, to smelting steel, and producing rolled steel sections, structural shapes, large diameter pipes, and other steel products with high added value. Metinvest B.V. (Netherlands) is a holding company for Metinvest Group. Metinvest Group’s shareholders are SCM Group (75%) and Smart Group (25%) and they manage the Group on a partnership basis1. Metinvest Holding is a managing company for Metinvest Group. Metinvest Group’s enterprises are located in close proximity to key transportation routes and sea ports, providing the company with additional competitive advantages when making shipments to customers in Ukraine, CIS, Europe, Middle East, and South-East Asia. Metinvest exports the majority of its products to more than 1000 customers in 75 countries worldwide, using its own international sales network which covers most of the key regional markets. Metinvest Group’s enterprises employ approximately 117,000 people.

Main2 Metinvest Group enterprises Iron ore division Northern Ore Mining and Enrichment Plant (SevGOK) is one of the largest mining companies in Europe with a full production cycle for raw iron ore (concentrate and pellets) for metallurgy. Central Ore Mining and Enrichment Plant (CGOK) specializes in mining, processing, and production of raw iron ore (concentrate and pellets) for metallurgy. Inguletsky Ore Mining and Enrichment Plant (InGOK) specializes in mining and processing iron ore. Danube Shipping and Stevedoring is a shipping and logistics company. Coke and coal division Avdeyevka Coke and Chemical Plant (AKHZ) is the largest high-technology company in Europe’s coking coal industry producing coke and chemical products. Krasnodonugol is one of the biggest coal mining companies in Ukraine and both mines and enriches coking coal. INKOR and Co is one of the largest chemical products manufacturers in the CIS and Europe. United Coal Company is one of the leading producers of coking coal in the USA.


SCM Group Public Report 2010

Yenakiyevo Steel Plant (YeMZ) and Metalen (together – YeMZ Group) are the world leaders in steel billet production. Makeyevka Steel Plant is high-technology company with the most modern steel rolling mills in Ukraine: medium-section mill-390 and wire mill-150. Khartsyzsk Pipe Plant (KHTZ) is the largest producer of straight-seamed electro-welded large diameter steel piping in the CIS. Promet Steel JSC is a steel rolling plant, producing rolled sections and structural shapes. It is located in Burgas (Bulgaria).

Sales Department, Steel and Rolled Products Division Metinvest International S.A. is responsible for the sale and export of Metinvest Group rolled steel products. Metinvest Ukraine is responsible for sales and marketing of the steel products produced by Azovstal Steel Plant, Yenakiyevo Steel Plant, and Makeyevka Steel Plant in Ukraine and CIS countries.

Metinvest Group exercises strategic management of Dokuchayevsk Flux and Dolomite Plant, Novotroitskoye Mines Management, Krivbassvzryvprom Explosives Company, and Krivoy Rog Iron Ore Plant within the framework of the share holdings it belonging to the Group. SCM Limited (Cyprus) owns the shares of the stated enterprises.

Metinvest Eurasia is responsible for selling Azovstal Steel Plant, Yenakiyevo Steel Plant, and Makeyevka Steel Plant’s products in Russia. Metinvest SMC is a steel stockholding company selling the products of Metinvest Group Enterprises to customers in Ukraine and Eastern Europe.

Metinvest Trametal S.p.A. is a leader in Italian and European markets for structural carbon steel plates.

Associated companies3 Zaporozhkoks (Zaporozhye Coke and Chemical Plant) is Ukraine’s leading coke and chemical enterprise.

Spartan UK Ltd. is the only producer of high-quality steel plates in the United Kingdom.

Donetskkoks (Donetsk Coke and Chemical Plant) is one of Ukraine’s largest coke and chemical enterprises.

Ferriera Valsider (Italy) is a steel plant producing structural rolled steel.

Dokuchayevsk Flux and Dolomite Plant (DFDK) is one of Ukraine’s largest mining enterprises, specializing in fluxing limestone and dolomite extraction and processing.

Prometei is among the most important players in Ukraine’s iron and steel scrap market.

3

SCM Group bussiness

Ilyich Steel Plant in Mariupol is one of the largest companies in Ukraine and has a full steel production cycle.

Skif Shipping provides cargo transportation and dispatch services for vessels in the Sea of Azov ports.

029

Steel and rolled products division Azovstal Steel Plant is a modern, hightechnology company producing a wide range of steel products.


030

Novotroitskoye Mines Management is a large mining enterprise, specializing in limestone and dolomite extraction and processing.

Krivoy Rog Iron Ore Plant is Ukraine’s largest producer of iron ore.

Krivbasszvryvprom Explosives Company is an industrial production enterprise, specializing in explosion works in Ukraine’s open cast mines.

Metinvest Group financial indicators, $ m Indicators

2009

2010

Dynamic,%

Asset Value

12,170.0

14,668.0

+20.53

Sales Volume

6,026.0

9,357.8

+55.29

Net profit (loss)

334.0

437.0

+30.84

EBITDA

1,400.0

2,552.0

+82.29

Metinvest Group key production indicators dynamics, thousand tonnes


SCM Group Public Report 2010

Production indicators, iron ore division, thousand tonnes

031

SCM Group bussiness

Production indicators, steel and rolled products division, thousand tonnes


032

Production indicators, coke and coal division, thousand tonnes

Metinvest Group sales geography 2010, %


SCM Group Public Report 2010

Metinvest Group sales geography 2010, $ m Indicators

Steel

Coke and coal

Raw iron ore

Total

Ukraine

1,282

681

1,490

3,453

South-East Asia

855

3

625

1,483

Europe

1,898

17

348

2,263

CIS

880

34

-

914

Middle East and North Africa

729

37

38

804

North America

10

358

-

368

Other

54

19

-

73

Total

5,708

1,149

2,501

9,358

Focus points of the year

Metinvest Eurasia opened new warehouses in Voronezh, Volgograd, and Mineral Waters (Russia). Currently, Metinvest Group has 16 regional warehouses in Russia. C4Gas S.A. (France), the main common sourcing portal of major European oil and gas companies, successfully completed the certification procedure of Metinvest Group’s products and sales system. Yenakiyevo Steel Plant successfully completed a product quality supervisory audit, conducted

Metinvest became the first company in Ukraine to launch production of reinforcing bars with negative tolerance, according to DSTU 3760-2006. In November 2010, the first shipment of reinforcing bars, produced in compliance with the new quality standard, was made. Metivnest successfully completed the registration procedure, in compliance with EU’s directive #1907/2006 (REACH). Complying with REACH ensures that the Group’s enterprises will be able to continue shipping products to clients in EU after November 30, 2010. Green Gas International B.V. and Krasnodonugol signed an agreement for the utilization of methane from the SukhodolskoeVostochnoe Mines Management Company.

SCM Group bussiness

Metinvest completed the process of integrating Makeyevka Steel Plant into its Steel and Rolled Products Division.

by CARES, the British Certification Agency of Reinforcing Steel. As result, the plant’s products were declared compliant with technical processes and met the UK’s quality standard BS4449:11997 (reinforcing steel).

033

Metinvest became the controlling shareholder of Ilyich Steel Plant in Mariupol. The acquisition of the plant is an important step towards implementing the Group’s longterm strategy, aimed at enhancing vertical integration, achieving maximum production effectiveness in Ukraine, and strengthening the company’s market positions.


034

The project will allow ultilisation of close to 20m3 of methane per year. The annual decrease of greenhouse gas emissions into the atmosphere resulting from the project will amount to 200-250 thousand tonnes in CO2 equivalent. Metinvest was awarded another Climate Action certificate for participating in environmental programs, aimed at following CO2 emission norms. According to the preliminary calculations, the planned environmental activities will allow Metinvest Group’s enterprises to decrease the volume of greenhouse gas emissions into the atmosphere by more than 8m tonnes in CO2 equivalent during 2008-2012.

Investments The total volume of Metinvest Group’s investment in 2010 amounted to $582m (excluding M&A). Iron Ore Division SevGOK began iron ore mining at Pervomaysky open cast mine, using cyclic-and-continuous technology, which will allow it to maintain the level of iron ore output at 22.5m tonnes per year. In 2010, the volume of investment in the necessary production equipment amounted to $14.7m. The total volume of project investment will amount to $315.3m. Also, in 2010 SevGOK renewed its program of upgrading the equipment, used to produce pellets and to enrich iron ore concentrate. The total project budget amounts to

$187.6m, while in 2010 the total investment was $12.9m. The implementation of this project will allow the plant to increase annual production capacity to 14.7m tonnes of concentrate and 13.7m tonnes of pellets. InGOK continued the construction of a second launching platform for magnetic floatation beneficiation of iron ore concentrate. The new platform will increase volume of iron ore concentrate with 67% of iron content and lowered content of silicon dioxide (4.3%) produced from 3.2m tonnes to 6.8m tonnes annually. The volume of investment in 2010 amounted to $7.3m. The total volume of investment will amount to $38.8m. The total volume of investment in upgrading the main production equipment of Metinvest Group’s three ore mining and enrichment plants amounted to $51.6m. The total volume of investment in maintaining the production capacity and capital repairs of Iron Ore Division amounted to approximately $200m. Coke and Coal Division During the year, Krasnodonugol put 8 new coal faces into operation, with total project investment volume amounting to $32.1m. The total investment in upgrading production equipment and implementing environmental and occupational safety programs at Krasnodonugol amounted to $48.9m. The volume of investment of Avdeyevka Coke and Chemical Plant in maintenance and upgrading of production equipment, aimed at


SCM Group Public Report 2010

producing high quality coking coal, as well as in environmental, resources efficiency, and ITdevelopment programs amounted to $9.4m. The total amount of the plant’s investment in equipment maintenance and retrofitting to achieve the strategic goal of satisfying 100% of Meinvest’s internal demand for proper quality coke for steel production amounted to $13.6m. United Coal Company continued implementing the construction of the Affinity Coal Mining Complex project. The mining complex consists of the mine with four mining sections and a coal enrichment factory, equipped with high-speed railway shipping station. In 2010, the project investment was $19.5m.

The overall level of investment in maintenance and capital repairs of Steel and Rolled Products Division amounted to approximately $70m.

Loans In May 2010, Metinvest B.V. (Netherlands) placed $500 Eurobonds at a coupon rate of 10.25%, due on May 20, 2015. The funding will be used for further modernization of the Group’s enterprises. On July 29, 2010 Metinvest signed a $700m three-year syndicated pre-export loan facility.

035

Yenakiyevo Steel Plant continued the construction of blast furnace #3, which will allow it to reduce the amount of coke used in cast iron production to 463 kg / tonne and to minimize the intensity of iron discharge – to 1000 kg / tonne. In 2010, the project investment volume amounted to $57.8m. The total investment volume will amount to $220.9m.

SCM Group bussiness

Steel and Rolled Products Division Azvostal Steel Plant continued the construction of a controlled cooling system for its steel plate production facilities. The project will allow the plant to expand its range of sheet production and roll products using high durability steel grades, with lower production costs. The sum invested in 2010 amounted to $3.1m. The total project investment to date is $14.9m.


Energy. DTEK DTEK is the largest private vertically integrated energy company in Ukraine, and includes 20 enterprises, located in Donetsk, Dnepropetrovsk, Lugansk, and Zaporozhye Oblasts. The company occupies leadership positions in Ukraine’s coal mining, thermal power generation, and distribution industries, as well as implements a range of projects in alternative energy.

Mospinskoye Coal Enrichment Plant (CEP) is a producer of enriched coal and concentrate for thermal power plants (TPPs). Pavlogradskaya Coal Enrichment Plant is one of the largest coal enrichment enterprises in Ukraine.

DTEK Holdings B.V. (Netherlands) is the holding company for DTEK and is 100% owned by SCM Group.

Kurakhovskaya Coal Enrichment Plant produces coal concentrate for thermal power plants.

Donbass Fuel and Energy Company (DTEK) is the managing company for DTEK.

Dobropolskaya and Oktyabrskaya Coal Enrichment Plants are producers of enriched coal.

DTEK enterprises employ approximately 42,000 people4.

POWER GENERATION Vostokenergo is a power-generating company.

Dtek enterprises

POWER DISTRIBUTION PES Energougol manages 395 substations in Dnepropetrovsk and Donetsk Oblasts.

4

The total number of DTEK employees (including associated companies) exceeds 80 thousand people

036

Komsomolets Donbassa Mine is one of the largest producers of thermal coal in Ukraine.

COAL MINING AND ENRICHMENT Pavlogradugol is the largest coal mining enterprise in Ukraine.

Service Invest manages 81 substations in Dnepropetrovsk and Donetsk Oblasts.

DTEK financial indicators, $ m Indicators

2009

2010

Dynamic,%

Asset Value

2,531.5

3,219.9

+27.19

Sales Volume

1,926.4

3,061.6

+58.93

Net profit (loss)

109.9

360.0

+227.57

EBITDA

402.0

722.0

+79.60


SCM Group Public Report 2010

ALTERNATIVE ENERGY Wind Power implements wind energy projects. ASSOCIATED COMPANIES Dneproenergo is Ukraine’s second largest electric power producer. Donetskoblenergo specializes in electric power distribution and supply. Kievenergo is a thermal and electric power producer and supplier.

Focus points of the year By the end of the year, DTEK’s enterprises demonstrated substantial growth in their production indicators. Coal mining increased significantly, amounting to 19.2m tonnes; total electric power output (including Dneproenergo) increased to 30.7bn Kw/hour while total power distribution increased to 13.3bn Kw/hour. One of the key factors in the high growth of coal production was the use of high-capacity mining equipment and innovative technologies in 2008-2010. In 2010, DTEK Trading carried out coal trading operations in domestic and foreign mar-

Since January 2010, DTEK has been distributing electric power to consumers in Hungary, Slovakia, Romania, Moldova, and Belarus. During 2010, the company exported 1.21bn Kw/hour of electric power. DTEK increased its stake in the statutory capital of Kievenergo to 39.98%. The company operates a unique power complex with a full production cycle in Kiev covering thermal and electric energy generation, transport, and distribution. DTEK and other SCM Group companies increased their stake in the statutory capital of Zapadenergo to 24.99%. The company launched DTEK Academy, the corporate university, to serve as a unified center for knowledge management for all the Group’s enterprises. Annually, DTEK Academy accepts 1,500 of the company’s best employees who study within the framework of specialized programs. DTEK top managers and tutors from the best local and foreign business schools teach at DTEK Academy.

SCM Group bussiness

Power Trade exports electricity to European and CIS markets.

kets. In Ukraine, its main customers are local energy generation companies, large metallurgy companies, and other industrial enterprises. Last year, the company exported approximately 2m tonnes of coal, exceeding the 2009 results two-fold (764 thousand tonnes). The coal was exported to customers in Turkey, Bulgaria, Poland, Romania, India, Brazil, and the USA. Besides, the company imported 1.3m tonnes of coal to supply DTEK’s thermal power plants.

037

TRADING DTEK Trading carries out coal trading operations in Ukrainian and international markets.


DTEK KEY production indicators, $ m Indicators

2009

2010

Dynamics, %

Coal mining, thousand tonnes:

17,635.8

19,164.5

+8.67

Thermal coal

14,618.1

17,134.1

+17.21

Coking coal

3,017.7

2,030.4

(32.72)

Raw coal enrichment

11,607.4

12,490.0

+7.6

Concentrate production

7,625.8

7,738.0

+1.47

Power generation, Vostokenergo

14,504.7

16,352.6

+12.74

Power generation, Dneproenergo

11,788.6

14,331.9

+21.57

11,802.0

13,287.0

+12.58

Coal enrichment, thousand tonnes:

Power generation, m, KW/h

Power distribution, m, KW/h Volume of power purchased from Wholesale Energy Market

038

Power distribution dynamics, m Kw/h


SCM Group Public Report 2010

Investments

Blagodatnaya mine (Pavlogradugol) commissioned a new heat pump system which allows it to use the warm water discharged from the mine to heat the mining facilities. Gradually, the implementation of the new system will fully replace the current coal-fired boiler system, thus, significantly lowering the water heating costs and reducing emissions. The total investment was $0.4m. Pavlogradugol purchased 18 tunneling machines and 7 coal cutters, 13 belt conveyors and 7 scraper conveyors, at a total cost of $29m. Komsomolets Donbassa mine purchased new modern equipment: 9 belt conveyors, 80 powered roof support sections, a coal cutter, and a scraper conveyor, at the total cost of $14m.

DTEK signed investment agreements with two state-owned enterprises: Rovenkyanthracite and Sverdlovanthracite. The respective investment agreements were approved by the Ministry of Coal Industry of Ukraine on July 9, 2010. The investment agreements with both enterprises are valid for five years and are subject to possible extension. Under the signed agreements, DTEK will finance technical upgrading projects at both enterprises, using a public-private partnership mechanism. Cooperation with these enterprises will allow DTEK to provide its power-generating plants with anthracite coal. The total volume of DTEK’s investment in Rovenkyanthracite and Sverdlovanthracite will amount to $37.9m and $25.3m, respectively. Power generation Dneproenergo renovated 18 of the 25 power generating units it operates. The renovations were aimed at prolonging the service life of the units and increasing the reliability of boiler and turbine equipment. The reconstruction of power generating units #9 at Pridneprovskaya TPP and #3 at Krivorozhskaya TPP is approaching completion. Both units are

SCM Group bussiness

Coal mining and enrichment Pavlogradugol put into operation a new rock winding set at Stepnaya mine. This set serves as important link in the technological chain of mining coal from the field of 37m tonnes. The new set will also allow faster preparation and lower energy consumption (25% less) when making Stepnaya mines coal faces ready for mining. The total investment was $5.2m.

DTEK’s coal enrichment enterprises implemented a range of investment projects, including the installation of centrifuges at Dobropolskaya CEP; modernization of water-slurry system at Oktyabrskaya CEP; and development of a water-slurry system at Mospinskoye CEP.

039

The total volume of DTEK investment in 2010 amounted to $276m (excluding M&A).


040

scheduled to be put back into operation in the second half of 2011. Following the reconstruction of generating unit #1 at Zuevskaya TPP (Vostokenergo) its energy output increased from 300 to 325 MV. The total volume of investment amounted to $23m. Following the reconstruction of generating unit #7 at Kurakhkovsaya TPP (Vostokenergo) its energy output increased from 210 to 225 MV. The total volume of investment in 2010 amounted to $15.4m. Power distribution Service Invest completed the reconstruction of Vozrohdenie substation, resulting in increasing its power from 35kV to 110 kV. The total volume of investment amounted to $3.8m. Service Invest also completed retrofitting the equipment of HSKPZ-1 substation with 110/35/6 kV voltage indicators, which supplies power to the largest enterprises of Donetsk Oblast, to increase the reliability of power supply. The total volume of investment amounted to $1.6m. PES Energougol installed 26 km of 0,4 KWt electric wiring, using the self-carrying isolated cable, which allowed it to significantly

increase the reliability of energy supply to end-consumers. Additionally, 6 kV electric wiring was installed at Oktyabrsky Rudnik and Skochinskogo mines, to secure the backup energy supply to the mines.

Loans In April 2010, DTEK Finance B.V. (daughter company of DTEK Holdings B.V.) placed a $500m Eurobond issue with a coupon value of 9.5%, due on April 28, 2015.


SCM Group Public Report 2010

Financial services. Banking and insurance SCM’s Financial Services business is represented by two banks and two insurance companies.

ƒƒ Dongorbank is a leading regional bank with presence in the Eastern regions of Ukraine and Kiev.

ƒƒ First Ukrainian International Bank is one of the largest banks in Ukraine. It is a diversified banking institution serving about 14,000 corporate, and about 1m individual clients. The bank is national in scale and has a diverse country-wide network, covering most of Ukraine’s territory with 11 subsidiaries and 125 branches.

ƒƒ ASKA is one of the leading insurance companies in Ukraine. It is represented in 97 cities across Ukraine. ƒƒ ASKA-Life is one of the Ukrainian market leaders in life insurance, providing a full range of relevant services.

2009

2010

Dynamics,%

Assets

1,987.3

2,222.2

+11.82

Capital

375.7

434.8

+15.73

Loan portfolio

1,705.7

1,714.4

+0.51

Net profit (loss)

(54.3)

54.4

+200.18

Dongorbank financial indicators, $ m Indicators

2009

2010

Dynamics,%

Assets

858.2

1,151.2

+34.14

Capital

73.5

92.3

+25.58

Loan portfolio

628.7

545.2

(13.3)

Net profit (loss)

(45.7)

16.8

+136.76

041

Indicators

SCM Group bussiness

First Ukrainian International Bank financial indicators, $ m


042

ASKA financial indicators, $ m Indicators

2009

2010

Dynamics, %

Insurance assets

51.7

44.0

(14.89)

Capital

23.6

20.2

(14.4)

Insurance reserves

19.2

19.5

+1.56

Insurance premiums

44.1

36.5

(17.23)

Insurance payouts

17.7

15.1

(14.69)

Net profit (loss)

(2.7)

(3.5)

(29.6)

ASKA-Life financial indicators, $ m Indicators

2009

2010

Dynamics, %

Insurance assets

20.1

16.0

(20.39)

Capital

0.4

2.4

+500

Insurance reserves

17.0

18.5

+8.82

Insurance premiums

1.7

1.4

(17.65)

Insurance payouts

1.4

0.9

(35.71)

Net profit (loss)

0.9

(2.0)

(322)

Focus points of the year SCM Group made a decision to consolidate its interests in the banking sector by merging First Ukrainian International Bank and Dongorbank. First Ukrainian International Bank will now be the group brand for its banking business. The main goal of the consolidation is creating a more scalable and effective platform for future

growth. It is planned to complete the consolidation in the second half of 2011. Due to its balanced and transparent retail client service policy; profitable and functional portfolio of deposit accounts; as well as innovative account management solutions,


SCM Group Public Report 2010

the volume of funds held on deposit by First Ukrainian International Bank’s retail customers exceeded pre-recession levels, amounting to $641.2m (35% growth) by December 31, 2010. As a result, the bank’s market share in the retail sector increased from 0.1% to 1.9% in 2010. The installation of First Ukrainian International Bank’s online system in March 2010 allowed clients to fully manage their accounts on-line, either from a computer or a mobile phone. The active promotion of the new service resulted in two-fold growth of its subscriber base. By the end of the year, the number of users had grown to 97,100 and 271,000 operations had been completed. During 2010, the volume of funds held on account from corporate customers increased by 44.5% to $364.5, with the bank’s market share in the corporate segment growing from 0.3% to 1.8% in 2010.

Having maintained a high level of operational income, and having cut the costs on forming the reserves, First Ukrainian International Bank completed 2010 with $54.4m net profit, which fully covered last year’s loss of $54.3m. In 2010, the bank’s assets increased by 11.8% to $2.22bn. As of December 31, 2010 the bank was ranked 13th by the National Bank of Ukraine by volume of assets, having improved its rating position by one point, compared to the beginning of the year. The bank also completed restructuring its external obligations. The volume of its restructured loan portfolio amounted to $512m. During 2010, the bank’s external loan portfolio decreased by $124m (24%) to $393m. The bank continued to build its credit history, fulfilling its financial obligations in time and in full.

Vega possesses a full range of licenses to provide fixed-line services across Ukraine. Services include local, inter-city, and international telephone connection, broadband connection, as well as transmission channel rental. Vega provides services in 47 cities and 2 population centers, in 20 Oblasts of Ukraine,

with a full range of services (fixed-line telephone connection, broadband internet access, and data transfer) available in 38 population centers of Ukraine. In 2010, the number of Vega’s broadband subscribers in Ukraine amounted to 127,000. Vega has also developed its own powerful country-wide baseline network. Operational management of Vega is undertaken by Farlep-Invest.

043

Vega Telecommunications Group (Vega) is one of Ukraine’s largest private fixed-line operators.

SCM Group bussiness

Telecommunications. Vega


044

Vega Telecommunications Group financial indicators, $ m Indicators

2009

2010

Dynamics,%

Assets

116.0

94.0

(19.0)

Sales volume

109.0

93.0

(14.68)

Net profit (loss)

(9.0)

(7.0)

22.22

EBITDA

21.8

20.8

(4.59)

Focus points of the year Vega launched its services in Zhitomir, Uzhgorod, Rovno, and Khartsyzsk (Donetsk Oblast). The volume of voice communications services in 2010 amounted to: 13,291 lines to individual clients and 16,604 lines to corporate clients (29,895 lines in total). The number of new broadband customers amounted to 36,997 among individual

Number of lines, dynamics

clients and 7,791 among corporate clients (44,788 new clients in total).

Investments The total volume of investment in Vega’s network modernization and development amounted to $2.5m.


SCM Group Public Report 2010

Real Estate. ESTA Group

ESTA Holding serves as a managing company, defining investment approaches, developing and managing projects both, during and post-construction. ESTA Property Management manages the completed and operational real estate projects. For every project a separate legal entity is registered. ESTA Group’s stability and positive development dynamics are a result of its focus on high quality projects, which are less dependent on speculative demand, its attention to developing unique projects, and a strategy of balanced regional presence. Investment real estate projects: ƒƒ Donbass Palace Hotel – a five-star hotel in the center of Donetsk. Total rooms: 129. ƒƒ Opera Hotel – a five-star hotel in the center of Kiev. Total rooms: 136. ƒƒ Leonardo Business Center – a multi-functional complex in the center of Kiev. Total area: 38,000 square meters. ESTA Group

ƒƒ Office center at Kudryavskaya Street, Kiev. Total area: 1,820 square meters. Office center at Baggovutovskaya Street, Kiev. Total area: 3,514.5 square meters. Office center at Postysheva Street, Donetsk. Total area: 14,500 square meters. ƒƒ Bereg Summer Camp for Children, Alushta. Total area: 16 hectares. ƒƒ Class B logistics center in Dnepropetrovsk. Total area: 20,000 square meters. ƒƒ Kiev’s Central Univermag Shopping Mall – a project with unique location in the center of Kiev, at the intersection of Khreshchatik and Bogdana Khmelnitskogo Streets. Total area: 21,200 square meters. Ongoing5 real estate projects: ƒƒ Pushkinskiy multi-functional complex in the center of Donetsk. This is a class A project with the total area of 52,600 square meters. Total investment of $130m. ƒƒ Andreyevskiy multi-functional complex on Frolovska Street in Kiev, with the total area of over 70,000 square meters. Total investment $200m. ƒƒ Kiev Hotel – a three-star hotel in the center of Donetsk. Total rooms: 180. Total investment – $15m. ESTA Group owns 50% of the project.

5

The ongoing projects are the projects being implemented during the reporting period.

SCM Group bussiness

ESPV Limited (Cyprus) performs the holding company functions.

owns 50% of the project.

045

ESTA Group is the holding company managing SCM’s real estate assets and one of the largest players in Ukraine’s real estate market. Among the Group’s main business areas are: commercial property; including office centers, logistics centers, shopping malls, and hotels.


046

Projects at development stage:

ƒƒ Land plot in Dnepropetrovsk, Karl Marx Street. Total area: 0.15 hectares.

ƒƒ Business center at Moskovskaya Square, Kiev. Total area: more than 100,000 square meters.

ƒƒ Land Plot in Donetsk, Leninskiy Avenue. Total area: 4 hectares.

ƒƒ Premium-class residential complex at Pluty Village, Kiev Oblast. Total area: more than 45 hectares.

ƒƒ Land Plot in Kerch. Total area: 1.48 hectares. ƒƒ Land Plot in Yalta, Dzerzhinskogo Street. Total area: 1.85 hectares.

Land plots: ƒƒ Land plot in Poltava. Total area: 9.95 hectares.

ESTA Group financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

224.6

370.3

+64.87

Sales volume

22.4

25.9

+15.62

Net profit (loss)

(37.5)

15.0

+140.00

EBITDA

3.6

6.0

+66.66

Focus points of the year

Investments

In 2010, revenue grew by $3.5m due to the increased income from the hotel business, as well as from increased rental income from commercial properties.

The total volume of investment in ESTA Group’s business development amounted to $32.14m.

The net profit growth was backed by the growing value of ESTA Group’s investment project portfolio. In 2010, the increase from the re-evaluation of investment projects amounted to $19m (in 2009 the loss from re-evaluation amounted to $53.7m).

Project-2012 Company (50% owned by ESTA Group) purchased Kiev Hotel, located in Donetsk’s Voroshylovsky district. The four-storey hotel building was built in 1973. The total area of the hotel complex is 5,665 square meters, with 45 rooms. The transaction amounted to $1.77m. The hotel will be reconstructed to develop a 3-star hotel, with the number of rooms increased to 180. The total investment will be $15m.


SCM Group Public Report 2010

A specially created company Stolichny Central Univermag will be managing and developing this project.

Media

Ukraine Media Group ƒƒ Ukraine Television Channel is one of Ukraine’s leading nationwide television channels. In 2004, the channel was granted national status. The channel’s 24-hour broadcasting includes informational, educational, children’s, entertainment, artistic, and sports programs. The Channel’s monthly audience exceeds 35m people. ƒƒ Football Television Channel is Ukraine’s first specialized channel, dedicated exclusively to football. The channel is an official broadcaster of Ukraine’s Premier League. European and Latin American football in the channel’s programming is represented by the national championships of England, Spain, Germany, France, Brazil, UEFA Champions League, Italian Cup, and English FA Cup. The channel also features matches of the English national team, Ukraine youth national team, and other matches. The channel is broadcast through cable television networks and is available through more than 500 cable TV operators, as well as Viasat satellite TV operator. The channel’s technical coverage

Kiev’s Central Univermag Shopping Mall was consolidated in SCM Group’s IFRS Financial Statements as of December 31, 2010, based on the option agreement to acquire the remaining voting rights in Kiev’s Central Univermag Shopping Mall.

through cable networks exceeds 85% of Ukrainian homes (Gfk Ukraine). ƒƒ Donbass Television Channel is a general interest channel for viewers in Eastern Ukraine. The channel’s programming features socially-oriented content, including news and political talk-shows, which highlight the problems and the events in the region. The channel is broadcast in Donetsk, Makeyevka, Yasinovataya, as well as through cable networks. Among the channel’s plans is expanding broadcasting to cover all of Eastern Ukraine and gaining access to satellite broadcasting. ƒƒ Media Partnership is a sales house, which has the exclusive rights to sell advertising air time on Ukraine Media Group’s channels. ƒƒ Digital Ventures is an internet holding, which is developing a large horizontal portal, www.tochka.net, characterized by high number of unique users and its popularity. When developing its projects, Digital Ventures focuses on professional staff and unique content. The portal’s journalists publish daily news from Ukraine and the world, as well as produce reports and photo-galleries from the current events. The portal intends to achieve market leadership positions in Ukraine by the end of 2011.

SCM Group bussiness

SCM Group is a significant player in Ukraine’s media market. We are actively strengthening our positions in this market by investing in the development of our media assets.

6

047

ESPV Limited purchased 23% of Kiev’s Central Univermag Shopping Mall6. It was decided that ESTA Group representatives will participate in the management of the shopping mall, in order to further develop its concept.


Ukraine Media Group plans include launching Football+ and News television channels

in 2011, as well as creating a productionhouse to produce its own program content.

Ukraine Media Group financial indicators7, $ m 2010

Assets

88.5

Sales volume

36 .0

Net profit (loss)

(12 .0)

EBITDA

(5.0)

Ukraine Media Group was created in 2010.

048

7

Indicators

Focus points of the year Ukraine Television Channel By the end of 2010, Ukraine Television Channel increased its audience share by 20%, compared to 2009 (Gfk Ukraine). With 10.21% audience share and a 1.57% rating, the channel ranked #2 among Ukraine’s general interest channels (18+ audience in cities with population 50,000+), thus, confirming its status as the most dynamic national TV channel in Ukraine. The channel’s strategic goal is developing and producing its own content production. Among its most successful projects in 2010 were: ƒƒ Events – informational and analytical program (average audience share 14.56%, 33% growth); ƒƒ People’s Star – music show (audience share 11.69%, rating 3.55%);

ƒƒ Marusya – television show (audience share 12.18%, rating 4.83%); ƒƒ Critical Point – journalist investigation program (average audience share 11.85%, 36% growth). Ukraine Television Channel continued to broadcast high quality movies content as part of its programming by offering Ukrainian viewers the best foreign and domestic premiers. The channel’s 2010 revenue from advertising and sponsorship amounted to $34.54m and $2.61m, respectively. Football Television Channel In 2010, Football Television Channel had the following indicators: 1.4% audience share, 0.2% rating (male audience 18+ in cities


SCM Group Public Report 2010

with population 50,000 plus, Gfk Ukraine). The channel’s audience share grew 2.3 times, compared to 2009.

The channel’s 2010 revenue from advertising and sponsorship amounted to $0.12m and $0.014m, respectively.

The channel’s broadcast coverage of cable networks grew by 18.4% from (76.67% to 90.77%) in 2010 in cities with population 50,000+, and by 27% in cities with population up to 50,000 (up from 67.94% to 86.26%).

Digital Ventures The average monthly audience of the tochka. net portal in 2010 amounted to 2.03m users, and its average monthly coverage of Ukraine’s internet audience amounted to 20.95% (Gemius Audience).

The total volume of investment in the portal development amounted to $6.1m.

SCM Group bussiness

Donbass Television Channel In 2010, Donbass Television Channel had a 2.3% audience share and a 0.32% rating (Donetsk audience, Gfk Ukraine).

In December 2010, tv.tochka.net platform was launched to provide legal, high quality content.

049

The channel’s 2010 revenue from advertising and sponsorship amounted to $0.32m and $0.24m, respectively.


050

Segodnya Multimedia Publishing Holding SCM Group’s publishing business is consolidated under the Segodnya Multimedia holding, which is responsible for the strategic management of the following print and online media: ƒƒ Segodnya – a national socio-political daily newspaper with 5 regional editions in Kiev, Odessa, Kharkov, Donetsk, and Dnepropetrovsk. Average daily circulation – 98,000 copies. ƒƒ Vecherniy Donetsk newspaper – a regional edition, aimed at a wide readership of all ages and social groups. Distributed in Donetsk and Donetsk Oblast. ƒƒ Donetskie Novosti – a weekly newspaper and Donetskie Novosti Kurier, a free advertising weekly. Distributed in Donetsk. ƒƒ Salon Dona i Basa – a weekly socio-political newspaper featuring classifieds and advertising. Distributed in Donetsk and Donetsk Oblast. ƒƒ Salon. Million Obyavleniy – advertising weekly newspaper. Distributed in Donetsk and Donetsk Oblast. ƒƒ Priazovskiy Rabochiy – large circulation socio-political newspaper, targeting the South of Donetsk Oblast. Distributed in Mariupol and Donetsk Oblast.

ƒƒ RIO newspaper – positioned in the inexpensive TV-guides segment; promoted as an attractive advertising medium. Distributed in Donetsk and Donetsk Oblast. ƒƒ Mariupolskaya Nedelya – weekly family newspaper. Distributed in Mariupol and adjacent rural areas. ƒƒ Dom Sovetov newspaper – entertainment edition featuring practical advice regarding: housekeeping, gardening, growing vegetables, cuisine, fashion, home remedies, growing flowers. Distributed in Mariupol and adjacent areas. ƒƒ Privet, Rebyata! newspaper – youthoriented edition. Distributed in Mariupol and Donetsk Oblast. ƒƒ Priazovye Reklama newspaper – twicemonthly advertising edition. Distributed in Mariupol and the adjacent regions. ƒƒ The holding also has its own production facilities, the modern Segodnya Multimedia printing house, in Vyshgorod which offers a range of full-color printing services. Segodnya Multimedia also manages the following online-portals: www.segodnya.ua, www.dnews.donetsk.ua, www.pr.ua, www. vecherka.donetsk.ua, www.salon.donetsk. ua, www.million.donetsk.ua.


SCM Group Public Report 2010

Segodnya Multimedia financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

20.0

26.0

+30

Sales volume

11.8

9.0

(23.73)

Net profit (loss)

(6.1)

2.0

+67.21

EBITDA

(1.3)

(1.0)

+23

Focus points of the year In 2010, the main achievement of Segodnya Multimedia was maintaining the stable circulation of Segodnya newspaper at a daily average of 98,000 copies. Segodnya newspaper currently ranks #2 among Ukraine’s daily editions, by single issue audience (TNS Ukraine). In 2010, the printed media market in Ukraine did not demonstrate a significant growth of key business indicators, despite the end of the economic recession. The circulation volumes of most market players were stagnant. However, the print media advertising market volume in Ukraine demonstrated positive dynamics – 3.2% growth (Press Monitoring). The volume of advertising in Segodnya newspaper grew by 4% in 2010.

During the reporting year, the copy sales revenue of Segodnya newspaper increased by 10.8% from $4.11m to $4.56m. At the same time, the volume of Segodnya newspaper sales in copies decreased by 4%, from 29,153 to 27,999 copies. Segodnya Multimedia revenues from printing services outsourced to it by other publishers increased by 9% from $1.69m in 2009 to $1.84m in 2010. 2010 became a turning point for the www.segodnya.ua portal. The portal was ranked #3 by the annual number of visitors, compared to the previously occupied position #10 (Bigmir.Net). The portal’s audience currently covers 10% of Ukraine’s overall internet audience. The portal’s monthly audience exceeded 1m visitors – 58% more than in 2009. This allowed www.segodnya.ua to take the leadership position among Ukraine’s news portals. The revenue from www.segodnya.ua increased by 101% compared to 2009.

SCM Group bussiness

The total volume of investment in Segodnya Multimedia business development amounted to $0.2m.

The advertising revenue of Segodnya newspaper from printed and online editions increased by 7% - from $1.93m in 2009 to $2.07m in 2010.

051

Investments


052

Clay mining. United Minerals Group ƒƒ Druzhkovskoye Mines Management specializes in mining and processing clay and molding sand for the ceramics, china, and fireproofing industries. It is the biggest supplier of clay in Ukraine, Belarus, and Russia. Annual volume of clay extraction is 0.8m tonnes.

United Minerals Group Ltd. (UMG) manages SCM Group’s assets in clay mining. UMG is Ukraine’s largest supplier of white ball clay. The production capacity of the company’s enterprises is almost 3m tonnes per year, while confirmed clay reserves of UMG’s enterprises amount to 250m tonnes. Unconfirmed reserves amount to additional 100m tonnes. UMG’s production facilities are located in Donetsk, Kharkov, and Lugansk Oblasts. The total number of employees is 1,200 people.

ƒƒ Ogneupornerud specializes in clay mining for the ceramics, china, and fireproofing industries. Annual volume of clay extraction is 0.5m tonnes.

Currently, UMG holding owns the following major clay mining companies:

ƒƒ Kerammekhanizatsiya owns licenses, entitling it to explore and mine clay reserves at Dobropolsky site (about 2.4m tonnes of clay).

ƒƒ Vesko which specializes in mining and processing clay for the ceramics, china, and fireproofing industries. It is the biggest supplier of clay in Ukraine and Russia, as well as one of the biggest suppliers to Italy, Spain, Turkey, India, and the United Arab Emirates (UAE). The annual volume of extracted clay is 1.7m tonnes.

ƒƒ Capital-Service owns licenses entitling it to explore and mine white ball clay reserves at the Vidny-2 (2.3m tonnes) and Pokrovskoye (about 10m tonnes) sites.

United Minerals Group financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

171.5

123.0

(28.28)

Sales volume

41.1

79.0

+92.21

Net profit (loss)

14.1

31.0

+119.86

EBITDA

24.0

38.9

+62.08


SCM Group Public Report 2010

Focus points of the year In 2010, UMG’s total sales volume increased by 88% – to 0.94m tonnes, compared to 2009. During the reporting year, UMG enterprises shipped their products to 27 countries. The company entered the markets of Mexico, United Arab Emirates, Syria, and Hungary, as well as added 14 new clients.

UMG’s share in the total white ball clay production volume in 2010 increased by 5% and exceeded 40% (State Statistics Committee of Ukraine). UMG’s enterprises prepared new plots for clay mining with a total area of 200 hectares.

In 2010, UMG invested $1.2m in obtaining licenses to mine new clay reserves, in order to expand its production base. In the next 5 years, the company intends to invest approximately $7m in obtaining new clay mining licenses. UMG increased its stake in Capital-Service to 100%, which allowed it to grow its clay re-

serves by 12.3m tonnes. The company also increased its stake in Kerammekhanizatsiya by 50%, which allowed it to grow its clay reserves by additional 2.4m tonnes. In 2010, the total investment in upgrading UMG’s production facilities amounted to $0.2m.

053

Investments

SCM Group bussiness

Clay mining dynamics, m tonnes


054

Retail trade. Ukrainian Retail about 3,000 people. All company personnel are enrolled in training and development programs at the in-house learning center.

Ukrainian Retail is developing SCM Group’s retail business under the Brusnytsya brand in the Eastern regions of Ukraine. The main goal of the company is to create and operate one of the largest retail convenience store chains in Ukraine.

Ukrainian Retail also owns a 3,500 square meter logistics center as well as production facilities, which provide the stores with meat products, fresh bakery, and gastronomy products.

The Brusnytsya chain operates convenience (or ‘neighborhood’) format stores, with floor space of 300–400 square meters and a product range of 3,500 items. Brusnytsya’s retail chain includes 78 stores in Donetsk, Kharkov, Dnepropetrovsk, Lugansk, and Zaporozhye Oblasts.

The main competitive advantages of the Brusnytsya chain include: convenient store design, carefully selected product range, optimal numbers of staff, high levels of customer service, and an efficient response to customer preferences in each geographic location.

The company’s headquarters are located in Donetsk. The total number of employees is

Ukrainian Retail financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

77.2

88.5

+14.64

Sales volume

50.8

75.0

+47.68

Net profit (loss)

(1.4)

(5.0)

+257.14

EBITDA

(2.8)

2.0

+175

Focus points of the year In 2010, within the framework of boosting operational effectiveness, the decision was made to close 14 stores which had low profitability. At the same time 24 new stores were opened. During the reporting year, Brusnytsya’s sales per square meter increased by 104.1% from $2,2 to $4,49.

In 2010, Brusnytsya increased its turnover by 80% up from $50.71m in 2009 to $91.74m. The number of visitors increased from 15.04m to 24.60m.


SCM Group Public Report 2010

Investments The total investment in Brusnytsya chain’s development in 2010 amounted to $15.62m.

055

Number of visitors, thousand people

SCM Group bussiness

Brusnytsya retail chain growth dynamics, number of stores


056

Turnover, m $

Petroleum products retailing. Parallel Parallel manages SCM Group’s assets in the petroleum products wholesale and retail sector. In SCM’s portfolio, this business is represented by petrol station chains, operating under the Parallel, Gefest, and PitStop brands. Parallel-M LTD serves the managing company for the network of 69 gas stations and gas station complexes: 58 are in Donetsk and Lugansk Oblasts, 10 Gefest gas stations are spread over 6 regions of Ukraine, and 1 Pit Stop complex in Donetsk. Gefest manages the gas stations under its same name in Uzhgorod (Zakarpatye Oblast). A mini-market chain operating under ZZZIP!! brand is present at the gas stations managed by Parallel. The ZZZIP! chain includes 62 mi-

ni-markets and offers a variety of associated goods and food products, as well as operating 14 car washes. Parallel also serves as the exclusive light oil supplier to the gas stations it manages, and provides fuel storage and transportation services. The company operates its own fuel testing and quality control facilities (an accredited laboratory), qualifying it to provide petrol product testing services. Parallel also owns the largest petroleum storage depot in Donetsk (Donetskgornefteprodukt) and Shakhtersk, as well as a fleet of modern petrol and gas tankers. The total number of employees is about 2,000 people.


SCM Group Public Report 2010

Parallel financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

49.0

65.0

+32.65

Sales volume

239.0

290.0

+21.34

Net profit (loss)

4.3

10.0

+132.56

EBITDA

15.1

18.0

+19.21

Focus points of the year

The share of mini-markets in total sales increased by 3.9% to 12.8% by the end of the year, with sales volume per square meter growing from $4,683 to $5,266.

Investments The investment in Parallel business development in 2010 was $11.12m.

Heavy Engineering. Mining Machines Mining Machines Company is Ukraine’s leading mining equipment maker. Its enterprises specialize in the production of powered roof supports for coal-cutters and tunneling machines, dragline and band conveyors, lifters, rotary excavators, electric locomotives, pumping stations, aspirators, switch-yards, and other mining equipment components (in total about 400 items).

Mining Machines NPK is a managing company for SCM’s heavy engineering enterprises. Ukrainian Machine Building Holding Ltd. (Cyprus) is a holding company for Mining Machines Company.

SCM Group bussiness

During the same period, 7 Gefest gas stations were closed in Kharkov and Sumy, due to the review of the company’s development strategy. The priority regions for Parallel currently are Donetsk, Lugansk, Dnepropetrosk, and Zaporozhye Oblasts. The company intends to strengthen its leadership positions in these regions.

The growth of the client base under Parallel’s CarteBlanche loyalty program in 2010 amounted to 16.9%.

057

In 2010, 31 Gefest gas stations were retrofitted and re-branded under the Parallel name. Additionally, 3 new Parallel gas station complexes opened in Lugansk.


058

yards and dust-ignition-proof switchyard substations in Ukraine and the CIS. The enterprise’s products are intended for supplying electricity to mines, as well as for open-cast works in coal and other mining industries.

Mining Machines Company includes the following enterprises: ƒƒ Druzhkovka Heavy Engineering Plant is the leading producer of mining equipment in the CIS and Eastern Europe, producing: powered roof supports, conveyors, wagons, line hangers, electric and inertia-type locomotives. ƒƒ Gorlovskiy Mashinostroitel Engineering Plant is a large producer of mining equipment, including: coal-cutters for flat-lying and steep coal banks, tunneling machines, plough machines, lever hoists, pumping stations, and hydraulic equipment. ƒƒ Donetskgormash is a large heavy engineering enterprise, producing equipment for mining industries. The company’s product range includes: multiple-rope and drum hoists, centrifugal and axialflow blowers, load-haul-dump machines, lever hoists, underground belt conveyors (800-1200 mm belt size), parachutes, line hangers, charging ladles, rotary equipment for open-cast mining, and universal rail brakes. ƒƒ Donetskiy Energozavod Engineering Plant is a leading producer of switch-

ƒƒ Kamensky Heavy Engineering Plant is one of Russia’s leading producers of powered roof supports for coal mining enterprises. ƒƒ Sverdlovskiy Heavy Engineering Plant specializes in capital repairs of powered roof support sections, rigging, metal constructions, and general mining equipment repairs. ƒƒ Mining Machines Engineering Technical Center is intended to upgrade existing, and construct new equipment for all the company’s production facilities. ƒƒ Mining Machines – Quality System exercises control on incoming raw materials, ongoing control of technological production processes, as well as the quality control of products manufactured at all company’s enterprises. The total number of employees is approximately 10,000 people.

Mining Machines Company financial indicators, $ m Indicators

2009

2010

Dynamics,%

Assets (total)

325.5

409.0

+25.65

Assets (net)

128.4

176.6

+37.54

Sales volume

103.8

200.5

+93.15

Net profit (loss)

(28.9)

13.5

+146.71

EBITDA

(11.5)

22.0

+291.3


SCM Group Public Report 2010

Focus points of the year In 2010, the enterprises of Mining Machines Company increased sales significantly by 95%, compared to 2009. The company launched the process of creating its own distribution and service networks. In the second half of 2010 the company opened

four consignment warehouses in Pavlograd, Kirovskoye, Dobropolye, and Sverdlovsk. The company’s sales revenue in 2010 was generated in Ukraine and Russia, while the overall sales markets expanded to include Belarus, Kazakhstan, Uzbekistan, Macedonia, and Georgia.

Main products sales revenue, m$

In September 2010, Mining Machines Company created its own engineering and technical center, which will upgrade the equipment currently produced and develop new prototypes, as well as undertake research and development. The center will operate using a unified project system, which will allow opti-

mization of construction processes and will deliver significant improvement in the quality of pre-production perparations. Mining Machines – Quality System Company was created to control the quality of incoming raw materials, ongoing control of technological production processes, as well as quality control of the machinery produced by all of the company’s enterprises.

059

The total investment of Mining Machines Company in 2010 amounted to $4.6m.

SCM Group bussiness

Investments


Pharmaceuticals. Ukrainian Pharmacy Holding The pharmaceutical sector recently became one of SCM Group’s new opportunity areas. Ukrainian Pharmacy Holding owns and manages at network of 120 pharmacies, serving over 30,000 customers daily. 30 pharmacies are operating under the Zdravitsa brand, 8 pharmacies under Dobri Liky brand, and one pharmacy under Tsentralnaya brand. The remainder of the pharmacies are currently operating without a unified brand, but will be rebranded under the Dobri Liky brand. Ukrainian Pharmacy Holding is also actively developing the smallbatch pharmaceutical retailing format.

8

060

Ukrainian Pharmacy Holding was created in 2010.

The Zdravitsa chain offers a wide assortment of the quality pharmaceuticals, personal hygiene items, cosmeceuticals, children’s food, and cosmetics. The pharmacies also offer a high level of professional service and a wide range of additional services, including consulting assistance.

The Dobri Liky chain is a new, developing, socially-oriented network of pharmacies, formed on the basis of previously unbranded pharmacies. The differentiating factors of this chain are low prices and wide product range. The chain has also undertaken to service customers with reduced-price prescriptions, as well as serving customers covered by State Social Insurance Fund’s insurance programs against industrial accidents in Donetsk Oblast. Tsentralnaya is a premium-class pharmacy. The pharmacy chains under Ukrainian Pharmacy Holding currently cover Dnepropetrovsk, Donetsk, Zaporozhye, Kiev, Lugansk, and Odessa Oblasts. The strategic goals of Ukrainian Pharmacy Holding include expanding both its market share and its geographic presence. The total number of employees is about 1,500 people.

Ukrainian Pharmacy Holding financial indicators8, $ m Indicators

2010

Assets

17.0

Sales volume

16.0

Net profit (loss)

0

EBITDA

1.0


SCM Group Public Report 2010

Focus points of the year In 2010, 8 new pharmacies under Zdravitsa brand were opened which had previously operated as unbranded pharmacies. During the first 3 months of operations under the new brand name, the total turnover of the rebranded pharmacies increased two-fold.

Special attention is paid to the professional development of the chain’s employees through the company’s in-house training center.

Transport and logistics. Avlita Stevedoring

The company owns two berths in Sevastopolskaya and Dokovaya bays, with total length of 500 meters, capable of servicing vessels of up to 80,000 tonnes displacement. The berths are equipped with railway access and 15 cranes (8 gantry and 7 dockside).

The company’s metal products trans-shipment facilities have the capacity to process more than 2m tonnes of cargo annually. The total number of employees is approximately 800 people.

Avlita Stevedoring financial indicators, $ m Indicators

2009

2010

Dynamics, %

Assets

105.1

119.5

+13.70

Sales volume

51.8

37.8

(27.03)

Net profit (loss)

23.4

13.3

(43.16)

EBITDA

36.4

24.2

(33.52)

SCM Group bussiness

Avlita Stevedoring is the core company of SCM Group’s new business area – transport and logistics.

Avlita Stevedoring operates a grain terminal, which is one of the largest in Ukraine, with a grain storage capacity of 170,000 tonnes, which allows the company to process up to 3m tonnes of cargo annually.

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Avlita Stevedoring specializes in trans-shipment of grain and metal products. The company’s trans-shipment facilities are located in the non-freezing harbor of Sevastopol, Black Sea.


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Focus points of the year In 2010, the volume of grain trans-shipment decreased significantly from 2.77m tonnes in 2009 to 0.98m tonnes in 2010. The reason for such sharp decrease was down to delays in VAT repayment by the government to grain traders in the first half of the year, as well as grain export quotas, imposed by the Cabinet of Ministers of Ukraine (Decree #938) on October 4, 2010. At the same

time, the volume of metal products transshipment increased from 1.74m tonnes in 2009 to 2.29m tonnes in 2010.

Investments The total investment in the development of Avlita Stevedoring in 2010 was $1.76m.

Cargo transshipment dynamics, m tonnes

Associated companies Associated companies are businesses where SCM Group, in its role as an investor, is capable of significant influence, particularly with regard to defining financial and operational policy, but where it does not exercise full

control. SCM is involved in defining financial and operational policy of these associated companies through its representation on the Board of Directors.


SCM Group Public Report 2010

Dokuchayevsk Flux and Dolomite Plant (DFDK) – one of Ukraine’s largest mining enterprises, specializing in fluxing limestone and dolomite extraction and processing, and the largest producer of fired dolomite for metallurgy. It is also the only plant in Ukraine to produce powders for refractory materials – 49.98% share. Novotroitskoye Mines Management – a  large mining enterprise, specializing in limestone and dolomite extraction and processing for metallurgy, refractory, glasswork, and sugar industries – 49.97% share. Krivbassvzryvprom Explosives Company  – an industrial production enterprise specializing in blasting works at open casts Ukrainian mines. It is also a large producer of emulsified and hydrolabile explosives – 46.58% share.

Donetskoblenergo – specializes in electric power distribution at regulated tariffs and its supply using local transmission networks – 30.60% share. Kievenergo – one of Ukraine’s largest producers and suppliers of electric and thermal power – 39.98% share. Zapadenergo – one of Ukraine’s largest producers of thermal and electric power – 24.99% share. Telecommunications Astelit – a national operator, providing mobile communication services to GMS 900 and GSM 1800 standards, operating under the life:) brand – 44.96% share. MMDS Ukraine – a telecommunications company providing digital television services and internet access, based on MMDS (Multichannel Multipoint Distribution System) – 25% share.

Krivoy Rog Iron Ore Plant – Ukraine’s largest producer of iron ore – 49.94% share.

Other Krasnaya Polyana Sand Quarry – an enterprise, specializing in quartz sand extraction and the production of concrete products using vibration casting technology – 24.99% share.

Energy Dneproenergo – Ukraine’s second largest electric power producer. Dneproenergo’s production facilities include three thermal power plants (TPP) – Zaporozhskaya, Krivo-

Dnepropetrovsk Television Service – a local free-to-air and cable broadcasting company, operating under the ‘34’ brand. The broadcasting coverage includes Dnepropetrovsk and the nearby localities – 22% share.

SCM Group bussiness

Donetskkoks (Donetsk Coke and Chemical Plant) – one of Ukraine’s largest coke and chemical enterprises, producing over 20 products – 37.47% share.

rozhskaya, and Pridneprovskaya – with a cumulative installed capacity of 8.2 GW●hour, amounting to 30% of the total installed capacity of all TPP’s in Ukraine – 47.56% share.

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Metals and mining Zaporozhkoks (Zaporozhye Coke and Chemical Plant) – Ukraine’s leading coke and chemical enterprise with a full technology cycle for chemical-recovery and product processing – 24.99% share.


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Football. Shakhtar Football Club and Donbass Arena Stadium Shakhtar Football Club FC Shakhtar has a 70-year history and a track record of success having won the Ukrainian Championship (2002, 2005, 2006, 2008, 2010), the Ukraine Cup (1995, 1997, 2001, 2002, 2004, 2008), the Ukraine Super Cup (2005, 2008, 2010), and the UEFA Cup (2009). The football club has a well-developed sporting infrastructure that includes, among others, a modern training base (originally opened in 1990) and a football academy. Donbass Arena Stadium The new 50,000-seat home stadium for FC Shakhtar, is the Donbass Arena, which is the first in Eastern Europe to be designed and built in compliance with UEFA’s 5-star standard. The overall investment in the stadium and landscaping the surrounding park amounted to $400m.

Donbass Arena is the cultural center of Donbass’ regional capital, Donetsk. In addition, the stadium will host group stage matches and the semi-final of the forthcoming Euro 2012 Championships to be hosted jointly by Ukraine and Poland.


065

SCM Group bussiness

SCM Group Public Report 2010


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Corporate social responsibility and sustainable development

Social responsibility at SCM SCM is committed to following the highest standards of corporate responsibility and views this as a core element of its business strategy.


067


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All businesses within the SCM Group have policies and plans in place, however, the main areas are determined according to their industrial focus, risks and opportunities: ƒƒ corporate governance and business ethics ƒƒ health and safety ƒƒ environment

ity. You can access our reports at www.scm. com.ua in the section “Sustainability / Reports and presentations”. Our industrial businesses, DTEK and Metinvest, also publish their own sustainability reports. You can access them at www.dtek. com and www.metinvestholding.com.

Awards

ƒƒ human resources ƒƒ local communities ƒƒ sponsorship and charity SCM also contributes to the institutional development of social responsibility in Ukraine. We are a founder member of the United Nations Global Compact (UNGC) in Ukraine, having joined in 2006 and currently chair the UNGC Steering Committee. SCM Group companies also contribute to the development corporate responsibility in Ukraine. DTEK and Metinvest joined UN Global Compact in 2007 and 2010, respectively. In May 2010 our insurance company ASKA was one of initiators of the Environmental Insurance Pool, set up to coordinate actions of Ukrainian insurers related to the insurance of risks that can have a negative environmental footprint. SCM takes part in constructive dialogue with stakeholders including: employees, citizens in the regions where we are present, local governments, business partners, NGOs, media and experts. Since 2007 we have been reporting to the international non-financial reporting standards on SCM Group’s projects and achievements in the area of sustainabil-

For the last three years (2007-2010) SCM has topped Ukraine’s corporate responsibility rating compiled by Gvardiya magazine. In August 2010 SCM’s project to landscape the park area around the new Donbass Arena stadium and plant it with green plants and grasses won the nomination “Environment and Society” at the International Public Environmental Award “Terra Viva-2010”. In 2010 DTEK and Metinvest took part in CSR Market Place, the first exhibition on Corporate Social Responsibility in Ukraine, organized by CSR Development Centre. DTEK won the “The Best Non-Financial Report” and “The Best Project” while Metinvest’s sustainability report was shortlisted as one of the Top 5 best non-financial reports in Ukraine.

Employment SCM Group businesses employ approximately 200,000 people and we believe that they are our most valuable resources. Our priority, particularly in our industrial businesses, is to ensure healthy and safe working conditions and good salaries, as well as to invest in professional development and training of our employees.


SCM Group Public Report 2010

Our employees

Professional development and training are a special focus for the SCM Group. We are committed to giving our employees the opportunity to develop and fully realize their potential. DTEK delivers training for its employees at its own purpose-built facility, the DTEK Academy - a corporate centre attended by future managers who have strong professional competencies and leadership potential. Segodnya Multimedia trains most of its employees through a corporate university programme where the company’s employees attend courses developed and taught by senior managers of the company and invited guest lecturers.

Health and Safety Creating healthy and safe working conditions is a first priority for SCM. To achieve this goal we introduce modern technologies and equipment, improve health and safety management, and create a “safety first� culture. SCM Group companies manage health and safety in line with the best global practices and in particular, international standard OHSAS 18001.

Metinvest continued to introduce corporate safety standards designed to identify root causes of incidents and audit safety systems with the primary goal of encouraging employees to work safely and to develop a safety first culture throughout the business. Our industrial holdings also prioritize education and advance training of employees in the area of health and safety. Metinvest has developed a system of internal coaches to teach corporate health and safety standards. The trainers are recently retired members of staff who are retrained as coaches and bring a wealth of detailed knowledge of the business and strong expertise in health and safety to the role, as well as the respect of their peers. In 2010, SCM Group invested approximately $100,5m in health and safety programs, which is 60% more than in 2009.

Environment Environmental safety and protection is a priority for the SCM Group. We strive to reduce the environmental impact of our production cycles. The main areas of SCM Group programmes include: reducing air emissions (particularly, emissions of green house gases), consuming water and land sustainably,

Corporate social responsibility and sustainable development

In 2010 our industrial plants continued to improve their motivation and remuneration systems. With a new system of job assessment based on Hay Group practices, we ensured fair remuneration to every employee for his or her work, based on their level of knowledge, skills and professional expertise.

In 2010 DTEK took a range of strategic health and safety initiatives, including developing improved personal safety equipment and clothing; established an efficient system of occupational medicine and preventative health care; as well as implemented a system of financial and non-financial motivation of employees for excellent performance in health and safety.

069

We are one of the largest employers in Ukraine and SCM seeks to apply modern approaches in human resource management and development.


070

cutting waste water discharges, reducing waste generation, increasing waste recycling and improving energy efficiency. In 2010 our companies continued to introduce environmental systems in compliance with ISO 14001. SCM Group’s steel mills, Azovstal and Yenakiyevo Steel Plant (YeMZ), carried on their extensive modernization programmes that are expected to deliver both economic and environmental effects. We recognize the climate change as a pressing issue and work to reduce green house gas emissions. Metinvest and DTEK realize Join Implementation projects within the Kyoto Protocol mechanisms. Metinvest is carrying out ten Joint Implementation projects in three areas: 1 – coal mine methane recovery at Krasnodonugol; 2 – producing heat and electricity from exhaust gases at Azovstal and YeMZ; 3 – improving energy efficiency at Azovstal and YeMZ. DTEK is working to reduce greenhouse gas emissions in two areas: coal mine methane recovery at Komsomolets Donbassa Mine and reconstruction of the power equipment at its Vostokenergo generation business. We also support initiatives that tackle climate change. As Ukraine’s only company with full membership in the World Steel Association, Metinvest joined its Climate Action project to identify the steel industry impact on the environment until 2050. In 2009 and 2010 Metinvest received Climate Action certificates, which confirmed the commitment of Metinvest to Kyoto Protocol principles, in particular, to the reduction of greenhouse gas emissions.

In 2010 DTEK continued to work in its new area of operations – wind energy. We believe that using renewables will deliver environmentally clean energy and contribute to higher energy security of Ukraine in future. In 2010 the SCM Group invested more than $280m in the environmental programs, which is 45% more than in 2009.

Involvement with local communities Encouraging social and economic development in the regions of our operations is a priority for SCM. By making social investments we focus on systematic cooperation with local communities and identify the priority directions of social projects with local governments. Many of our production companies are major employers and taxpayers in their communities, so most social investments within the Group come from Metinvest and DTEK. The social programmes at DTEK are based on Declarations on Social Partnership signed with local authorities that cover the principles, types and approaches to cooperation in the key social investment areas. Metinvest continues to move from a number of charitable actions and contributions to local development to a strategic approach with comprehensive social partnership programmes with local governments. SCM Group industrial holdings target their social investments at supporting the development of infrastructure, education, public health, culture and sport.


SCM Group Public Report 2010

In March 2010 we launched FormulaS project where senior managers of the SCM Group give open master classes for Ukrainian students. The initiative helps the students to develop skills as public speaking, time management, leadership, negotiations and project management. More than 1 500 students have already benefited from this project. In 2010, the overall social investments of SCM Group’s core businesses exceeded $8m, which is 28% more than in 2009.

Social investments are a priority for the SCM Group. We also provide sponsorship support and make charitable donations. Most of the SCM Group’s sponsorship payments come from SCM managing company, which supports national and international projects and initiatives. In our charitable activity we partner with NGOs and charitable foundations to support the projects that address social problems and seek to improve the quality of living in the regions of our operations and across Ukraine.

Corporate social responsibility and sustainable development

Education is a priority area for SCM’s social investment. Our social programme Contemporary Education aims to improve the quality of education of Ukrainian graduates to meet the requirements of the real economy sector. Since 2008 we have initiated and supported the preparation of the annual national university ranking, Compass, which gives information about the universities where courses have the biggest practical value for students and deliver good employment prospects.

Sponsorship and charity

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SCM managing company implements national-scale projects with the focus on social and economic development of Ukraine.


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Key postreporting period events 2010

January DTEK agreed a 49 year lease for Dobropolyeugol, a state-owned mining enterprise. The lease agreement was signed with the Regional Department of the State Property Fund of Ukraine in Donetsk Oblast, based on the results of a competitive tender held in December 2010. DTEK Dobropolyeugol, represented DTEK in the bid. The process of transferring Dobropolyeugol Mining to DTEK under the terms of the agreement was completed on January 4, 2011. DTEK intends to invest more than $250m in Dobropolyeugol’s coal mines during the next five years.


073


074

The investments will be mainly used to upgrade the current equipment, capital construction, increasing coal reserves, extend the existing coal faces, and build a health and safety management system, which is in compliance with the OHSAS 18001:2007 standard at all Dobropolyeugol mines.

Azovstal Steel Plant (Metinvest) repaid its $175m Eurobond, which matured in February 2011.

SCM paid the final installment on its $545m syndicated loan. The syndicated four-year loan was granted to SCM in March 2007.

March

In 2010, Service-Invest (DTEK) completed the reconstruction of five substations and put into operation a new power transmission line. The total cost of works amounted to approximately $7m.

February Metinvest was granted a $75m pre-export loan facility, with repayment due in 2013, from Rabobank. The funding will be used for further upgrading of its production facilities and other corporate purposes. Mining Machines Company signed an agreement with Sberbank of Russia for a $40m credit line. The funding will be used to implement investment programs, develop the company’s production facilities, and to replenish working capital due to the growth of sales volume and the development of the distribution network. Metinvest placed a $750m, seven-year Eurobond with a yield of 8.75%, due on February 14, 2018. The funding will be used for its capital investment program and other corporate purposes.

DTEK and other SCM Group companies increased their stake in Zapadenergo statutory capital to 25.06%.

Metinvest signed an agreement with Sberbank of Russia to open a $175m, 3-year amortizable reserve line of credit. The funding will be used for the capital investment program and other corporate purposes. SCM completed the transaction to purchase a 19.82% share in Donetskgormash and 21.75% share in Druzhkovka Heavy Engineering Plant, thus, increasing its stake in Donetskgormash to 69.87% and in Druzhkovka Heavy Engineering Plant to 87.13%. Fourteen of DTEK’s enterprises completed the certification of their environmental management system to comply with ISO 14001:2004 standard. The total investment in the project in 2010 was approximately $0.6m. The system audit was carried out by Moody International, a world leader in technical inspection and certification services. DTEK completed the certification of its occupational safety management systems at its enrichment, distribution, and service enterprises to comply with OHSAS 18001:2007 standard. The total volume of investment in the project in 2010 exceeded $22m. The audit was carried out by Moody International.


SCM Group Public Report 2010

Metinvest completed capital repairs of mixer #3 of the oxygen-converter facilities at Ilyich Steel Plant in Mariupol, within the framework of its continual improvement, reconstruction, and modernization program. The total volume of investment amounted to approximately $0.8m.

investment program, aimed at the continual improvement and development of production efficiency.

April

SCM Group’s transportation assets are consolidated under Portinvest, a new sectoral holding.

SCM presented its non-financial (sustainability) 2009-2010 report.

DTEK created DTEK Neftegaz, a daughter company, to develop projects in oil and gas industry, on the continent and offshore.

At System Capital Management’s General Shareholders Assembly a decision was made to retain the company profit for 2010 for business development.

SCM and Smart Group made a decision to create HarvEast Group to manage the agricultural assets, obtained after Metinvest purchased Ilyich Steel Plant in Mariupol.

Metinvest B.V. (Netherlands), Metinvest Group’s holding company, signed a $100m, 3-year pre-export line of credit with UniCredit bank.

Vostokenergo (DTEK) began the upgrading of power-generating units with total cost of $199.41m.

Lviv, Burshtyn, and Dobrotvor cities joined DTEK’s Declaration of Social Partnership

May Metinvest allocated $626,3m to invest in the development of its enterprises. The intended funding for SevGOK exceeds $323m, for InGOK – more than $169.1m, for CGOK – approximately $113m. The funding is provided within the framework of a long-term

The integration of Ilyich Steel Plant in Mariupol into Metinvest Group was completed, and Clarendale Limited (Cyprus), with Vladimir Boyko being the end beneficiary, became one of Metinvest Group’s shareholders. As a result, Metinvest’s ownership structure changed to the following: SCM Group (71.25%), Smart Group (23.75%), Clarendale Limited (5%).The shareholders of Metinvest approved the 5-year, $2bn investment program for Ilyich Steel Plant in Mariupol.

Key post-reporting period events 2010

June

075

Power Trade (DTEK) began the commercial supply of electric power to Moldova. The estimated monthly supply volume will amount to 75-100m KW/hour, with a maximum supply capacity up to 150MW.

SCM presented IV annual Ukrainian National Higher Educational Institutions Rating, Compass, prepared jointly with Kiev International Sociology Institute.


SCM Group Public Report 2010  

SCM Group in 2010

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