2010 Financial Results 2010 2009 Dynamics, % assets, $ MILLION 22,788 18,539 +22.92 sales volume, $ MILLION 12,819 8,151 +57.27 net pRoFit, $ MILLION 850 97 +776.29 eBitDa, $ MILLION 3,376 1,735 +94.58002
contents 2 2010 financial results 26 SCM Group business 4 CEO Statement 28 Metals and mining 6 SCM Group events calendar 2010 36 Energy International Financial Reporting Standards. Consolidated Financial Statements and Auditors’ Report 41 Financial services 43 Telecommunications10 About SCM Group 45 Real estate10 SCM Group history 47 Media13 Corporate culture: mission, vision, values 52 Clay mining14 SCM Group management 54 Retail trade20 SCM Group corporate structure – 2010 56 Petroleum products retailing SCM Group corporate transformation 57 Heave Engineering22 program 2010 60 Pharmaceuticals24 SCM Group business structure 61 Transport and logistics 62 Associated companies 64 Football 66 Corporate social responsibility and sustainable development 72 Key post-reporting period events – 2010 003
CEO Statement Dear Colleagues and Partners, Two years ago, in the midst of the global eco- growth of our business and a further $204m nomic recession, I made a promise that SCM in mergers and acquisitions1. would emerge stronger, more effective, and better prepared for intensive growth after the In 2010, Metinvest became the controlling recession ended. I am proud to let you know shareholder in the Ilyich Steel Plant, based in that is precisely what we have achieved. Our Mariupol, one of Ukraine’s largest enterpris- 1 While Ukraine remains the financial indicators in 2010 are close to pre- es with a full metal production cycle. Acquir- main focus of our activity and recession levels. We have strengthened our ing the plant to become part of Metinvest investment, we significantly competitive advantages, while continuing Group was an important step in implement- expanded our presence in to invest in development. We enhanced our ing SCM Group’s long-term strategy of en- international markets. leadership and corporate culture, at the core hancing vertical integration, achieving maxi- of which is our management team. mum production effectiveness in Ukraine, and strengthening our market position. The This is the basis for further sustainable total volume of investment in the develop- growth in the new economic reality, where ment of Metinvest Group in 2010 amounted instability has become an integral part of our to $582m (excluding M&A). lives. In this new reality, to be successful, we continue to focus on investing in growth as During 2010, DTEK’s enterprises demon- we did previously, however, we have become strated significant growth. The volume of more efficient, adaptive, and effective. coal mined increased by almost 1.5m tonnes to 19.2m tonnes. One of the key growth We optimized the Group’s business port- factors was the increased investment in folio, exited from non-core business areas, highly efficient mining equipment and in- and prepared ourselves for entering new, novative technologies during 2008-2010. promising areas. We secured control of our The total output of DTEK’s power genera- liquidity and this gave us financial mobility tion companies (including Dneproenergo) as the global and the national economies also increased by 34% to 30.7bn kW/hour, began to recover. while the total volume of power distributed increased to 13.3bn kW/hour - a 13% in- As a result of these actions, SCM was suc- crease compared to 2009. cessful in 2010, when we saw the first signs of the economic growth, and delivered re- In the reporting year, our energy business sults that make us rightly proud. Our revenue strengthened its presence in international was $12,819m, profit was $850m, while markets. DTEK exported approximately004 more than $1,807m was paid in taxes, and 2m tonnes of coal, thus, exceeding the approximately $1,162m was paid in remu- 2009 figure by almost two-fold. The coal neration to our employees. Additionally, was shipped to customers in Turkey, Bulgar- we invested over $1,118m in the organic ia, Poland, Romania, India, USA, and Brazil.
SCM Group Public Report 2010Also in 2010, DTEKbegan supplying power main goals. It has to grow shareholder value,to consumers in Hungary, Slovakia, Roma- while remaining a positive force of changenia, Moldova, and Belarus. Last year, DTEK in society. We at SCM consider both of theseexported 1.21bn kW/hour of power. The to- goals as strategic and are determined to fur-tal investment in DTEK’s organic growth in ther grow and develop in this new, balanced2010 amounted to $276m. paradigm. Moreover, we believe that the val- ue we create will be greater than merely theTo strengthen its position in the domestic fi- sum of SCM’s shareholder and societal value.nancial market, SCM made a decision to con-solidate First Ukrainian International Bank and In terms of business goals, SCM Group’s pri-Dongorbank into a single entity by merging orities for 2011 remained unchanged. TheyDongorbank into First Ukrainian International include the organic development of our ex-Bank. The consolidation is planned to be com- isting assets, boosting their operational ef-pleted in the second half of 2011. fectiveness, through continual investment in modernization and personnel development,To manage its media assets in television as well as entering new and attractive sectorsand digital media, SCM created the Ukraine of economy which have significant growthMedia Group. This new holding includes: potential. In 2011, the new sectors we willUkraine Television Channel, Football sports focus on will be agriculture and the expan-channel, Donbass regional channel, Media sion of our transportation business which wePartnership sales house, and Digital Ventures intend to grow and to add value.(tochka.net portal). We will also strive for SCM’s growth to facilitateIn 2010, we also made a decision to enter the development of the regions where we areseveral new business areas, among which present. This is not only due to the taxes andwas pharmaceuticals. SCM Group acquired salaries we pay, we have been doing this sincePharmacy of Donbass, which owned a net- SCM Group was created2.work of more than 120 pharmacies. To man- 2age the new business area, Ukrainian Phar- At SCM, we feel that our success is con- What we want is to createmacy Holding was created, with its strategic nected with the way the society progresses. a clear, direct connectiongoals being to grow market share and geo- We know, every time our employee comes between our economic growthgraphical expansion. to a factory, goes down a mine, enters an of- and society’s social progress. fice, or drives a excavator, that he or she is CEO StatementThe decision was also made to organize changing not only their lives, but the lives oftransport and logistics into a separate busi- hundreds of people. What we do and howness area, concentrated around Avlita Ste- we do it is important, not only for us and ourvedoring Company, the company specializes employees, but also for hundreds and thou-in grain and metal transshipment through its sands of people outside SCM.facilities in the non-freezing Sevastopol Bayon the Black Sea. 005Overall, the reporting year helped us rec- Sincerely,ognize that in the 21st century a successful Oleg Popovbusiness has to move forward, driven by two Chief Executive Officer
SCM Group events calendar 2010 JanuaRy 15 January 4 March Service-Invest (DTEK) completed the $4m Metinvest joined the UN Global Compact reconstruction of Vozrozhdenie substation 17 March 26 January DTEK’s corporate university was launched DTEK joined EURACOAL, the European Asso- ciation of Coal and Lignite producers 22 March DTEK and Dnepropetrovsk National Mining 27 January University signed a long-term cooperation SCM participated in the annual meeting of agreement the World Economic Forum in Davos for the fourth consecutive year. SCM is a strategic 30 March partner of the Forum DTEK, Kurakhovo (Donetsk Oblast) City Council, and USAID Municipal Heating Re- 27 January form Project in Ukraine signed a memoran- First Ukrainian International Bank completed dum of cooperation the restructuring of its obligations to bond holders and creditors apRil FeBRuaRy 12 April Yenakiyevo Steel Plant (Metinvest) success- 18 February fully completed the product quality supervi- Stepnaya mine (DTEK) put a new rock wind- sory audit, conducted by CARES, the UK Cer- ing set into operation at its Unit #2 tification Agency of Reinforcing Steels 24 February 12 April Vega launched its services in Zhitomir, Uzh- SCM Group established Mining Machines gorod, Rovno, and Khartsyzsk (Donetsk Oblast) Company to become the holding for its heavy engineering businesses maRch 20 April SCM was ranked #1 in Gvardia Rating of So- 3 March cially Responsible Companies for the third SCM Limited (Cyprus), a holding company, paid consecutive time006 a further $82.9m installment on its $545m syn- dicated loan, secured in March 2007
SCM Group Public Report 201022 April 25 MayYenakiyevo Steel Plant (Metinvest) launched Metinvest successfully placed a $500m Eu-the preparations to certify its environmental robonds issue with a 5-year termmanagement system to ISO 14001:2004standard June28 AprilDTEK successfully placed a $500m Eurobond 24 Juneissue with a 5-year term Metinvest Eurasia opened a new warehouse in Mineral Waters (Russia)30 AprilSystem Capital Management General Share-holders’ Assembly made a decision to allo- Julycate $92.4m of company profits for 2009for business development 13 July DTEK made a decision to invest $63m in Rovenkyanthracite and Sverdlovanthracitemay state-owned companies within the frame- work of renovation projects, using a public-13 May private partnership mechanismSCM presented the results of the UkrainianNational Higher Educational Institutions Rat- 14 July SCM Group events calendar 2010ing, Compass 2010 DTEK joined EURELECTRIC, the association uniting the electricity industry companies in14 May EuropeThe portfolio of individual clients’ deposits at FirstUkrainian International Bank exceeded $500m 29 July Metinvest signed a $700m three-year syndi-18 May cated pre-export loan facilityKhartsyzsk Pipe Plant (Metinvest) complet-ed the construction of new X80 straight-seamed electro-welded large diameter steel augustpiping production line 2 August21 May Brusnytsya retail chain expanded add- 007ESTA Group completed the purchase of 50% ing stores in Kramatorsk (Donetsk Oblast),stake in Kiev Hotel (Donetsk) Melitopol (Zaporozhye Oblast), and 2 stores in Zaporozhye
septemBeR novemBeR 2 September 4 November SCM Limited (Cyprus), a holding company, SCM made a decision to create Ukraine paid a further $81m installment on its $545m Media Group on the basis of Ukraine Televi- syndicated loan, secured in March 2007 sion Channel 10 September 10 November The Supervisory Councils of First Ukrainian DTEK began exporting electric power to International Bank and Dongorbank made Belarus the decision to consolidate the banks by merging Dongorbank into First Ukrainian In- 17 November ternational Bank Metinvest became the controlling sharehold- er of the Ilyich Steel Plant in Mariupol 22 September Pharmacy of Donbass became part of SCM 19 November Group SCM celebrated its 10th anniversary 30 September 19 November Vesko (United Minerals Group) obtained the Metinvest’s Makeyevka Steel Plant became the approval of the Anti-Monopoly Committee first company in Ukraine to launch the produc- of Ukraine to concentrate a stake of more tion of reinforcing bars with negative tolerance, than 50% in the statutory capitals of Keram- according to DSTU 3760-2006 standard mekhanizatsiya and Capital-Service, which both specialize in the geological research of 29 November clay deposits First Ukrainian International Bank became the first bank in Ukraine to be successfully 30 September audited for compliance with the international DTEK and other SCM Group companies in- information security standard, PCI DSS creased their stake in Zapadenergo’s statu- tory capital to 24.99% DecemBeR 30 September C4Gas S.A. (France), the main common 1 December sourcing portal of major European oil and The Parallel chain of gas stations expanded, gas companies, completed the certification adding 3 new gas stations in Lugansk procedure of Metinvest Group’s products and sales system008
SCM Group Public Report 20106 December 22 DecemberMetinvest Group enterprises completed the Metinvest began rolling reinforcing rods atregistration procedure, in compliance with Makeyevka Steel Plantthe EU’s REACH directive 22 December9 December SCM and Renaissance Credit Group signedDTEK increased its share in Kievenergo statu- an agreement for SCM to purchase a 100%tory capital to 39.98% stake in Renaissance Capital Bank (Ukraine)17 December 31 DecemberESTA Group purchased Kiev’s Central Univer- Ukraine Television Channel was ranked #2mag Shopping Mall among Ukraine’s television channels in 2010 (audience of 18 years+ in cities with popula-17 December tion of 50,000+) – for the first timeBrusnytsya retail chain expanded adding 3stores in Kharkov and Kharkov Oblast andone store in Zaporozhye20 DecemberMining Machines Company secured a $35mcredit line from Prominvestbank20 DecemberDTEK signed an agreement with state-ownedNEK Ukrenergo, securing access to the inter-state electric power export networks for 2011 009 SCM Group events calendar 2010
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, min- ing, 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.010
2000-2002 growing the portfolio SCM expands its investment portfolio. It is dur- ing, metals, energy, and financial sector. The ing this period that the company acquires most company institutes the preparation of con- of its businesses and begins introducing a sin- solidated financial statements in accordance gle standard of management across the Group. with International Financial Reporting Stand- ards (IFRS) and begins the process of build- ing a transparent business and management 2002-2004 investing structure for the Group. During this period, the main focus is on es- tablishing international standards of business 2007-2008 creating stability management at all of the company’s key as- sets. Meanwhile, enterprises are modernized SCM group develops a distinct business de- and production indicators are raised, where velopment strategy. Business expansion is possible, using experience and know-how, based on organic growth, as well as on new accumulated by SCM professionals. The acquisitions in strategically important seg- company begins to implement its long-term ments of the economy and industry (min- growth strategy and to increase the effec- ing and metals, energy, financial sector, tel- tiveness of its business. This means building ecommunications, real estate, retailing, and vertically-integrated industrial businesses others). Simultaneously, SCM begins exiting and forming a team of world-class managers from sectors, presence in which does not capable of running them. comply with the approved business develop- ment strategy. During this period the Group also accumulates the necessary financial 2004-2006 expansion and reserves to ensure business stability during transparency volatile economic periods. At the foundation of this stability are balanced approach to do- During this period, SCM begins actively ex- ing business, effective and efficient decision- panding its corporate transformation pro- making, conservative approach to borrow- gram, aimed at increasing the effectiveness ing, clear priority setting, and, undoubtedly, of the Group’s corporate structure and cor- the team of talented professionals. porate governance. The first steps within the program’s framework are forming Metinvest and DTEK holdings to exercise strategic and 2009-present time. operational management of the Group’s as- Looking to the future sets in metals, mining, and energy, respec- tively. During this period, SCM also actively By the 10th year of operations SCM becomes012 invests in the new areas: media, real estate, Ukraine’s largest private national investor. The and telecommunications. SCM also grows Group’s share in the country’s GDP amounts its presence in its main business areas: min- to 7%, while its enterprises employ approxi-
SCM Group Public Report 2010mately 200,000 people. SCM’s geography as well as long-term investment in businessesof presence includes Ukraine, Russia, Swit- with high growth and ROI potential. The mainzerland, Italy, Bulgaria, United Kingdom, and goal also remains constant – to become notUSA. In spite of the global economic changes, only Ukraine’s leading financial and industrialthe Group’s approach to doing business re- group, but also a truly competitive and suc-mains unchanged: balanced diversification, cessful global business.Corporate culture: mission, vision, valuesThe SCM mission: success, constantly improving the processes andtogether methods of doing business;We invest in the continuous growth and ef- rational allocation and use of resources;fectiveness of our business, and through thissupport the economic and social develop- seeking new opportunities;ment of society as a whole. preparedness for change.The SCM vision: creating through Professionalism in doing business, includ-development ing investing in people and stimulating inno- vation and enthusiasm towards work. For us,We build effective businesses and manage there is particular importance in:them according to the best world standardsand practices, ensuring long-term returns on meeting the highest standards;our investment and participation in the devel- About SCM Groupopment of the regions in which we are present. stimulating initiative and innovation; investing in professional development andThe SCM values: effectiveness, loyalty of employees;professionalism, accountability attracting and retaining highly qualifiedEffectiveness as a means to achieve the best re- personnel;sults in everything we do. For us, effectiveness is: 013 evaluating achievements fairly. reaching the goals we set; Accountability to our employees, our part- applying contemporary technologies and ners, our communities, and society as a whole. approaches to doing business;
OlegPopov Margarita Povazhnaya Chief Executive Officer Chief Financial Officer SCM Group management CEO of SCM since January 2006. SCM’s Financial Director since September 2009. 2001-2006 – Executive Director of SCM. July 2008 – September 2009 – Deputy 2000 – Joined SCM as Deputy to the CEO. Financial Director of SCM. 1992-2000 – Worked in various 2003 – Joined SCM as Chief Accountant. government offices. Prior to joining SCM, Ms. Povazhnaya worked as Chairman of the Board of FC Shakhtar. Chief Accountant in various large Ukrainian com- panies (Scandic South, Artemovsk Champagne Represents SCM interests on the Supervisory Winery, etc.). Boards of Metinvest, DTEK, First Ukrainian Inter- national Bank, Dongorbank, and Ukraine Media Started her career in 1996 by being accepted to the Group. Donetsk Oblast State Tax Inspection as State Tax In- spector for the Individual Persons’ Audit Department. Areas of responsibility: taking and approval of the key financial, investment, and personnel deci- Member of Metinvest and DTEK Audit Committees. sions, both directly at SCM and in the Group’s as- Chairs the Audit Committees of Bureau of Economic sets, as well as evaluating the performance of top and Social Technologies (BEST) Analytical Center, management of these assets. and SCM Finance. Education: Areas of responsibility: organizing tax and financial Graduated from Donetsk State University in 1996. audit of SCM Company and SCM Group’s foreign assets, budgeting and cash flow planning for SCM Graduated from Donetsk Polytechnical Institute in Group. 1991. Education: Graduated from Donetsk State University of Man- agement with a postgraduate degree in 2008. Other credentials include: Ph.D. in Public Adminis- tration, International Financial Reporting ACCA Di- ploma, mini-MBA diploma.014 Graduated from Donetsk State Commercial Univer- sity with major in Industrial Management in 1995.
SCM Group Public Report 2010 Amir Aysautov Sergey Korovin Metals and mining Energy Business Business Development Director Development Director SCM Metals and mining Business SCM Energy Business Development Development Director since November 2009. Director since March 2010. August 2008-November 2009 – Strategy 2008-2010 – member of Microsoft Russia and Investment Director, Clever Management. Board of Directors, responsible for cooperation 2003-2008 – Senior Project Manager, with telecommunications sector. McKinsey & Company, Moscow 2002-2008 – advanced from Consultant and Dubai offices. to Junior Partner in McKinsey & Company, Denmark and Moscow offices.Represents SCM interests on the Metinvest Hold-ing Supervisory Board. Represents SCM interests on the DTEK Supervisory Board.Areas of responsibility: strategy, investment, fi-nance, and risk management for SCM’s metals Areas of responsibility: strategy, investment,and mining business. finance, and risk management for SCM’s energy business.Education:Graduated from Georgetown University School Education:of Business (Washington, USA) with an MBA in Graduated from Moscow State University named2003. after M.V. Lomonosov with major in Computational Mathematics and Cybernetics in 1993.Graduated from Kazakhstan National TechnicalUniversity with major in Economics and EnterpriseManagement in 2001. 015 About SCM Group
Ilya Arkhipov Nikolai Nesterenko Business Development Director New Business Development Director Business Development Director at SCM New Business Development Director since November 2005. at SCM since September 2007. 2001-2005 Consultant, McKinsey & Co, 2002-2007 – Senior Manager for Strategy Moscow. Development for a range of the Group’s new 2000-2001 – Operations Manager businesses, such as heavy engineering, for Russia’s largest on-line auction resource, real estate, etc. Molotok.ru for NetBridge, an internet company. 2001 – Joined SCM as Manager of the 1995-2000 – Consultant, Coopers & Lybrand Financial Control Department. and PriceWaterhouseCoopers, Moscow. 1997-2001 – Worked at Keramet Invest, having grown from Stock Broker to Represents SCM’s interests on the Supervisory General Manager. Boards of Farlep-Invest, First Ukrainian Interna- tional Bank, Dongorbank, ASKA Insurance Com- Currently is heading ESTA Holding – SCM sectoral pany. holding, managing its real estate projects, as well as is chairing the Supervisory Board of ESTA Prop- Areas of responsibility: participating in determin- erty Management. Sits on the Supervisory Boards ing the Group’s business strategy for telecommu- of SCM Group hotels. nications, banking, and insurance sector. Areas of responsibility: determining SCM’s strate- Education: gic business development in real estate, heavy en- MBA from INSEAD (France), a leading European gineering, pharmaceuticals, and transport sectors, business school, in 2004. as well as seeking new areas for investment. Graduated from the Plekhanov Academy of Eco- Education: nomics in Russia as a Specialist in Enterprise Man- MBA from INSEAD (France), a leading European agement in 1999. business school, in 2007. Graduated from the Financial Accounting Depart- ment of Donetsk State University in 1998.016
SCM Group Public Report 2010 Yekaterina Lapshina Natalia Yemchenko Media Business Public Relations Development Director and Communications Director Media Business Development Director Public Relations and Communications Director at SCM since August 2010. at SCM since December 2006. November 2008 - August 2010 – Investment 2005-2006 – Public Relations Manager for Director and Junior Partner at Adela Holding SCM Group. Limited (Russia). 2003 – Joined SCM Group as a Sector Group August 2006 - September 2008 – Deputy Manger. Business Development Director at Energoprom 2001-2003 – Director, Keramet Invest. Management. 1998-2001 – Financial Manager at KOLO, March 2004 - August 2006 – Senior an investment company. Consultant at Ernst & Young. Chairs the Audit Committee and the EditorialRepresents SCM’s interests on Supervisory Boards Council of Ukraine Television Channel.of the Group’s media businesses. Areas of responsibility: communicating with stake-Areas of responsibility: strategy, investment, fi- holders, including media, employees, residents innance, and risk management for SCM’s media regions of company presence, government au-business. thorities, community organizations, and the gen- eral public, as well as company reputation man-Education: agement.Graduated from the Russian Federation State Fi-nancial Academy with Masters Degree in Econom- Represents SCM’s interests on the Supervisoryics in 2005. Board of Ukraine Media Group, as well as Chairs the Audit Committee and the Editorial Board of About SCM GroupGraduated from the Institute of International Eco- Ukraine Television Channel.nomic Relations (Moscow) with a Bachelor’s De-gree in Economics in 2003. Education: Currently enrolled in EMBA program at INSEADOther credentials include: CMA (Certified Financial (France), a leading European business school.Manager) Certificate, 2nd level candidate for CFA(Certified Financial Analyst) Program. Graduated from Donetsk National University as a Specialist in Finance and Credit in 1998. 017
Jock Mendoza-Wilson Roman Bugayov International and Investor Corporate Rights and Foreign Asset Relations Director Management Director International and Investor Relations Director Corporate Rights and Foreign Asset at SCM since 2006. Management Director at SCM since 2005-2006 – Director of Corporate September 2007. Communications for the SCM Group. 2005-2007 – Manager of the 1989 – Launched his own PR consultancy Corporate Rights Department for SCM Group. in London. 2003 – Joined SCM Group as Economist. 1984 – Began his career with Ford 2002-2003 – Economist at Keramet Invest. Europe Company. 1996-2002 – Worked in the Donetsk Oblast Office of the Anti-Monopoly Committee of Worked Regional Director for Middle East and Ukraine as a Specialist, Senior Specialist, then North Africa at Promoseven Weber Shandwick PR Department Manager. (Dubai), later – as Regional Director for Eastern Europe at Mmd. Advised U.S. Government agen- Serves as Director of a range of SCM’s foreign cies on their public diplomacy programs in the companies. Represents SCM interests on the Su- Middle East. pervisory Board of DTEK. Sits on the Audit Com- mittee of Ukraine Television Channel. Areas of responsibility: developing and imple- menting communications strategies and pro- Areas of responsibility: determining and implement- grams, aimed at establishing contacts with both ing company policy regarding the management of government authorities and NGOs; developing re- corporate rights; organizing and handling operations lations with international governments, business, involving corporate rights belonging to the company and media, as well as maintaining relations with and its subsidiaries; and organizing the activities of the investment and finance community. foreign companies belonging to SCM. Education: Education: Graduated as an Economist from Herriot-Watt Graduated from the Donetsk Institute of Entrepre- University (Edinburgh, Scotland) in 1984. neurship as a Specialist in Organizational Manage- ment in 2000, with major in Economic and Legal Aspects of Commercial Activity.018
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, devel-opment and implementation of human resourcesmanagement policies, development of KPI for per-sonnel evaluation and career planning, designingmotivation, rotation, and promotion programs forpersonnel.Education:Graduated from Kiev National Linguistic Univer-sity with major in Organizational Management in2008. 019 About SCM Group
SCM Group corporate structure SCM Group 1. SCM Company target corporate Operational companies 3.1. Sectoral Holding governance system 4. Supervisory Boards of Supervisory Board 2. Minority shareholders 5. Operational companies when decision is made 3.2. Sectoral Holding Managing Company not to create a sectoral holding 3.3.Holding General 3.4.Holding Director 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*020
SCM Group Public Report 2010SCM’s system of corporate governance is in of accounting policy and procedures forline with the highest international standards preparing financial reports; the depth andand is based on world best practice. It allows accuracy of financial reporting providedthe company to quickly and effectively make by each holding; the reliability and effec-the decisions, necessary to ensure the stability tiveness of the internal auditing system,and growth of all the Group’s sectoral hold- internal oversight and risk management;ings and business areas. the independence of internal and external audits; and ensuring compliance with theAs the majority shareholder and the main in- laws and norms governing business ethics.vestor, SCM Group governs its sectoral hold-ings by delegating its representatives to sit The Strategy and Investment Committeeon the respective Supervisory Boards. The prepares and submits for review to the Su-participation of minority shareholders in the pervisory Board the necessary recommen-governance of these holdings is also executed dations regarding the opportunities forthrough their representatives on the Supervi- the holdings to be involved in investmentsory Boards. projects and exit strategies for specific projects. The Committee also preparesThe Supervisory Boards govern the sectoral recommendations regarding the strategicholdings. These Boards include representa- goals and objectives of the various hold-tives of SCM, minority shareholders, and ex- ings, as well as the implementation ofternal experts. The members of each Board agreements on mergers and acquisitionsvote to elect a Chair from among their num- (M&A).ber. The Supervisory Boards determine busi-ness development areas and the standards for The Appointment and Compensationengaging in specific businesses; they approve Committee recommends to the Supervi-strategies, budgets and major transactions, sory Boards candidates for managementas well as oversee their implementation; they positions in the sectoral holdings. Withtrack business indicators, appoint top manag- this purpose in mind, the Committee or-ers, establish incentives for them, and evalu- ganizes interviews with applicants for About SCM Groupate their performance. The members of the specific positions and decides whom toSupervisory Boards, along with independent recommend for those positions. The Com-experts, may also participate in specialized mittee also prepares recommendationscommittees including: the Audit Committee, regarding the rotation of top managersthe Strategy and Investment Committee, the within the sectoral holdings, proposesAppointment and Compensation Committee, ways to incentivize top managers, as welland the Health, Occupational Safety, and En- as participates in shaping the corporatevironment Committee. culture and staffing, and in determining 021 the prospects for personal development The Audit Committee prepares recom- of managers. mendations for the sectoral holdings’ Su- pervisory Boards regarding the approval
The Health, Occupational Safety, and Envi- collegially. The Chair of the Executive Council ronment Committee was created to insti- is the General Director of the holding. tute the highest health and occupational safety standards across the Group, as well The Supervisory Boards of operating compa- as to control the environmental impact nies are responsible for their sustainable fi- of the Group’s industrial enterprises. The nancial and commercial growth, improved ef- Committee develops SCM Group’s strat- ficiency, and increased competitiveness of their egy for the areas of its authority; prepares operations. They keep track of the upholding of budgets to finance modernization of, and shareholder rights, make decisions regarding equipment purchase, for the Group’s in- the time to hold General Shareholders’ Assem- dustrial assets; ensures the compliance blies, establish the agenda for such assemblies, of all industrial enterprises with the ap- draft corporate policy, and so on. The members proved health and safety standards; as of the Supervisory Boards of operating com- well as annually submits the Group enter- panies are appointed by the Executive Council prises’ quarterly management reports to and are approved by the Supervisory Board of the Supervisory Board for review. the relevant sectoral holding. The General Director of a sectoral holding is For individual areas of business where there appointed by the Supervisory Board and is are no sectoral holdings, the system of cor- tasked with managing the holding’s opera- porate governance works through the im- tions. As a member of the Board, this person mediate Supervisory Boards of the operating takes an active part in the strategic planning of companies. the holding’s activities. Through time, this corporate governance The Executive Council is the highest body in structure has demonstrated its effectiveness the operational management of the holding. for achieving SCM Group’s goals and is being Each holding’s Executive Council is established constantly improved. SCM Group corporate transformation program 2010 Metals and mining Energy Ilyich Steel Plant in Mariupol was acquired by DTEK Holdings B.V. (Netherlands) became a Metinvest Group. holding company for DTEK. Metinvest Group completed the process of DTEK and other SCM Group companies in-022 integrating Makeyevka Steel Plant into its creased their stake in the statutory capital of Steel and Rolled Products Division. Zapadenergo to 24.99%.
SCM Group Public Report 2010DTEK increased its stake in Kievenergo’s stat- Heavy Engineeringutory capital to 39.98%. SCM Group purchased 11.54% stake in Sver- dlovskiy Heavy Engineering Plant and 4.57%Financial Services stake in Donetskiy Energozavod EngineeringSCM made a decision to consolidate First Plant and now holds a 61.55% and 90.65%,Ukrainian International Bank and Dongor- respectively in these enterprises.bank into one organization. UMBH Ltd. (Cyprus) increased its stake inSCM and Renaissance Credit Group signed Kamensky Heavy Engineering Plant (Russia)an agreement for SCM to purchase a 100% by participating in the statutory capital in-stake in Renaissance Capital Bank (Ukraine). crease and purchasing a 6.58% stake, thus, increasing its shareholding to 82.74%.TelecommunicationsWithin the framework of structural changes, SCM completed purchase of a 6.4% stake inthe following companies became part of Donetskgormash Heavy Engineering Plant,Farlep-Invest, managing company for Vega thus, acquiring a controlling stake (50.05%)Telecommunications Group: Vilcom, Farlep, in the enterprise.Matritsa, PP-Sveton, BTSTK, IP-Telecom,ORT-SOUTH, Telecom Ukraine, Optima Tele- Pharmaceuricalscom-Crimea, Altek. SCM Group made a decision to develop its pharmaceutical business by purchasingReal Estate Pharmacy of Donbass Company, which ownsESTA Group purchased the Kiev’s Central a network of more than 120 pharmacies.Univermag Shopping Mall. To manage this business area, SCM created Ukrainian Pharmacy Holding.ESTA Group completed the purchase of 50%stake in Kiev Hotel (Donetsk). Transportation and Logistics SCM Group made a decision to developMedia transportation and logistics as separate busi-Ukraine Media Group was created to include ness area and transferred its 100% stakeUkraine Television Channel, Football (Sport Tel- in Avlita Stevedoring Company to SCM Ltd.evision Channel), Donbass (Regional Television At the same time a transportation business About SCM GroupChannel), Media Partnership sales house, and strategy is being developed.Digital Ventures (www.tochka.net portal).SCM Group acquired a 22% stake in thestatutory capital of Dnepropetrovsk Televi-sion Service. 023
scm group business structure – 2010 metals & eneRgy Financial telecommuni Real estate mining seRvices cations METinvEsT DTEK EsTA iron ore Division coal mining and Banking vega telecom investment enrichment munications group projects Northern Ore Mining First Ukrainian and Enrichment Plant Pavlogradugol International Bank Donbass Palace Hotel (SevGOK) Komsomolets Dongorbank Opera Hotel Central Ore Mining and Donbassa Mine Leonardo Business Enrichment Plant (CGOK) Mospinskoye CEP Center Inguletsky Ore Mining insurance Pavlogradskaya CEP Kievs Central Univermag and Enrichment Plant Kurakhovskaya CEP ASKA Shopping Mall (InGOK) Dobropolskaya CEP Office and logistics Danube Shipping and ASKA-Life centers in Kiev and Stevedoring Oktyabrskaya CEP Donetsk coke and coal power generation esta property Division management Vostokenergo Avdeyevka Coke and Chemical Plant (AKHZ) power Distribution ongoing projects Krasnodonugol PES Energougol Pushkinskiy multi- INKOR & Co functional complex United Coal Company Service Invest Andreyevskiy multi- functional complex steel and Rolled trading Kiev Hotel products Division DTEK Trading Power Trade projects at devel Azovstal Steel Plant opment stage Ilyich Steel Plant in Mariupol alternative energy land bank YeMZ Group (Yenakiyevo Steel Plant, Wind Power Metalen) Makeyevka Steel Plant Khartsyzsk Pipe Plant (KHTZ) Promet Steel JSC Metinvest Trametal S.p.A. Spartan UK Ltd Ferriera Valsider Prometei phaRmaceuticals Skif Shipping UKrAiniAn PhArMAcy holDing tRanspoRt anD logistics Zdravitsa chain sales Department, Avlita steel and Rolled Dobri Liky chain products Division Tsentralnaya Pharmacy024 Metinvest International S.A. Metinvest Ukraine Metinvest Eurasia Metinvest SMC
SCM Group Public Report 2010meDia clay mining Retail tRaDe petRoleum heavy pRoDucts engineeRing Retailing UniTED MinErAls UKrAiniAn groUP rETAil PArAllEl Mining MAchinEsukraine media Vesko Brusnytsya Retail Chain Parallel Chain Druzhkovka Heavy Engineering Plantgroup Druzhkovskoe Mines Gefest Chain Ukraine Television Management Gorlovskiy Mashinostroitel Channel PitStop Chain Engineering Plant Football Television Ogneupornerud Channel Donetskgormash Donbass Television Kerammekhanizatsiya Channel Donetskiy Energozavod Digital Ventures Engineering Plant Capital-Servicesegodnya Kamensky Heavymultimedia Engineering Plant Sverdlovskiy Heavy Engineering Plant associateD companies* Mining Machines Engineering Technical Center metals & mining: Mining Machines – Quality Zaporozhkoks (Zaporozhye Coke and Chemical Plant) System Donetskkoks (Donetsk Coke and Chemical Plant) Dokuchayevsk Flux and Dolomite Plant (DFDK) Novotroitskoye Mines Management Krivbassvzryvprom Explosives Company Krivoy Rog Iron Ore Plant energy: Dneproenergo Donetskoblenergo Kievenergo Zapadenergo About SCM Group telecoms: FootBall Astelit MMDS Ukraine FC Shakhtar other Donbass Arena Krasnaya Polyana Sand Quarry 025 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.
SCM Group bussiness SCM Group consists of SCM, the manag- ing company, and all businesses, in which SCM invests. The Group integrates over 100 enterprises and companies in Ukraine, Rus- sia, Europe (Italy, Bulgaria, Great Britain, Switzerland), and the USA. SCM Group’s enterprises employ approximately 200,000 people.026
Metals and mining. Metinvest 1 SCM Group’s 75% stake Metinvest Group is an international verti- Main2 Metinvest Group and Smart Group’s 25% stake cally integrated metals and mining company enterprises represent statutory legal owner- which includes 37 enterprises in Ukraine, ship structure of Metinvest as of Europe, and the USA. The company controls IROn ORE DIvISIOn December 31, 2010. Metinvest’s every stage of the production cycle – from northern Ore Mining and Enrichment IFRS Financial Statements for mining iron ore and coal, to coke and cok- Plant (SevGOK) is one of the largest mining 2010 were prepared, based on ing coal production, to smelting steel, and companies in Europe with a full production the share holdings structure, producing rolled steel sections, structural cycle for raw iron ore (concentrate and pel- formed after the completion of shapes, large diameter pipes, and other steel lets) for metallurgy. the transaction for purchasing products with high added value. Ilyich Steel Plant in Mariupol, Central Ore Mining and Enrichment Plant which is disclosed in Key post- Metinvest B.V. (Netherlands) is a holding (CGOK) specializes in mining, processing, reporting period events 2010 company for Metinvest Group. Metinvest and production of raw iron ore (concentrate chapter. Group’s shareholders are SCM Group (75%) and pellets) for metallurgy. and Smart Group (25%) and they manage 2 Main enterprises, consoli- the Group on a partnership basis1. Inguletsky Ore Mining and Enrichment dated in 2010 into Metinvest Plant (InGOK) specializes in mining and B.V. (Metinvest Group holding Metinvest Holding is a managing company processing iron ore. company) reporting, according for Metinvest Group. to the IFRS. Danube Shipping and Stevedoring is a Metinvest Group’s enterprises are located in shipping and logistics company. close proximity to key transportation routes and sea ports, providing the company with COKE AnD COAL DIvISIOn additional competitive advantages when Avdeyevka Coke and Chemical Plant making shipments to customers in Ukraine, (AKHZ) is the largest high-technology com- CIS, Europe, Middle East, and South-East pany in Europe’s coking coal industry pro- Asia. Metinvest exports the majority of its ducing coke and chemical products. products to more than 1000 customers in 75 countries worldwide, using its own interna- Krasnodonugol is one of the biggest coal tional sales network which covers most of the mining companies in Ukraine and both mines key regional markets. and enriches coking coal. Metinvest Group’s enterprises employ ap- InKOR and Co is one of the largest chemi- proximately 117,000 people. cal products manufacturers in the CIS and Europe.028 United Coal Company is one of the leading producers of coking coal in the USA.
SCM Group Public Report 2010 3STEEL AnD ROLLED PRODUCTS DIvISIOn Skif Shipping provides cargo transportation Metinvest Group exercisesAzovstal Steel Plant is a modern, high- and dispatch services for vessels in the Sea of strategic management of Do-technology company producing a wide Azov ports. kuchayevsk Flux and Dolomiterange of steel products. Plant, Novotroitskoye Mines SALES DEPARTMEnT, STEEL AnD ROLLED Management, Krivbassvz-Ilyich Steel Plant in Mariupol is one of the PRODUCTS DIvISIOn ryvprom Explosives Company,largest companies in Ukraine and has a full Metinvest International S.A. is responsible and Krivoy Rog Iron Ore Plantsteel production cycle. for the sale and export of Metinvest Group within the framework of the rolled steel products. share holdings it belongingYenakiyevo Steel Plant (YeMZ) and Met- to the Group. SCM Limitedalen (together – YeMZ Group) are the Metinvest Ukraine is responsible for sales (Cyprus) owns the shares of theworld leaders in steel billet production. and marketing of the steel products pro- stated enterprises. duced by Azovstal Steel Plant, YenakiyevoMakeyevka Steel Plant is high-technology Steel Plant, and Makeyevka Steel Plant incompany with the most modern steel rolling Ukraine and CIS countries.mills in Ukraine: medium-section mill-390and wire mill-150. Metinvest Eurasia is responsible for selling Azovstal Steel Plant, Yenakiyevo Steel Plant,Khartsyzsk Pipe Plant (KHTZ) is the largest and Makeyevka Steel Plant’s products in Russia.producer of straight-seamed electro-weldedlarge diameter steel piping in the CIS. Metinvest SMC is a steel stockholding com- pany selling the products of Metinvest GroupPromet Steel JSC is a steel rolling plant, pro- Enterprises to customers in Ukraine and East-ducing rolled sections and structural shapes. ern Europe.It is located in Burgas (Bulgaria). ASSOCIATED COMPAnIES3Metinvest Trametal S.p.A. is a leader in Zaporozhkoks (Zaporozhye Coke and SCM Group bussinessItalian and European markets for structural Chemical Plant) is Ukraine’s leading cokecarbon steel plates. and chemical enterprise.Spartan UK Ltd. is the only producer of Donetskkoks (Donetsk Coke and Chemi-high-quality steel plates in the United King- cal Plant) is one of Ukraine’s largest cokedom. and chemical enterprises.Ferriera valsider (Italy) is a steel plant pro- Dokuchayevsk Flux and Dolomite Plantducing structural rolled steel. (DFDK) is one of Ukraine’s largest mining 029 enterprises, specializing in fluxing limestonePrometei is among the most important play- and dolomite extraction and processing.ers in Ukraine’s iron and steel scrap market.
novotroitskoye Mines Management is a Krivoy Rog Iron Ore Plant is Ukraine’s larg- large mining enterprise, specializing in lime- est producer of iron ore. stone and dolomite extraction and processing. Krivbasszvryvprom Explosives Company is an industrial production enterprise, spe- cializing 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 tonnes030
SCM Group Public Report 2010Productionindicators, ironore division,thousand tonnesProductionindicators,steel and rolledproducts division,thousand tonnes 031 SCM Group bussiness
Production indicators, coke and coal division, thousand tonnes Metinvest Group sales geography 2010, %032
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 9,358Focus points of the yearMetinvest became the controlling share- by CARES, the British Certification Agency ofholder of Ilyich Steel Plant in Mariupol. The Reinforcing Steel. As result, the plant’s prod-acquisition of the plant is an important step ucts were declared compliant with technicaltowards implementing the Group’s long- processes and met the UK’s quality standardterm strategy, aimed at enhancing vertical BS4449:11997 (reinforcing steel).integration, achieving maximum productioneffectiveness in Ukraine, and strengthening Metinvest became the first company inthe company’s market positions. Ukraine to launch production of reinforcing bars with negative tolerance, according toMetinvest completed the process of integrat- DSTU 3760-2006. In November 2010, theing Makeyevka Steel Plant into its Steel and first shipment of reinforcing bars, producedRolled Products Division. in compliance with the new quality stand- ard, was made. SCM Group bussinessMetinvest Eurasia opened new warehousesin Voronezh, Volgograd, and Mineral Waters Metivnest successfully completed the regis-(Russia). Currently, Metinvest Group has 16 tration procedure, in compliance with EU’sregional warehouses in Russia. directive #1907/2006 (REACH). Comply- ing with REACH ensures that the Group’sC4Gas S.A. (France), the main common enterprises will be able to continue shippingsourcing portal of major European oil and products to clients in EU after November 30,gas companies, successfully completed the 2010.certification procedure of Metinvest Group’s 033products and sales system. Green Gas International B.V. and Krasno- donugol signed an agreement for the utili-Yenakiyevo Steel Plant successfully completed zation of methane from the Sukhodolskoe-a product quality supervisory audit, conducted Vostochnoe Mines Management Company.
The project will allow ultilisation of close to $187.6m, while in 2010 the total invest- 20m3 of methane per year. The annual de- ment was $12.9m. The implementation of crease of greenhouse gas emissions into the this project will allow the plant to increase atmosphere resulting from the project will annual production capacity to 14.7m tonnes amount to 200-250 thousand tonnes in of concentrate and 13.7m tonnes of pellets. CO2 equivalent. InGOK continued the construction of a sec- ond launching platform for magnetic floata- Metinvest was awarded another Climate Ac- tion beneficiation of iron ore concentrate. tion certificate for participating in environ- The new platform will increase volume of mental programs, aimed at following CO2 iron ore concentrate with 67% of iron con- emission norms. According to the preliminary tent and lowered content of silicon dioxide calculations, the planned environmental activi- (4.3%) produced from 3.2m tonnes to 6.8m ties will allow Metinvest Group’s enterprises to tonnes annually. The volume of investment in decrease the volume of greenhouse gas emis- 2010 amounted to $7.3m. The total volume sions into the atmosphere by more than 8m of investment will amount to $38.8m. tonnes in CO2 equivalent during 2008-2012. The total volume of investment in upgrading the main production equipment of Metinvest Investments Group’s three ore mining and enrichment plants amounted to $51.6m. The total volume of Metinvest Group’s in- vestment in 2010 amounted to $582m (ex- The total volume of investment in maintain- cluding M&A). ing the production capacity and capital re- pairs of Iron Ore Division amounted to ap- Iron Ore Division proximately $200m. SevGOK began iron ore mining at Pervomay- sky open cast mine, using cyclic-and-continu- Coke and Coal Division ous technology, which will allow it to maintain During the year, Krasnodonugol put 8 new the level of iron ore output at 22.5m tonnes coal faces into operation, with total project per year. In 2010, the volume of investment in investment volume amounting to $32.1m. the necessary production equipment amount- The total investment in upgrading production ed to $14.7m. The total volume of project in- equipment and implementing environmental vestment will amount to $315.3m. and occupational safety programs at Krasno- donugol amounted to $48.9m. Also, in 2010 SevGOK renewed its program of upgrading the equipment, used to pro- The volume of investment of Avdeyevka Coke duce pellets and to enrich iron ore concen- and Chemical Plant in maintenance and up- trate. The total project budget amounts to grading of production equipment, aimed at034
SCM Group Public Report 2010producing high quality coking coal, as well as The overall level of investment in maintenancein environmental, resources efficiency, and IT- and capital repairs of Steel and Rolled Productsdevelopment programs amounted to $9.4m. Division amounted to approximately $70m.The total amount of the plant’s investment inequipment maintenance and retrofitting to Loansachieve the strategic goal of satisfying 100% ofMeinvest’s internal demand for proper quality In May 2010, Metinvest B.V. (Netherlands)coke for steel production amounted to $13.6m. placed $500 Eurobonds at a coupon rate of 10.25%, due on May 20, 2015. The fund-United Coal Company continued implement- ing will be used for further modernization ofing the construction of the Affinity Coal Min- the Group’s enterprises.ing Complex project. The mining complexconsists of the mine with four mining sections On July 29, 2010 Metinvest signed a $700mand a coal enrichment factory, equipped with three-year syndicated pre-export loan facility.high-speed railway shipping station. In 2010,the project investment was $19.5m.Steel and Rolled Products DivisionAzvostal Steel Plant continued the construc-tion of a controlled cooling system for its steelplate production facilities. The project will allowthe plant to expand its range of sheet produc-tion and roll products using high durability steelgrades, with lower production costs. The suminvested in 2010 amounted to $3.1m. The to-tal project investment to date is $14.9m.Yenakiyevo Steel Plant continued the con-struction of blast furnace #3, which will al-low it to reduce the amount of coke used in SCM Group bussinesscast iron production to 463 kg / tonne andto minimize the intensity of iron discharge – to1000 kg / tonne. In 2010, the project invest-ment volume amounted to $57.8m. The totalinvestment volume will amount to $220.9m. 035
Energy. DTEK DTEK is the largest private vertically integrat- Komsomolets Donbassa Mine is one of the ed energy company in Ukraine, and includes largest producers of thermal coal in Ukraine. 20 enterprises, located in Donetsk, Dnepro- petrovsk, Lugansk, and Zaporozhye Oblasts. Mospinskoye Coal Enrichment Plant (CEP) is a producer of enriched coal and con- The company occupies leadership positions centrate for thermal power plants (TPPs). in Ukraine’s coal mining, thermal power gen- eration, and distribution industries, as well as Pavlogradskaya Coal Enrichment Plant implements a range of projects in alternative is one of the largest coal enrichment enter- energy. prises in Ukraine. DTEK Holdings B.V. (Netherlands) is the Kurakhovskaya Coal Enrichment Plant holding company for DTEK and is 100% produces coal concentrate for thermal power owned by SCM Group. plants. Donbass Fuel and Energy Company (DTEK) is Dobropolskaya and Oktyabrskaya Coal En- the managing company for DTEK. richment Plants are producers of enriched coal. 4 The total number of DTEK employees (including associated DTEK enterprises employ approximately POWER GEnERATIOn companies) exceeds 80 thousand 42,000 people4. vostokenergo is a power-generating company. people POWER DISTRIBUTIOn DTEK enterprises PES Energougol manages 395 substations in Dnepropetrovsk and Donetsk Oblasts. COAL MInInG AnD EnRICHMEnT Pavlogradugol is the largest coal mining en- Service Invest manages 81 substations in terprise in Ukraine. 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 +58.93036 Net profit (loss) 109.9 360.0 +227.57 EBITDA 402.0 722.0 +79.60
SCM Group Public Report 2010TRADInG kets. In Ukraine, its main customers are localDTEK Trading carries out coal trading opera- energy generation companies, large metal-tions in Ukrainian and international markets. lurgy companies, and other industrial en- terprises. Last year, the company exportedPower Trade exports electricity to European approximately 2m tonnes of coal, exceedingand CIS markets. the 2009 results two-fold (764 thousand tonnes). The coal was exported to customersALTERnATIvE EnERGY in Turkey, Bulgaria, Poland, Romania, India,Wind Power implements wind energy projects. Brazil, and the USA. Besides, the company im- ported 1.3m tonnes of coal to supply DTEK’sASSOCIATED COMPAnIES thermal power plants.Dneproenergo is Ukraine’s second largestelectric power producer. Since January 2010, DTEK has been distrib- uting electric power to consumers in Hun-Donetskoblenergo specializes in electric gary, Slovakia, Romania, Moldova, and Be-power distribution and supply. larus. During 2010, the company exported 1.21bn Kw/hour of electric power.Kievenergo is a thermal and electric powerproducer and supplier. DTEK increased its stake in the statutory capital of Kievenergo to 39.98%. The company oper- ates a unique power complex with a full produc-Focus points of the year tion cycle in Kiev covering thermal and electric energy generation, transport, and distribution.By the end of the year, DTEK’s enterprisesdemonstrated substantial growth in their DTEK and other SCM Group companies in-production indicators. Coal mining increased creased their stake in the statutory capital ofsignificantly, amounting to 19.2m tonnes; Zapadenergo to 24.99%.total electric power output (including Dne- SCM Group bussinessproenergo) increased to 30.7bn Kw/hour The company launched DTEK Academy, thewhile total power distribution increased to corporate university, to serve as a unified13.3bn Kw/hour. One of the key factors in center for knowledge management for all thethe high growth of coal production was the Group’s enterprises. Annually, DTEK Acad-use of high-capacity mining equipment and emy accepts 1,500 of the company’s bestinnovative technologies in 2008-2010. employees who study within the framework of specialized programs. DTEK top manag-In 2010, DTEK Trading carried out coal trad- ers and tutors from the best local and foreigning operations in domestic and foreign mar- business schools teach at DTEK Academy. 037
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) Coal enrichment, thousand tonnes: Raw coal enrichment 11,607.4 12,490.0 +7.6 Concentrate production 7,625.8 7,738.0 +1.47 Power generation, m, KW/h Power generation, Vostokenergo 14,504.7 16,352.6 +12.74 Power generation, Dneproenergo 11,788.6 14,331.9 +21.57 Power distribution, m, KW/h Volume of power purchased from Wholesale 11,802.0 13,287.0 +12.58 Energy Market Power distribution dynamics, m Kw/h038
SCM Group Public Report 2010InvestmentsThe total volume of DTEK investment in 2010 DTEK’s coal enrichment enterprises imple-amounted to $276m (excluding M&A). mented a range of investment projects, including the installation of centrifuges atCoal mining and enrichment Dobropolskaya CEP; modernization of wa-Pavlogradugol put into operation a new rock ter-slurry system at Oktyabrskaya CEP; andwinding set at Stepnaya mine. This set serves development of a water-slurry system atas important link in the technological chain Mospinskoye CEP.of mining coal from the field of 37m tonnes.The new set will also allow faster preparation DTEK signed investment agreements with twoand lower energy consumption (25% less) state-owned enterprises: Rovenkyanthracitewhen making Stepnaya mines coal faces and Sverdlovanthracite. The respective invest-ready for mining. The total investment was ment agreements were approved by the Minis-$5.2m. try of Coal Industry of Ukraine on July 9, 2010. The investment agreements with both enter-Blagodatnaya mine (Pavlogradugol) com- prises are valid for five years and are subject tomissioned a new heat pump system which possible extension. Under the signed agree-allows it to use the warm water discharged ments, DTEK will finance technical upgradingfrom the mine to heat the mining facilities. projects at both enterprises, using a public-pri-Gradually, the implementation of the new vate partnership mechanism. Cooperation withsystem will fully replace the current coal-fired these enterprises will allow DTEK to provideboiler system, thus, significantly lowering the its power-generating plants with anthracitewater heating costs and reducing emissions. coal. The total volume of DTEK’s investment inThe total investment was $0.4m. Rovenkyanthracite and Sverdlovanthracite will amount to $37.9m and $25.3m, respectively.Pavlogradugol purchased 18 tunneling ma-chines and 7 coal cutters, 13 belt conveyors Power generationand 7 scraper conveyors, at a total cost of Dneproenergo renovated 18 of the 25 power$29m. generating units it operates. The renovations were aimed at prolonging the service life of SCM Group bussinessKomsomolets Donbassa mine purchased the units and increasing the reliability of boil-new modern equipment: 9 belt conveyors, er and turbine equipment. The reconstruc-80 powered roof support sections, a coal tion of power generating units #9 at Pridne-cutter, and a scraper conveyor, at the total provskaya TPP and #3 at Krivorozhskaya TPPcost of $14m. is approaching completion. Both units are 039
scheduled to be put back into operation in increase the reliability of energy supply to the second half of 2011. end-consumers. Additionally, 6 kV electric wiring was installed at Oktyabrsky Rudnik Following the reconstruction of generating and Skochinskogo mines, to secure the back- unit #1 at Zuevskaya TPP (Vostokenergo) its up energy supply to the mines. energy output increased from 300 to 325 MV. The total volume of investment amount- ed to $23m. Loans Following the reconstruction of generating In April 2010, DTEK Finance B.V. (daughter unit #7 at Kurakhkovsaya TPP (Vostokener- company of DTEK Holdings B.V.) placed a go) its energy output increased from 210 to $500m Eurobond issue with a coupon value 225 MV. The total volume of investment in of 9.5%, due on April 28, 2015. 2010 amounted to $15.4m. Power distribution Service Invest completed the reconstruc- tion 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 invest- ment amounted to $1.6m. PES Energougol installed 26 km of 0,4 KWt electric wiring, using the self-carrying iso- lated cable, which allowed it to significantly040