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Annual Report 2013 Metinvest Annual Report and Financial Statements 2013 Competing From a Position of Strength Annual Report and Financial Statements 2013 www.metinvestholding.com We are Metinvest, an international vertically integrated steel and mining group with assets in Ukraine, Europe and the US. We manage every link of the production chain: from mining iron ore and coal and producing coke to manufacturing value-added steel products. Contents Introduction Strategic Advantage Financial Statements 01 Our Competitive Advantages 22 Business Model 54 Introduction and Contents 02 Achievements 24 Our Strategy 55 Independent 04 Chairman’s Statement 26 Industry Overview and Auditor’s Report Market Opportunities 56 Abbreviated Consolidated Competing From a Balance Sheet Position of Strength Delivering on our Advantages 57 Abbreviated Consolidated 06 Chief Executive 28 Chief Financial Income Statement Officer’s Review Officer’s Review 58 Abbreviated Consolidated 08 Key Performance Indicators 32 Divisional Review – Mining Statement of Comprehensive 10 Competitive Advantages: 34 Divisional Review – Income 10 Geographic Location Metallurgical 59 Abbreviated Consolidated 14 Iron Ore Reserves 36 In Focus: Zaporizhstal Statement of Cash Flows 16 Vertical Integration 60 Abbreviated Consolidated 18 People Advantages Through Statement of Changes 20 Lean Manufacturing Good Governance in Equity 38 Executive Committee 61 Notes to the Abbreviated 42 Corporate Governance Consolidated Financial 44 Risk Management Statements 31 December 2013 Sustainable Advantage 48 Our People Additional Information 50 Health and Safety 98 Parent Company and its 52 Environment and Principal Subsidiaries Communities 99 Sales Offices 101 Glossary and Abbreviations Metinvest Annual Report and Financial Statements 2013 01 Our Competitive Advantages Geographic Iron ore Vertical People Lean location reserves integration manufacturing Our asset base is in We are a regional Our vertically integrated Our most important Adopted across the Ukraine, with our steel leader in the iron ore business allows us to asset is our highly production chain, our plants in close market, with a control the value chain skilled workforce, lean manufacturing proximity to our iron ore substantial resource and deliver high-quality, led by a first-class approach is based on resource base, and the base that provides long- value-added steel management team the key principles of country is the bridge term security for our products to our that combines industry removing variation in between the EU and the steelmaking customers. experience with a processes, eliminating CIS, while our proximity operations. wealth of corporate waste and improving to the Black Sea expertise. flexibility to improve provides easy access At the current rate of operational efficiency. to emerging markets mining, we have in the Middle East sufficient reserves and and North Africa, resources to last more and beyond. than a century. p 10 p 14 p 16 p 18 p 20 Competing From a Strategic Advantage Delivering on Advantages Through Sustainable Financial Statements Additional Position of Strength our Advantages Good Governance Advantage Information 02 Introduction Achievements Strong performance… Revenues EBITDA1 US$12,807M US$2,291M +2% +15% Our headline financial results reflect a stable top line: EBITDA reached US$2,291 million, representing double-digit revenues rose by 2% year-on-year (y-o-y) to US$12,807 growth, as the Mining division delivered another strong million, driven by sales of steel and iron ore products. performance and the Metallurgical division made a positive EBITDA contribution, thanks to greater efficiency at our mills and in our supply chain and downstream logistics. Net Debt to EBITDA Capital Expenditure 1.5X US$747M –0.4x –2% As net debt fell by 6% and EBITDA rose by 15%, our We kept CAPEX stable at US$747million and continued to net debt to EBITDA ratio improved from 1.9x to 1.5x, implement our Technological Strategy, which seeks to a comfortable level. balance our ambitious modernisation plans and conservative approach to financing. Crude Steel Production Iron Ore Concentrate Production 12,391KT 36,926KT –1% +2% Despite challenging conditions in the global steel industry, Thanks to continued improvements in our operations, we set we kept our crude steel output stable. a new record for output of iron ore concentrate, which increased by 2% y-o-y. 1 Adjusted EBITDA is calculated as earnings before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, the share of results of associates and other non-core expenses. We will refer to Adjusted EBITDA as EBITDA throughout this report. Metinvest Annual Report and Financial Statements 2013 03 …and continued investment in the future Investment Sustainable Commitment to in growth financing the community Upgrading our mills Repaying debt Reducing environmental impact In 2013, we continued to implement our In 2013, Metinvest repaid US$632 million In 2013, we moved to fulfil our promise to updated Technological Strategy, focusing of principal debt, which included two credit reduce our environmental footprint by on increasing operational efficiency and lines, a pre-export facility and a loan making major progress in our plans to product quality. In our Metallurgical facility. Our payment discipline and modernise the sinter plant at Ilyich Steel division, key projects included the launch conservative approach to debt allowed us and build a new facility at Yenakiieve of pulverised coal injection (PCI) at Ilyich to obtain fresh financing during the year. Steel. We also decreased dust emissions Steel and the ongoing construction of PCI Meanwhile, higher EBITDA and cash at the from assets in the Metallurgical division and air separation units at Yenakiieve end of the period, combined with by around 50%, including fitting modern Steel, scheduled for completion in 2014. repayments, reduced our net debt to gas cleaning systems to all converters at EBITDA ratio from 1.9x to 1.5x. Yenakiieve Steel and installing dust New mining technology suppression systems at blast furnaces In our Mining division, among other Long-term financing nos. 1 to 5 at Ilyich Steel. projects, we continued building a crusher In April 2013, we obtained additional and conveyor system at the Pervomaisky long-term funds by increasing an existing Empowering communities quarry at Northern GOK, finished the US$300 million pre-export facility, As part of our social investment policy, we fourth section of the Affinity mine at secured in November 2012, by US$260 have implemented more than 130 major United Coal, which will add another million. This was US$160 million more social infrastructure projects. These 1.1 million tonnes of high-grade coking than planned due to oversubscription include developing public places, parks coal capacity in 2014, and commissioned during syndication. In November 2013, we and playgrounds; equipping and repairing new advanced safety systems at secured another US$300 million five-year educational and healthcare institutions; Krasnodon Coal. pre-export finance facility. and supporting cultural and sport facilities. Improved sales mix Greener cities We launched more than 30 new steel In 2013, we also launched the ‘Green products in 2013, increasing our portfolio Centre’ project to landscape urban spaces of value-added goods, extending our and remove waste in local communities. market reach, and enhancing our profile As part of this, we cleaned around as a leading European steelmaker. 500,000 m2 of land and disposed of some 350 tonnes of waste. Competing From a Strategic Advantage Delivering on Advantages Through Sustainable Financial Statements Additional Position of Strength our Advantages Good Governance Advantage Information 04 Introduction Chairman’s Statement Amir Aisautov In 2013, amid difficult market conditions, we delivered strong results, while investing in technology to enhance efficiency and cut emissions and improving our key health and safety ratio yet again. Resilient and committed We have also launched major projects Metinvest delivered strong results in that are monumental for Ukraine’s steel 2013. We kept revenues and output industry. In December 2013, we signed an stable, while raising the EBITDA margin to agreement to prepare an engineering plan 18%, demonstrating our ability to increase for upgrading Ilyich Steel’s sinter plant, operational efficiency through investments work that is due for completion in 2020. in technology and improved working We envisage spending around US$180 practices. We are also proud to have million on the work, making this the continued to work in close partnership largest environmental project in Ukraine’s with our communities. Our sustainable recent history. We also conducted development efforts focus on providing preparatory work to build a new state-of- local residents with the support needed the-art sinter plant at Yenakiieve Steel, to improve quality of life. which we expect to invest around US$470 million in and complete in 2017. Environmental leadership We are proud to say that we are fulfilling Other results included reducing dust our environmental commitments. Last emissions from assets in the Metallurgical year, we spent US$446 million2 on division by around 50%, including fitting technology to reduce our environmental modern gas cleaning systems to all footprint, which will have a direct and converters at Yenakiieve Steel and long-term
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