SCM Public Report 2009

SuStainable Development. new opportunitieS SCM Group Public Report 2009

ContentS

Key financial indicators 2009 4

Key finanCial indiCatoRS 2009
CEO statement 6 aSSetS, $ million
SCM Group events calendar 2009 10

18,075
2008 18,539
2009
14 about SCm Group
SCM Group history 15
Corporate culture: mission, vision, values 16
SCM Group management 18 equity, $ million

8,650
SCM Group target corporate governance system
7,664
22
SCM Group corporate transformation program 25
SCM Group asset management system 27
2008
SCM Group business structure - 2009 28
2009

30 SCm Group business
Core businesses 31 eBitda, $ million

5,557 1,735
Mining and metals 31
Energy 39
Financial services 47
2008
Opportunity businesses 52
Telecommunications 52 2009
Real estate 56
Media 58
Clay mining 63
Retail trade 64 ReVenue, $ million
Petroleum products retailing 68

15,985 8,151
Machine-building 72
SCM Sport 74
Associated companies 74 2008

2009

76 Social responsibility and sustainable development
PRofit foR tHe yeaR, $ million

80 Key post-reporting period events – 2009 2,195
2008 97 2009

6 SCM Group Public Report 2009 SCM Group Public Report 2009 7

SCM Group business
CEO statement

dear Colleagues and Partners,

i am proud to present to you SCm Group’s public what was it that helped us to pass this resilience with a 8.53% general audience share. DteK, our metinvest. DteK and First ukrainian international
report for 2009. this year was one of the most chal- test? in order to successfully move forward in the energy business, maintained its leadership posi- bank were also servicing loans of a smaller size
lenging times for the global economy. practically new economic reality, we have stuck to our winning tion in the thermal energy generation market, with during the reporting year. in spite of the challenging
every company and every industry was affected by principles: commitment to our priorities and main- a 45.8% share. our mining and metals business, economic situation, SCm Group managed to secure
the global downturn, the consequences of which taining focus; investing, primarily, in new technolo- metinvest demonstrated growth both in the local the necessary level of business liquidity, fulfilling its
are still felt by economies in europe and beyond. gies; being rational and strategic; working hard and and the international markets, ranking 28th among obligations to external creditors on time and in full.
making fast, effective decisions. i would like to give the world’s largest steel producers with 7 m tonnes
in 2009, we witnessed large companies exit our credit for all our achievements to the professional output (compared to ranking 34th in 2008).
priority markets, having failed to adjust to the new work of our team, which led us to success. investments
economic reality. During the reporting year we During the reporting year we continued to invest
carefully watched the global economy transform, effectiveness in our priority projects. the overall investments of
analyzed the mistakes other companies made, and Focus in 2009, operational effectiveness was the first pri- SCm Group in the organic growth of its metallurgy
actively sought the new opportunities, which the in 2009, maintaining the standard financial indica- ority for every SCm Group asset. leadership by the and energy holdings exceeded $500m. regardless
global changes helped to create. we find a number tors became a secondary priority for us. we focused prime cost of production, along with maintaining of the economic downturn, our investment projects
of those opportunities fit well with our business on maintaining our market positions, the opera- current market positions, allowed us to feel confi- maintained their focus on implementing modern, ef-
strategy and will look to take advantage of them. tional effectiveness of all SCm Group’s enterprises, dent in the midst of the economic turbulence. as ficient and safe technologies at our industrial assets.
and maintaining business liquidity. result, the Group’s key assets demonstrated excel-
at SCm, we were not immune to the global crisis – lent results, compared to market average indica- it is also worth mentioning that in 2009 SCm seized
all our businesses, from mining and metals through tors. by the end of the reporting year, metinvest’s one of the most appealing opportunities in m&a
to real estate, felt its impact. However, we entered market positions operational cash flow amounted to $1.210m. market. metinvest purchased united Coal Compa-
the reporting year with the accumulated resilience in spite of the economic downturn, we managed DteK delivered a sevenfold net profit increase, ny (uCC), one of the leading coking coal producers
and were prepared to adapt to the new market con- to strengthen our market positions in our core in- compared to 2008, completing the reporting year in the uSa. after the integration of uCC into met-
ditions. as result, we came out of the crisis stronger dustries. For instance, First ukrainian international with $109.9m net profit. invest, the Group’s demand for high-quality coking
than before, more confident in our chosen strategy, bank demonstrated substantial growth, increasing coal will be fully satisfied from its own resources.
in good shape for future growth, which, we believe, its retail market share by 10%. in the media sector,
will inevitably follow the end of the downturn. the ukraine tv Channel increased its audience share by liquidity as for SCm Group’s investment priorities in other
experience we had during the reporting year gives 45% and ratings by 53% during the reporting year. in 2009, SCm Group was servicing two large syn- spheres, for 2009 the overall investment in vega
us the confidence to say that SCm was ready for the as result, the Channel was ranked number two in dicated loans taken out in 2007: a 4-year $545m telecommunications Group’s expansion exceeded
challenge posed by the economic crisis. the national rating of ukrainian television channels, loan to SCm Company and 5-year $1.5bn loan to $10m. the volume of united minerals Group capi-


SCM Group business
tal investment in the development of new clay de- people
posits amounted to $2m. while ukrainian retail in- in 2009, we had an opportunity to truly appreci-
vested $11m in the development of the brusnytsya ate the professionalism and the dedication of SCm
retail chain and in the construction of its distribu- Group’s team. the correct strategy and the effective
tion center, parallel invested $3m in expanding its decision-making system were not the only factors in
chain of petrol stations. our success during the reporting year, which all of us
will remember for a long time. the foundations of
this success were laid day by day, through the me-
Coherence ticulous implementation of our strategy by tens of
SCm is a strategic investor in most markets where thousands employees at SCm Group’s enterprises
it is present. we are interested in the long-term throughout ukraine and internationally. i believe it
growth of our business. we believe that social re- was the combination of high-quality strategy and
sponsibility lies at the core of SCm Group’s sus- excellent execution that created new opportuni-
tainable development. SCm, as ukraine’s largest ties for us. on behalf of SCm Group management, i
investor and corporate citizen, fully realizes its would like to say thank you to each of our employees
responsibility to society, primarily in the regions for their dedication, result-oriented performance,
where we are present. in spite of the economic and preparedness to stand up to the challenge.
downturn, in the reporting year we continued to
invest in the environmental performance and the
occupational safety of our industrial enterprises, as new opportunities
well as in the development of local communities. we will inevitably witness an economic revival, and
SCm also implemented a range of social projects in our goal is to be either a key player or a leader in our
education and sports. core industries. our goals for 2010 have been set
and are currently being implemented. we intend to
grow our steelmaking capacity, as well as to expand
efficiency our energy business by entering the international
one of SCm Group’s key objectives is creating an ef- market. actively entering the new industries is
fective corporate governance system. in 2009, we among our priorities for the next year, particularly,
continued to improve our existing corporate gov- in transportation and heavy engineering.
ernance system, focusing on increasing its adapt-
ability and effective decision-making capacity. i am
confident this was one of the key steps SCm Group Sincerely,
made which minimized the impact of the global oleg Popov
downturn and strengthened its market positions. SCM Group General director


SCM Group events calendar 2009

14 JAnuAry 6 FEbruAry
ukrainian machine building Holding limited (Cy- Yenakiyevo iron and Steel works launched the pro- 25 MArCh 30 April
prus) obtained the approval of the anti-monopoly duction of five new grades of steel, using advanced SCm served as a partner of the first ukrainian busi- metinvest Group completed the purchase of a
Committee of ukraine to concentrate a stake of technology ness Summit on Climate Change, organized by the 100% stake in united Coal Company (uSa)
more than 50% in Donetskgormash’s statutory un representative office and the Global Compact
capital 19 FEbruAry network, with support of the ministry of environ- 7 MAy
SCm launched the Discussion Club project, in- ment protection of ukraine DteK paid off the first part of its $21.8m interna-
21 JAnuAry tended as a platform for constructive dialogue be- tional syndicated loan
metinvest Group enterprises completed the pre- tween business and educationalists on the human 2 April
liminary registration procedure, in compliance with resource needs of business metinvest launched an online portal for its Sales 18 MAy
the eu’s reaCH directive Division azovstal iron and Steel works completed the planned
19 FEbruAry capital repairs of its ‘3600’ plate mill, with the total cost
22 JAnuAry DteK signed the agreement with oStroJ a.s. for 6 April of $2.6m
vega telecommunications Group launched its supply of mining equipment worth $28m for pav- the transfer of 49 petrol stations, previously man-
broadband internet access services in Chernigov, logradskaya and ternovskaya mines aged by Germes, to the management of parallel 21 MAy
vinnitsa, and poltava Company was completed SCm, with the support of rinat akhmetov’s Chari-
23 FEbruAry table Foundation for the Development of ukraine,
27 JAnuAry the online version of vecherkom, Kyiv’s popular 7 April presented the results the second ukrainian na-
SCm exited from the shareholders of lugansk free evening newspaper was launched at www. the national agency of environmental investments tional Higher educational institutions rating, Com-
brewery vecher.com.ua of ukraine approved the first project of Krasno- pass-2009
donugol for increasing the safety of working con-
29 JAnuAry 11 MArCh ditions and reduced greenhouse gas emissions, 21 MAy
DteK signed an agreement with oStroJ a.s. for the SCm served as a partner of the 5th ukrainian in- developed using the Kyoto protocol’s joint imple- DteK signed an 18 months, $15m loan agreement
supply of mining equipment worth $21.26m for vestment Summit held in london mentation mechanism with Sberbank (russia)
Komsomolets Donbassa mine
17 MArCh 13 April 1 JunE
29 JAnuAry azovstal iron and Steel works implemented an ad- metinvest eurasia opened a new warehouse in Sochi SCm served as a partner of europe Days in ukraine,
SCm participated in the annual Davos world eco- vanced railway transportation dispatch control sys- (russia), to ensure efficient client service by providing organized by the european Commission
nomic Forum as industry partner. within the Fo- tem a wide product range for the construction industry
rum’s framework, the discussions focused on de- 12 JunE
velopment of the world economy in post-recession 19 MArCh 16 April brusnytsya retail chain expanded adding 4 stores in
environment SCm presented the SCm Group Sustainable Devel- pavlogradugol, Komsomolets Donbassa mine, and Dnepropetrovsk
opment report 2007, prepared by the SCm team, vostokenergo completed the certification of their
5 FEbruAry using feedback from of the Group’s businesses, in occupational health management systems to com- 12 JunE
vostokenergo completed the reconstruction of compliance with the leading international Gri re- ply with the oHSaS 18001:2007 standard northern and Central iron ore enrichment works
Kurakovskaya thermal power plant power generat- porting standard launched a joint project with Dupont, aimed at im-
ing unit #5 21 April proving their occupational safety management sys-
24 MArCh System Capital management General Shareholders tems
5 FEbruAry DteK purchased mining equipment manufactured assembly made a decision to allocate all company
vega telecommunication Group’s broadband inter- by t machinery a.s. worth $7.56m for pavlograd- profit for 2008 to support the high level of the
net access subscribers exceeded 100.000 skaya and ternovskaya mines Group businesses’ liquidity


15 JunE 6 AuGuSt 25 SEptEMbEr 28 DECEMbEr
Dongorbank made an advanced repayment of its Samarskaya mine began coal mining operations at brusnytsya retail chain expanded adding two stores vostokenergo purchased the right to access the
7 months $9.62m re-financing loan from national its new 2a facility which has 10.5m tonnes of coal in Dnepropetrovsk and in makeyevka capacities of the interstate 150 mw electric net-
bank of ukraine deposits works, for exporting electric energy in 2010
28 SEptEMbEr
22 JunE 21 AuGuSt SCm exited from the shareholders of poltavpivo 29 DECEMbEr
SCm obtained the status as a aCCa accredited em- parallel Company opened two petrol stations under Company Yubileynaya mine completed the coal excavator re-
ployer the Gefest brand in Kharkov placement project, with total of $4m
5 OCtObEr
2 July 25 AuGuSt northern iron ore enrichment works put into op- 29 DECEMbEr
DteK trading Company was launched, to provide DteK set-up power trade, to develop the export eration a new high-power hydraulic excavator parallel Company opened three petrol stations in
coal trading operations in ukraine and international and trade of electric energy in european and CiS lugansk
markets markets 6 OCtObEr
metinvest and South Korean steel producer poSCo
2 July 27 AuGuSt signed a memorandum of agreement
metinvest began shipping trunk rails to Kazakhstan DteK paid off the second part of its international
$18.75m syndicated loan 30 OCtObEr
3 July brusnytsya retail chain expanded adding one store in
northern iron ore enrichment works completed the 29 AuGuSt Zaporozhye and six stores in Dnepropetrovsk region
capital repairs of technological sections #1-2 at the the official opening ceremony of the Donbass are-
ore-enrichment Factory #1 na Stadium took place in Donetsk 9 nOvEMbEr
Donbass television Channel began broadcasting
9 July 3 SEptEMbEr
brusnytsya retail chain expanded to include a fur- SCm paid a further installment on the $86.5m syn- 12 nOvEMbEr
ther 4 stores in Donetsk dicated loan DteK completed the formation of its corporate
governance system
14 July 7 SEptEMbEr
DteK and prominvestbank signed an agreement to Football weekend, a weekly program on the 27 nOvEMbEr
open a 18 month $20m credit line, to finance the ukraine tv Channel, was declared the best sports metinvest began to ship raw iron ore to China using
modernization of vostokenergo’s power generat- program of the 2008/09 season and received the Capesize vessels
ing units Golden national teletriumph award
14 DECEMbEr
17 July 10 SEptEMbEr Komsomolets Donbassa mine signed an agreement
Dongorbank paid off all external loans, excluding metinvest occupied leadership positions by profit in with inG bank n.v. for the sale of 300.000 emis-
those related to the subordinated debt. all loans the Deloitte top-500 leading Companies in Central sion reduction units within the joint implementa-
were paid off timely and eastern europe rating tion framework of the Kyoto protocol

30 July 17 SEptEMbEr 15 DECEMbEr
DteK Corporate Center and pavlogradugol metinvest became the first ukrainian company to First ukrainian international bank coordinated the
launched the implementation of Sap business receive a Climate action certificate from the world new restructuring terms with its bondholders and
solutions Steel association creditors


SCM Group general information
SCM Group history
System Capital Management (SCM) was founded in 2000 in Donetsk. its main purpose is to invest
strategically in key segments of the ukrainian economy. these are primarily, mining and metals,
energy, telecommunications, banking, insurance, real estate, media, clay mining, retail, petroleum
product retailing, and machine-building. Since its foundation, SCM has been building up its business,
based on the industrial assets it owns and making large-scale investments, both in ukraine and in-
ternationally. today, the history of SCM Group can be presented in the following major stages.

2000-2002 GrOWinG thE pOrtFOliO
the first stage of SCm’s development concentrated on expanding the Group’s investment portfolio. it was
during this period that the company acquired most of its businesses and began introducing a single stand-
ard of management across the Group.

2002-2004 invEStinG
During this period, the main focus was on establishing world standards of business management at all of
the company’s key assets. meanwhile, enterprises were modernized and production indicators were raised,
where possible, using experience and know-how, accumulated by SCm professionals.
the company began to implement its long-term growth strategy and to increase the effectiveness of its
business. this meant building vertically-integrated industrial businesses and forming a team of world-class
managers capable of running them.

about 2004-2006 EXpAnDinG
During this period, SCm began actively expanding its telecommunications business. banking and insurance
businesses also joined the list of key areas SCm was expanding into. the company instituted the preparation
of consolidated financial statements in accordance with international Financial reporting Standards (iFrS)

SCm Group
and began the process of building a transparent business and management structure for the Group.

2007-2009 CrEAtinG StAbility
SCm group developed a distinct business development strategy. business expansion was 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). During
this period the Group also accumulated the necessary financial reserves to ensure business stability during
volatile economic periods. the main goal for this period was to make SCm not only ukraine’s leading finan-
cial and industrial group, but also a truly competitive and successful global business.


Corporate culture: mission, vision, values

the SCm mission: success, together f Constantly improving the processes and meth-
ods of doing business.
we invest in the continuous growth and effective-
ness of our business, and through this support the f rational allocation and use of resources.
economic and social development of society as a
whole. f Seeking new opportunities.

f being ready for change.
the SCm vision: creating through
development Professionalism in doing business, including in-
vesting in people and stimulating innovation and
we build effective businesses and manage them enthusiasm towards work. For us, there is particular
according to the best world standards and prac- importance in:
tice, ensuring long-term returns on our invest-
ment and participating in the development of the f meeting the highest standards.
regions in which we are present.
f Stimulating initiative and innovation.

the SCm values: effectiveness, f investing in professional development and loy-
professionalism, accountability alty of employees.

effectiveness as a means to achieve the best f attracting and retaining highly qualified per-
results in everything we do. For us, effectiveness is: sonnel.

f reaching the goals we set. f Fair evaluation of achievements.

f applying contemporary technologies and ap- accountability to our employees, our partners,
proaches to doing business. our communities, and society as a whole.


SCM Group management

oleg popov margarita povazhnaya amir aisautov ilya arkhipov

General Director Financial Director Mining and Metals business Development business Development Director
Director

Ceo of SCm since January 2006 SCm’s Financial Director since october 2009 SCm mining and metals business Development Director business Development Director at SCm since november
since november 2009 2005
2001-2006 – executive Director of SCm 2008-2009 – Deputy Financial Director of SCm
august 2008-november 2009 – Strategy and invest- 2001-2005 – Consultant, mcKinsey & Co, moscow
2000 – Hired by SCm as Deputy to the Ceo 2003 – Hired by SCm as Chief accountant ment Director, Clever management
2000-2001 – operations manager for russia’s largest on-line
1991-2000 – worked in various government offices prior to joining to SCm, ms. povazhnaya worked as Chief 2003-2008 – Senior project manager, mcKinsey & Com- auction resource, molotok.ru for netbridge, an internet
accountant in various large ukrainian companies (Scan- pany, Dubai company
Chairman of the board of FC Shakhtar dic South, artemovsk Champagne winery, etc.)
represents SCm interests on the metinvest Holding Su- 1995-2000 – Consultant, Coopers & lybrand and price-
represents SCm interests on the Supervisory boards of Started her career in 1996 by being accepted to the pervisory board waterhouseCoopers, moscow
First ukrainian international bank, Dongorbank as well as Donetsk oblast State tax inspection as State tax inspector
of the ukraine media group for the individual persons’ audit Department areas of responsibility: include strategy, investment, represents SCm’s interests on the Supervisory boards of
finance and risk management for SCm’s mining and met- Farlep-invest, First ukrainian international bank, Dongor-
areas of responsibility: taking and approval of the key member of metinvest and DteK audit Committees. Chairs als business bank, aSKa insurance Company, Segodnya multimedia,
financial, investment, and personnel decisions, both di- the auditing Committees of bureau of economic and Social and ukraine television Channel
rectly at SCm and in the Group’s assets, as well as evaluat- technologies (beSt) analytical Center, and SCm Finance
ing the performance of top management of these assets education: areas of responsibility: participating in determining the
areas of responsibility: organizing tax and financial audit overall portfolio strategy of the Group, as well as in corpo-
of SCm Company and SCm Group’s foreign assets, budg- Graduated from Kazakhstan national technical university rate restructuring. in particular, mr. arkhipov is involved in
education: eting, and cash flow planning for SCm Group with major in economics and enterprise management in developing SCm’s business strategy regarding telecoms,
2001 banking and insurance, as well as media
Graduated from Donetsk State university in 1996
education: Graduated from Georgetown university School of busi-
Graduated from Donetsk polytechnical institute in 1991 ness (washington, uSa) with an mba education:
Graduated from Donetsk State Commercial university
with major in industrial management in 1995 mba from inSeaD (France), a leading european business
school, in 2007
Graduated from Donetsk State university of management
with a postgraduate degree in 2008 Graduated from the plekhanov academy of economics in
russia as a Specialist in enterprise management in 1999
other credentials include: ph.D. in public administration, interna-
tional Financial reporting aCCa Diploma, mini-mba diploma


nikolai nesterenko Jock mendoza-wilson natalia Yemchenko roman bugayov

new business Development Director international and investor relations Director public relations and Communications Director Corporate rights and Foreign Asset Manage-
ment Director

new business Development Director at SCm since Sep- international and investor relations Director at SCm since public relations and Communications Director at SCm Corporate rights and Foreign asset management Director
tember 2007 2006 since December 2006 at SCm since September 2007

2002-2007 – Senior manager for Strategy Development 2005-2006 – Director of Corporate Communications for 2005-2006 – public relations manager for SCm Group 2005-2007 – manager of the Corporate rights Depart-
for a range of the Group’s new businesses, such as ma- the SCm Group ment for SCm Group
chine-building, real estate, etc. with the growth of SCm 2003 – Hired by SCm Group as a Sector Group manger
Group, the decision was made to institute the position of 1989 – launched his own pr consultancy in london and 2003 – Hired by SCm Group as economist
new business Develoment Director advised u.S. Government agencies on their public diplo- 2001-2003 – Director, Keramet invest
macy programs in the middle east 2002-2003 – economist at Keramet invest
2001 – Hired by SCm as manager of the Financial Control 1998-2001 – Financial manager at Kolo, an investment
Department 1984 – began his career with Ford europe Company company 1996-2002 – worked in the Donetsk oblast office of
the anti-monopoly Committee of ukraine as a Specialist,
1997-2001 – worked at Keramet invest, having grown areas of responsibility: developing and implementing Chairs the auditing Committee and the editorial Council Senior Specialist, then Department manager
from Stock broker to General manager communications strategies and programs, aimed at es- of ukraine television Channel
tablishing contacts with both government offices and represents SCm interests on the Supervisory board of
Currently is heading eSta Holding – SCm sectoral hold- nGos; developing relations with international govern- areas of responsibility: communicating with stakeholders, DteK
ing, managing its real estate projects, as well as is chair- ments, business, and media, as well as maintaining rela- including the media, employees, residents in regions of
ing the Supervisory board of eSta property management tions with the investment and finance community company presence, the government, community organi- Sits on the auditing Committee of ukraine television
(manages the Group’s office buildings). Sits on the Super- zations, and the general public, as well as company repu- Channel, bureau of economic and Social technologies
visory boards of SCm Group hotels tation management (beSt) analytical Center, and SCm Finance
education:
areas of responsibility: determining strategic business de- areas of responsibility: determining and implementing
velopment in real estate, machine-building, and transport Graduated as an economist from Heriott-watt university education: company policy regarding the management of corporate
sectors at SCm, seeking new areas for investment (edinburgh, Scotland) in 1984 rightrs; organizing and handling operations involving cor-
Graduated from Donetsk national university as a Special- porate rights belonging to the company and its subsidi-
ist in Finance and Credit in 1998 aries; and organizing the activities of foreign companies
education: belonging to SCm

mba from inSeaD (France), a leading european business
school, in 2007 education:

Graduated from the Financial accounting Department of Graduated from the Donetsk institute of entrepreneurship
Donetsk State universtity in 1998 as a Specialist in organizational management in 2000,
with major in economic and legal aspects of Commercial
activity


SCM Group target corporate governance system

SCm’s system of corporate governance is in line Committee, the Strategy and investment Commit-
1. SCm Company 4. Supervisory boards of with the highest international standards and is tee, the appointment and Compensation Commit-
Sectoral Holding operational companies based on world best practice. it allows the company tee, the Health, occupational Safety, and environ-
Supervisory board to quickly and effectively make the decisions, nec- ment Committee.
essary to ensure the stability and growth of all the
Group’s sectoral holdings and business areas. f the audit Committee prepares recommen-
2. minority 5. operational as the majority shareholder and the main investor, dations for the sectoral holdings’ Supervisory
shareholders companies SCm Group governs its sectoral holdings by del- boards regarding the approval of accounting
3. Sectoral Holding managing Company
egating its representatives to sit on the respective policy and procedures for preparing financial
Supervisory boards. the participation of minority reports; the depth and accuracy of financial re-
3.2.Holding General Director 3.3.Holding board shareholders in the governance of these holdings is porting provided by each holding; the reliability
when decision is made also executed through their representatives on the and effectiveness of the internal auditing sys-
when decision is made
not to create a sectoral to create a sectoral Supervisory boards. tem, internal oversight and risk management;
holding
holding the Supervisory Boards govern the sectoral hold- the independence of internal and external au-
3.1.1. audit Committee ings. these boards include representatives of SCm, dits; and ensuring compliance with the laws
minority shareholders, and external experts. the and norms governing business ethics.
members of each board vote to elect a Chair from
3.1.2.Strategy and investment Committee among their number. the Supervisory boards de- f the Strategy and investment Committee
termine business development areas and the stand- prepares and submits for review to the Supervi-
ards for engaging in specific businesses; they ap- sory board the necessary recommendations re-
prove strategies, budgets and major transactions, garding the opportunities for the holdings to be
3.1.3.appointment and Compensation Committee as well as oversee their implementation; they track involved in investment projects and exit strate-
business indicators, appoint top managers, estab- gies for specific projects. the Committee also
lish incentives for them, and evaluate their per- prepares recommendations regarding the stra-
3.1.4. Health, occupational Safety, formance. the members of the Supervisory boards, tegic goals and objectives of the various hold-
and environment Committee* along with independent experts, may also partici- ings, as well as the implementation of agree-
* Applies only to Metinvest and DTEK pate in specialized committees including: the audit ments on mergers and acquisitions (m&a).


f the appointment and Compensation Com- of the board, this person takes an active part in the SCM Group corporate transformation program
mittee recommends to the Supervisory boards strategic planning of the holding’s activities.
candidates for management positions in the in the course of 2009, SCM Group continued the transformation of its asset management system,
sectoral holdings. with this purpose in mind, the executive Council is the highest body in the aimed at increasing the effectiveness of the management of the Group’s enterprises and the trans-
the Committee organizes interviews with appli- operational management of the holding. each parency of the Group’s business for partners and investors.
cants for specific positions and decides whom holding’s executive Council is established collegial- the corporate transformation program was launched in 2006, when the decision was made to consoli-
to recommend for those positions. the Com- ly. the Chair of the executive Council is the General date the Group’s assets under sectoral holdings in mining and metals (Metinvest), energy (DtEK), real es-
mittee also prepares recommendations regard- Director of the holding. tate (EStA), publishing (Segodnya Multimedia), and television (ukraine television Channel) businesses.
ing the rotation of top managers within the sec- the decision was also made to transfer the corporate rights of a range of assets to specially cre-
toral holdings, proposes ways to incentivize top the Supervisory Boards of operating companies ated corporate centers: SCM Finance (banking and insurance), Farlep-invest (telecommunications),
managers, as well as participates in shaping the are responsible for their sustainable financial and united Minerals Group (clay mining), parallel nafta (petroleum products retailing), and ukrainian
corporate culture and staffing, and in determin- commercial growth, improved efficiency, and in- Machine building holding (machine-building).
ing the prospects for personal development of creased competitiveness of their operations. they this management system complies with SCM Group’s vision of its further development as a profes-
managers. keep track of the upholding of shareholder rights, sional managing company, working to international corporate standards.
make decisions regarding the time to hold General
f the Health, occupational Safety, and en- Shareholders’ meetings, establish the agenda for
vironment Committee was created to insti- such meetings, draft corporate policy, and so on. Core businesses
tute the highest health and occupational safety the members of the Supervisory boards of oper-
standards across the Group, as well as to control ating companies are appointed by the executive Mining and metals
the environmental impact of the Group’s indus- Council and are approved by the Supervisory board in 2009, the consolidation of SCm Group’s and and chemical facilities to produce a better quality
trial enterprises. the Committee develops SCm of the relevant sectoral holding. Smart Group’s mining and metal assets within the coke for its steel plants. united Coal Company was
Group’s strategy for the areas of its authority; For individual areas of business where there are no framework of metinvest that had started two years integrated into the metinvest Group’s Coke and
prepares budgets to finance modernization of sectoral holdings, the system of corporate govern- earlier, continued. in particular, ingulets iron ore Coal Division.
and equipment purchase for the Group’s indus- ance works through the immediate Supervisory enrichment works was transferred to metinvest. it
trial assets; ensures the compliance of all indus- boards of the operating companies. is planned to complete this consolidation process in energy
trial enterprises with the approved health and through time, this corporate governance structure 2010 by transferring the stakes of Smart Group in DteK trading Company was created to carry out
safety standards; as well as annually submits has demonstrated its effectiveness for achieving SCm makeyevka iron and Steel works and promet Steel coal trading operations in the ukrainian and inter-
the Group enterprises’ quarterly management Group’s goals and is being constantly improved. plant to metinvest. national markets. the separate trading structure
reports to the Supervisory board for review. metinvest Group completed the transaction of pur- will allow DteK to increase the effectiveness of coal
chasing a 100% stake in the united Coal Company sales, systematize coal supply to its power gener-
the General director of a sectoral holding is ap- (uSa). the key rationale for this acquisition was ating enterprises, as well as increase domestic coal
pointed by the Supervisory board, and is tasked with united Coal’s significant reserves of high quality sales volumes.
managing the holding’s operations. as a member metallurgical coal, which will help metinvest’s coke in 2009, DteK also created a power trade Com-


pany, with the main goal being the development of Real estate Machine-building
electric energy export and trading in european and SCm transferred the stakes and the shares in a ukrainian machine building Holding (Cyprus), the engineering plant, 63.23%; Donetskgormash,
CiS markets. range of its real estate assets to eSpv limited (Cy- management company for SCm Group’s machine- 43.64%; ukrtransmash, 77.53%.
in addition, in 2009 DteK completed the formation prus), the daughter managing company in real es- building business, completed the transactions of
of its corporate governance system, aimed at creat- tate sector. in particular, the following stakes were purchasing the shares of Kamensky Heavy en- other businesses
ing effective and transparent systems of corporate transferred: 100% in eSta Holding; 65.60% in gineering plant (russia), Donetskgormash, and in 2009, following its strategy to quit the beer
property ownership and management. as result of Dol bereg; 87.47% in House in plyuty; 100% in ukrtransmash. Currently umbH owns the follow- brewing business, SCm exited from the sharehold-
the legal transformation, the new DteK corporate intern; 100% in Donbass palace. the consolidation ing stakes in the acquired assets: Kamensky Heavy ers of lugansk brewery and poltavpivo Company.
structure consists of the three levels: the holding of assets under a single corporate center will allow
company (DteK Holdings b.v., located in Holland), increased the transparency of SCm’s real estate
a corporate center (DteK, located in ukraine), and business for partners and investors. SCM Group asset management system
industrial enterprises (located in four regions of
ukraine). Clay mining by the beginning of 2006, when the decision was drove the transition to what was, for SCm, a fun-
in 2009 united minerals Group created five new made to begin the corporate transformation proc- damentally new system of corporate governance.
finance companies, in order to purchase land plots located ess, SCm Group saw itself as the conglomeration in determining its desired corporate governance
SCm Group increased its stake in aSKa insurance in an area of significant clay deposits. the purchase of various assets that were directly run by SCm, the structure, SCm studied best international practice
Company to 89.06%. of these land plots will facilitate their future devel- managing company. the Corporate transformation and clearly spelled out the key features and basic
opment. program is aimed at instituting a modern, com- principles on which it is built.
prehensive system of corporate governance and
alternative (opportunity) businesses Petroleum products retailing switching to a new corporate structure. the key features of SCm’s corporate governance
the transfer of 47 Gefest petrol stations and one SCm Group’s target business model provides, first system are:
telecommunications pitStop petrol station under the operations man- and foremost, for a change in SCm’s role in the
in 2009, vega telecommunications Group (the agement of parallel Company was completed. as management system through a switch from op- f simplicity and intelligence, clearly-defined areas
unified brand, under which all SCm Group’s fixed- result of this transaction, the number of petrol erational management of individual enterprises to of competence along all the links of the chain;
line operators deliver their services) continued its stations managed by parallel increased from 20 strategic management of newly-formed sectoral
corporate restructuring. the restructuring goal is to 68, and the geography expanded from one to holdings and Group business areas. the program f effective managerial decision-making and control;
to minimnize the number of companies within the 8 regions of of ukraine, with eastern and Central to reorganise the Group’s operational companies
vega Group, in order to simplify internal business regions prevailing. 20 petrol stations operate in the within the framework of specific sectoral holdings f effective risk management;
processes, reduce administrative costs, and in- premium-segment (parallel); 47 petrol stations are began in 2006. those holdings received the right
crease business effectiveness. During the past year, aimed at the mass market (Gefest), and one petrol to own and manage SCm assets in their specific f compliance with the target corporate rights
the number of companies in the Group decreased station operates in a “city” format (pitStop). sectors. the sectoral holdings were also assigned ownership structure;
by 11, with the employees having been hired by to manage assets that were handed over to them,
Farlep-invest, the legal successor of the liquidated including devising and implementing their growth f compliance with the best world standards.
companies and the managing company of vega and development strategies.
Group. as a result, by the end of the reporting year, this new business structure and the important SCm Group’s corporate governance system is
vega telecommunications Group consisted of 15 change in the role of the SCm Company in the deci- based on the principles of transparency and com-
companies. sion-making system, as well as SCm’s unswerving pliance with the law that lie at the heart of all of the
determination to match international standards, Group’s activities.


SCM Group business structure – 2009

MininG & eneRGy finanCial teleCoMMuni- Media Real eState Clay MininG Retail tRade PetRoleuM MaCHine-
MetalS (dteK) SeRViCeS CationS (eSta HoldinG) (united (uKRainian PRoduCtS BuildinG (uMBH)
(MetinVeSt) MineRalS GRouP) Retail) RetailinG

iron ore Coal Mining and Banking VeGa telecommu- ukraine television Channel Hotels vesko brusnytsya retail Chain parallel Donetskiy energozavod
engineering plant
division enrichment nications Group
ƒ First ukrainian Segodnya multimedia ƒ opera Druzhkovskoe mines Gefest
ƒ northern iron ore ƒ pavlogradugol international bank management Druzhkovka Heavy
ƒ Donbass palace
enrichment works ƒ Komsomolets Donbassa pitStop engineering plant
ƒ Dongorbank
(northern GoK) Digital ventures ogneupornerud
ƒ mospinskoye Coal
ƒ Central iron ore processing Company Gorlovskiy mashinostroitel
enrichment works
ƒ pavlogradskaya Cep
Multifunctional engineering plant
(Central GoK) insurance complex
ƒ ukrenergoresurs
ƒ ingulets iron ore
ƒ Dobropolye Cep Sverdlovskiy Heavy
enrichment works ƒ aSKa ƒ leonardo
engineering plant
(ingulets GoK) ƒ oktyabrskaya Cep
ƒ aSKa-life
ƒ Krivoy rog Central ore ƒ Kurakhovskaya Cep
mining equipment Kamensky Heavy
repair plant (KCrZ- Projects under engineering plant
KZGo) development
ƒ Danube Shipping and Power Generation ukrtransmash
Stevedoring Company ƒ pushkinsky
ƒ vostokenergo ƒ oktyabrsky
ƒ andreevsky aSSoCiated CoMPanieS
Coke and Coal
division Power distribution
land bank Mining & Metals
ƒ avdeyevka Coke plant ƒ peS energougol
(avdeyevka Coke) ƒ Service invest ƒ Dokuchayevsk Flux and Dolomite plant (DFDK)
ƒ avlita Stevedoring ƒ Zaporozhye Coke and Chemical plant (Zaporozhkoks)
Company other properties under
management ƒ Donetsk Coke and Chemical plant (Donetskkoks)
ƒ Krasnodon Coal
Company (Krasnodon Power export and ƒ novotroitskoye mines management
Coal) trading
ƒ Krivbasszvryvprom explosives Company
ƒ inkor & Co Chemical
ƒ DteK trading
Company (inkor Chemicals) ƒ Krivoy rog iron ore plant
ƒ power trade
ƒ united Coal Company
(united Coal)

energy:
alternative energy
ƒ Dneproenergo
Steel and Rolled
ƒ wind power
Products division ƒ Donetskoblenergo

ƒ azovstal iron and Steel
works (azovstal)
Social Services
telecommunications:
ƒ Yenakiyevo iron and ƒ Socis
Steel works and metalen MininG & MetalS (MetinVeSt) ƒ astelit
ƒ Socugol
(together – Yenakiyevo Steel)
ƒ Serice enterprise ƒ mmDS ukraine
ƒ Khartsyzsk pipe plant
(Khartsyzsk pipe)
Sales
ƒ metinvest trametal S.p.a.
ƒ Spartan uK ltd. ƒ metinvest international S.a. Machine-Building
ƒ Ferriera valsider ƒ metinvest ukraine ƒ Donetskgormash
ƒ prometei ƒ metinvest eurasia
ƒ Skif Shipping ƒ metinvest SmC
ƒ makeyevka iron and *associated companies – companies, with SCm stake no
Steel works (makeyevka less than 20%
Steel)
ƒ promet Steel plant
(promet Steel)


SCM Group business
Core
businesses

Mining and metals. Metinvest
Metinvest is a vertically-integrated mining and steel producer owning assets in ukraine, Europe and
the united States and managing each link of the production chain – from iron ore and coking coal
mining and coke production, through to semi-finished and finished steel production; including the
manufacturing of plate and coil, pipe rolling, shapes and bars, and other value-added products. the
Group’s holding company is the Dutch registered Metinvest b.v. whose shareholders are SCM Group
(75%) and SMArt Group (25%). SCM and SMArt Group manage Metinvest on a partnership basis.
being one of the lowest prime cost producer in the world, the sixth largest producer of iron ore in the
world, fast growing international mining and steel company Metinvest Group builds a broad inter-
nationalsales network covering all key global markets.
in 2009 Metinvest Group enterprises produced 7m tonnes of crude steel, 4.5m tonnes of semi-finished
and 4.2m tonnes of finished products, 0.5m tonnes of pipes, 4.1m tonnes of coke, and 29.2m tonnes
of iron ore products. Metinvest Group enterprises employ over 79.000 people.

Main1 MetinVeSt GRouP enteRPRiSeS

irOn OrE DiviSiOn
northern iron ore enrichment Works (northern GoK) is one of the largest iron ore mining enterprises in
europe with a closed production cycle for iron ore products (concentrate and pellets) for metallurgy.
Central iron ore enrichment Works (Central GoK) specializes in mining, processing, and production of

SCm Group
iron ore products (concentrate and pellets) for metallurgy.
ingulets iron ore enrichment Works (ingulets GoK) specializes in mining and processing ferrous quartz-
ites to produce iron ore concentrate.
Krivoy Rog Central ore Mining equipment Repair Plant (KCRZ-KZGo) is one of the leading enterprises
in ukraine producing mining, enrichment and transportation equipment.

business danube Shipping and Stevedoring Company (danube Shipping) is a shipping and logistics company.

COKE AnD COAl DiviSiOn
avdeyevka Coke Plant (avdeyevka Coke) is the largest coke and chemical plant in europe (excluding
russia) producing coke and chemical products.
avlita Stevedoring Company operates the facilities for cargo reloading from and to various types of trans-
port (railway, road, and sea).

1main enterprises, consolidated in 2009 into metinvest b.v. (metinvest Group holding company) reporting, according to the iFrS.


SCM Group business
Krasnodon Coal Company (Krasnodon Coal) is Makeyevka iron and Steel Works (makeyevka Metinvest Group corporate structure
one of the biggest companies in ukraine and mines Steel) is a producer of rolled metal products
and enriches coking coal. Promet Steel Plant (promet Steel) is a long steel MEtinvESt
inkor & Co Chemical Company (inkor Chemicals) products manufacturer
is one of the largest chemical products manufactur- Metinvest international S.a. is responsible for the
ers in the CiS and europe. sale and export of metinvest Group rolled products.
united Coal Company (united Coal) is one of the Metinvest ukraine is responsible for sales and
leading producers of coking and steam coal in the uSa. marketing of the products produced by azovstal,
Yenakiyevo Steel and makeyevka Steel in ukraine iRon oRe diViSion CoKe and Coal diViSion Steel and Rolled PRoduCtS diViSion
StEEl AnD rOllED prODuCtS DiviSiOn and CiS countries.
azovstal iron and Steel Works (azovstal) is one Metinvest eurasia is responsible for selling the sixth largest iron ore after purchasing united Coal the Division includes enterprises producing steel, rolled
producers in the world Company metinvest became fully self- products, and large diameter pipes
of ukraine’s leading steel producer of a wide as- azovstal, Yenakiyevo Steel and makeyevka Steel sufficient in coking coal.
sortment of metal products. products in russia.
yenakiyevo iron and Steel Works and Metalen Metinvest SMC is a steel stockholding company
(together – yenakiyevo Steel) is one of the selling the products of metinvest Group enterprises
world’s leading concast billet producers. to customers in ukraine and the the countries of the
Khartsyzsk Pipe Plant (Khartsyzsk Pipe) is the balkan peninsula. Corporate governance
largest CiS producer of single seam large diameter
longitudinally welded line pipes used in construc- ASSOCiAtED COMpAniES the highest strategic management body of met- the Supervisory board is assisted by the following
tion of oil and gas pipelines. Zaporozhye Coke and Chemical Plant (Zapo- invest Group is the metinvest Holding Supervisory four Committees:
Metinvest trametal S.p.a. is a well-established rozhkoks) is ukraine’s leading coke and chemical board. its 10 members include the Ceo, representa-
and innovative european producer of high quality enterprise. tives of the shareholders and independent directors. f Strategy Committee;
carbon steel heavy plates. donetsk Coke and Chemical Plant (donetsk- the Supervisory board makes the key decisions re-
Spartan uK ltd. is a steel plate producer located in koks) is one of ukraine’s largest coke and chemical lated to the Group’s activity, including: the approval f audit Committee;
newcastle, Great britain, approximately 15 kilom- enterprises. of long-term business strategy and annual business
eters from the port of tyne, allowing its products dokuchayevsk flux and dolomite Plant (dfdK) plans; annual assessment of the delivery of approved f remuneration and nomination Committee;
to be shipped to all of the main northern european is one of ukraine’s largest mining enterprises, spe- business plans; authorization of significant transac-
markets. cializing in fluxing limestone and dolomite extrac- tions; appointment of the top management and the f Health, Safety, and environment Committee.
ferriera Valsider is a producer of hot-rolled plates tion and processing. approval of their compensation and Kpis; decisions
and hot-rolled coils from concast slabs. novotroitskoye Mines Management is a large on annual bonuses; approval of the external auditors; the main goal of the Committees is supporting the
Prometei is among the most important players in mining enterprise, specializing in limestone and approval of the Group’s annual report and financial Supervisory board’s activity.
ukraine’s iron and steel scrap market and the larg- dolomite extraction and processing. statements; approval of all m&a transactions.
est supplier of these raw materials to metallurgical Krivbasszvryvprom explosives Company is an
enterprises. industrial production enterprise, specializing in ex-
Skif Shipping provides cargo transportation and plosion works in ukraine’s open cast mines.
dispatch services for vessels in the Sea of azov Krivoy Rog iron ore Plant is ukraine’s largest pro-
ports. ducer of iron ore.


SCM Group business
SuPeRViSoRy BoaRd (10 members) SuPeRViSoRy BoaRd CoMMitteeS Metinvest Group consolidated sales structure - 2009
• Strategy Committee
• Audit Committee
• Remuneration and Nomination Committee
• Health, Safety, and Environment Committee
eXeCutiVe CoMMittee (10 members)
10%
middle east and
north africa
5% 16%
GRouP enteRPRiSeS north america CiS
and other

metinvest Holding llC is in charge of the opera- the executive Committee is also responsible for pre-
tional management of metinvest Group, represent-
ed by the General Director and the executive Com-
paring managerial and financial reporting, approv-
ing new functions and business processes, as well as
19%
europe
mittee, consisting of the 10 key metinvest Group analysis of the financial and industrial indicators of
senior managers. metinvest Group enterprises.

Metinvest Group key indicators
indicators 2008 2009 dynamics, %

Sales volume, $m 13 213 6 026 -54,4

Asset value, $m 11 356 12 170 +7,2

EBITDA, $m 4 735 1 400 -70,4
27%
Net profit, $m 2 803 334 -88,1 ukraine 23%
South-east asia
Iron ore products, m tonnes 30.1 29.2 -3,0

Crude steel output, m tonnes 8.2 7 -14,6

SCM Public Report 2009

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