CONTENTS Annual Report 2009 Financial and Operational Profiles of Directors highlights 2 and Senior Management 62 Corporate Profile 4 Directors’ Report 78 Chairman’s Statement 10 Corporate Governance Report 108 CEO’s Review 14 Independent Auditor’s Report 120 Business Overview 20 Glossary 240 Management Discussion Corporate Information 248 and Analysis 30 1 FINANCIAL AND OPERATIONAL HIGHLIGHTS Net profit of USD821 million 89% higher than pre-IPO net profit forecast 2 FINANCIAL AND OPERATIONAL HIGHLIGHTS USDmillion (unless otherwise specified) 2009 2008 Cost Efficiency Leader Revenue 8,165 15,685 initiative resulted in aluminium cash Adjusted EBITDA 596 3,526 operating costs Adjusted EBITDA Margin 7.3% 22.5% decreasing by 23% and alumina cash operating EBIT (63) (1,228) costs decreasing by 27% Income from Associates 1,417 (3,302) Pre Tax Profit 839 (6,053) Net Profit 821 (5,984) Net Profit Margin 10.1% -38.2% Earnings / Loss Per Share (in USD) 0.06 (0.49) Total Assets 23,886 24,005 Equity Attributable to Shareholders of the Company 6,332 4,488 Net Financial Debt 13,633 13,170 Managed production through the downturn Aluminium production of 3.9 million tonnes Alumina production of 7.3 million tonnes Focus on Cash Operating Costs • Aluminium Cash Operating Cost reduction of 23% • Alumina Cash Operating Cost reduction of 27% Financial performance and debt restructuring • Net profit of USD821 million • 89% higher than pre-IPO net profit forecast of USD434 million • Cash from operations of USD321 million • Capital expenditure of USD420 million • Successful restructuring of USD16.6 billion of indebtedness 3 CORPORATE PROFILE UC RUSAL is one of the lowest cost producers of aluminium globally 4 CORPORATE PROFILE UC RUSAL is the world’s largest producer of aluminium with a particular focus on the production and sale of primary aluminium, which is the higher margin upstream segment of the industry. UC RUSAL is the largest aluminium producer… The Company’s core smelters are located in Siberia, Russia, that benefit from access to stranded low cost hydro generated electricity Source: UC RUSAL internal company report … and one of the industry leaders in alumina production Source: UC RUSAL internal company report Within its upstream business, UC RUSAL is vertically integrated to a high degree, having secured substantial supplies of bauxite and alumina production capacity. The Company’s core smelters are located in Siberia, Russia, that benefit from access to stranded low cost hydro generated electricity. As a consequence, UC RUSAL is one of the lowest cost producers of aluminium globally and has its principal Siberian facilities in close proximity to the important Chinese and Asian markets. 5 2009 RUSAL ANNUAL REPORT UC RUSAL has a leading position on the aluminium cost curve UC RUSAL’s scale, upstream focus and position on the cost curve provide unique exposure to the aluminium industry Source: Brook Hunt* * The methodology used by Brook Hunt (an independent research and consulting firm specialising in the mining and metals industries) to calculate the C1 costs used in the preparation of the aluminium cost production curve presented differs from the methodology used by UC RUSAL for the calculation of its Cash Operating Cost (FOB basis). Specifically, Brook Hunt does not include in C1 costs corporate overheads (including selling, general and administrative expenses) and casthouse costs. Vertically Integrated Asset Base Our scale, upstream focus and position on the cost curve provide unique exposure to the aluminium industry. UC RUSAL operates bauxite and nepheline ore mines, alumina refineries, aluminium smelters, foil mills and packaging production centres along with power-generating facilities. The Company employs more than 75,000 people who work in 19 countries over five continents. In 2009 UC RUSAL produced the following (measured in million tonnes): In addition, UC RUSAL produced approximately 67,800 tonnes of aluminium foil and foil-containing packaging materials. Key facts In 2009, UC RUSAL accounted for about 10% of the world’s aluminium output and 10% of the world’s alumina production generated from the following facilities located throughout the world: • 16 aluminium smelters • 12 alumina refineries • 8 bauxite mines • 3 foil mills • 1 cathode plant UC RUSAL is listed on the Stock Exchange and is also listed on Euronext Paris in the form of Global Depositary Shares. 6 CORPORATE PROFILE Key shareholders (post – January 2010 IPO) UC RUSAL developed its own in-house R&D, design and engineering centres and RA-300 and RA-400 smelting technologies Key customers UC RUSAL’s key assets, which are in Siberia, are favourably located to service Asian markets and China in particular. The key consumers of UC RUSAL products are the transport, construction and packaging industries. UC RUSAL has customers in approximately 70 countries. 2009 revenue split Commodity diversification through significant investments in energy, metals and mining projects such as BEMO, Norilsk Nickel, Samruk-Kazyna Strong technology base UC RUSAL has developed its own in-house R&D, design and engineering centres and has RA-300 and RA-400 smelting technologies. Commodity diversification through significant investments • 25% plus interest in Norilsk Nickel, the world’s largest nickel and palladium producer1 and one of the leading producers of platinum and copper. • 50/50 LLP Bogatyr Komir coal joint venture in the Ekibastuz coal basin, one of the largest coal basins in the CIS, providing UC RUSAL with a natural energy hedge. 1 Source: CRU, based on production in 2009 7 2009 RUSAL ANNUAL REPORT OUR GLOBAL FOOTPRINT 8 9 CHAIRMAN’S STATEMENT Achievements of 2009 laid a solid foundation for delivering value to our shareholders 10 CHAIRMAN’S STATEMENT Dear Shareholders, I am pleased to present the Annual Report of United Company RUSAL Plc for the year ended 31 December 2009. This is our first Annual Report as a public company, following our successful IPO in early 2010. It is an honour to address you as UC RUSAL enters a new phase of development and leaves some of the most challenging times in its history behind. Despite the recent downturn, UC RUSAL, as the global industry leader, not only survived but emerged stronger than ever to take advantage of new growth opportunities. The global financial and economic crisis that started in 2008 had a severe impact on the global demand for aluminium, driving prices to historical lows during the first half of 2009. As a result, UC RUSAL’s financial performance was severely affected, resulting in a liquidity shortage and breach of financial covenants. To guide the Company through these testing times, the Board appointed Mr. Oleg Deripaska as Chief Executive Officer in January 2009. His unrivalled experience in the aluminium industry and understanding of the inner workings of UC RUSAL made him an obvious choice for the role. Under Mr. Deripaska’s leadership, UC RUSAL rose to the challenge presented by unprecedented market conditions and successfully implemented a number of strategic initiatives to improve efficiency and reduce cost throughout its operations. With the support of its international and Russian lenders and the global investment community, and thanks to the effort and commitment of its remarkable management team, UC RUSAL successfully restructured its debt obligations in December 2009 and completed an IPO of its Shares in January 2010. The capital provided by the new investors was a major step forward in strengthening UC RUSAL’s balance sheet and meeting the targets for the agreed debt restructuring ahead of schedule. The successful listing of UC RUSAL on the Stock Exchange and Euronext Paris (in the form of Global Depositary Shares) opens a new and exciting chapter in its corporate life. The listing on the Stock Exchange emphasises UC RUSAL’s strong relationship with its Chinese customers, as well as the growing importance of the Chinese market for the global aluminium industry and the opportunities China’s economic growth is expected to provide. In addition, our important and continuing relationship with European customers who represent the Company’s largest existing market is supported through the listing on Euronext Paris. 11 2009 RUSAL ANNUAL REPORT As the leader in the The Board and I would like to welcome UC RUSAL’s new shareholders to this most global aluminium promising period of its corporate life and we would like to thank our investors for their industry, UC RUSAL is support. We look forward to continuing to work together with you in the future. acutely aware of its duty The Board is committed to the highest standards of corporate governance in to operate in a safe, accordance with international practice. This practice has been followed since the creation sound and socially of the Company to safeguard the interests of minority shareholders through the responsible manner appointment of independent Directors and the establishment of appropriate Board committees, including the audit, remuneration, corporate governance and nomination committees. The Board has been further strengthened by the appointments of Ms. Elsie Leung Oi-sie in November 2009 and Mr. Barry Cheung Chun-yuen in January 2010 as independent non-executive Directors. Both have a wealth of experience and knowledge in relation to companies operating in Hong Kong that complement the Board’s current skill set and provide it with relevant new perspectives. We would like to welcome them both to the UC RUSAL family. As the leader in the global aluminium industry, UC RUSAL is acutely aware of its duty to operate in a safe, sound and socially responsible manner. The Company seeks to mitigate its impact on the environment whenever possible. Our commitment to operating in an environmentally and socially responsible way is an important objective for us. UC RUSAL considers the health and safety of its employees to be one of its key responsibilities and actively engages in the communities in which it operates.