ANNUAL REPORT 2011 SUCCESSFUL quALity Financial and Operational Highlights (unless otherwise USD million specified) 2011 2010 2009 2008 2007 Revenue 12,291 10,979 8,165 15,685 13,588 Adjusted EBITDA 2,512 2,597 596 3,526 4,620 Adjusted EBITDA Margin 20.4% 23.7% 7.3% 22.5% 34.0% EBIT 1,749 2,031 (63) (1,228) 3,647 Share of (Losses)/ Profits from Associates (349) 2,435 1,417 (3,302) (14) Pre Tax Profit/(Loss) 610 3,011 839 (6,053) 3,225 Net Profit/(Loss) 237 2,867 821 (5,984) 2,806 Net Profit/(Loss) Margin 1.9% 26.1% 10.1% (38.2%) 20.7% Adjusted Net Profit/ (Loss) 987 792 (1,378) 1,528 2,806 Adjusted Net Profit/ (Loss) Margin 8.0% 7.2% (16.9%) 9.7% 20.7% Recurring Net Profit/ (Loss) 1,981 1,683 (870) 964 2,806 Basic Earnings/(Loss) Per Share (in USD) 0.02 0.19 0.06 (0.49) 0.32 Total Assets 25,345 26,525 23,886 24,005 22,063 Equity Attributable to Shareholders of the Company 10,539 11,456 6,332 4,488 10,095 Net Debt 11,049 11,472 13,633 13,170 8,395 ANNUAL REPORT 2011 SUCCESSFUL quALity UC RUSAL ANNUAL REPORT 2011 Corporate content Profile 3 Chairman’s Statement 7 CEO’s Review 9 Business Overview 13 Management Discussion and Analysis 25 Profiles of Directors and Senior Management 51 Directors’ Report 71 Corporate Governance Report 105 Independent Auditors’ Report 115 Glossary 195 Appendix A - Principal terms of the Shareholders’ Agreement with the Company 201 Appendix B - Principal terms of the Shareholders’ Agreement between Major Shareholders 203 Corporate Information 208 Our Global SUCCESSFUL quALity Footprint UC RUSAL ANNUAL REPORT 2011 ANNUAL REPORT 2011 Corporate 3 Profile UC RUSAL IS THE WORLD’S LARGEST PRODUCER of primary aluminium, alloys and value-added products with a particular focus on the production and sale of value- added products, which is the higher margin upstream segment of the industry. 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, located in Siberia, Russia, benefit from access to stranded low cost hydro generated electricity enabling it to be a low cost producer of aluminium, with its principal Siberian facilities in close proximity to important Asian markets. Global scale and reach – Market leading position with unique exposure to the global aluminium market. In 2011, UC RUSAL maintained its position as the largest aluminium producer in the world and one of the industry leaders in alumina production. Source: Based on UC RUSAL’s internal company report, and peer companies’ publicly available results, announcements, reports and other information. ANNUAL REPORT 2011 4 SUCCESSFUL quALity Secure access to sources of green and renewable The Taishet aluminium smelter in the Irkutsk region electricity – UC RUSAL has long term contracts with of Russia has a design capacity of 750 thousand tonnes low-cost hydro power plants in Siberia. In 2011, UC RUSAL of aluminium per annum. maintained its position among the leading companies on Proprietary R&D and internal EPCM expertise – the aluminium cost curve. UC RUSAL has developed its own in-house R&D, design and engineering centres and operates RA-300 and RA- INDUSTRY COST CURVE 400 smelting technologies. A new energy efficient and environmentally friendly RA-500 smelting technology is under design. DIVERSIFICATION OPPORTUNITIES THROUGH INVESTMENTS – UC RUSAL owns, through its wholly-owned subsidiary UC RUSAL Investment Management, LLC, a 25%1 plus one share interest in Norilsk Nickel, the world’s largest nickel and palladium producer and one of the leading producers of platinum and copper2. – UC RUSAL’s 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. Source: Brook Hunt (A Wood Mackenzie Company) Focus on higher margin upstream business – Primary aluminium production with a focus on alloys and value-added products. UC RUSAL’s target is to increase the production of value-added products by up to 50%, in particular, through improvements to its smelters located in the European part of Russia, the Urals and Siberia. High degree of vertical integration with its upstream business – UC RUSAL’s 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 and casting houses, foil mills and packaging production centres as well as power-generating facilities. Strong growth potential of the UC RUSAL platform – around 1 million tonnes of attributable aluminium capacity currently under construction (equivalent to 25% of the current Company’s production volume): The BEMO Project, which involves the construction of the 3,000 megawatt BEMO HPP and BEMO aluminium smelter in the Krasnoyarsk region of Russia, has a design capacity of 588 thousand tonnes of aluminium per annum. 1 Nominal share. 2 Source: www.nornik.ru. ANNUAL REPORT 2011 5 KEY FACTS UC RUSAL In 2011, UC RUSAL accounted for about 9% of the world’s aluminium output1 and about 9% of the world’s alumina production2, generated from the following facilities located throughout the world: – 16 aluminium smelters – 12 alumina refineries – 8 bauxite mines – 4 foil mills – 2 cathode plants UC RUSAL is listed on the Hong Kong Stock Exchange and is also listed on NYSE Euronext Paris in the form of Global Depositary Shares and on MICEX and RTS in the form of Russian Depository Receipts. KEY SHAREHOLDERS3 Note: * Includes shares held beneficially. ** Amokenga Holdings is ultimately controlled by Glencore International Plc. *** Including 0.22% directly held by the CEO of the Company. 1 Source: Brook Hunt (A Wood Mackenzie Company). 2 Source: Brook Hunt (A Wood Mackenzie Company). 3 Source: This information was taken from www.rusal.com on 31 December 2011. ANNUAL REPORT 2011 Chairman’s 7 Statement UC RUSAL – During the past two years, the Company has reduced its debt level by almost a third. While the current level is still regarded as high, it is comfortably within UC RUSAL’s servicing capability. Furthermore, our completion of the refinancing of the Company’s debt portfolio with an extended maturity profile and reduced interest margins will allow for greater operational and financial flexibility. – The Company’s investor base has widened considerably. The launch of the RDR programme attracted a large number of Russian investors. It is also notable that UC RUSAL has been included in five stock market indices, in Hong Kong, Paris, and Moscow. As a result, the Company’s share liquidity has risen significantly as well. – To reward employees who contribute to the achievement of the Company’s performance indicators and strategic goals, and in order to more closely align employees’ interests with those of the shareholders’, in May 2011, the Board implemented a DEAR SHAREHOLDERS, long-term share incentive plan for high performing employees. Accordingly, we are very pleased with It is a pleasure to be able to prepare this report the fact that we now count employees amongst our following my appointment as Chairman of UC RUSAL in shareholders. March of this year. – Corporate governance continued to be a major I was delighted with the appointment by the priority for the Company. The Board has already Company’s Board of Directors, as I have full confidence approved a comprehensive review of the Company’s in UC RUSAL’s strategic intent and continued growth. corporate governance practices, and a report is Over the past two years, I have gotten to know the due in April of this year. Additional independent Company’s many respected Board members and its highly directors will be appointed to the Board in order to professional executive team. I am also well aware that raise the number of such members to one-third of the the Company’s dedicated staff and many stakeholders Board’s membership, in line with the requirements of remain committed to the success of UC RUSAL. With the Stock Exchange of Hong Kong. all that is already in place, further potential can be In reviewing the year 2011, a few other initiatives of realised. the Company deserve special mention. Many will remember 2011 as another tough year for For example, the Company’s management recognises the global economy, especially in the second half, when the importance of frequent and effective communication the Eurozone crisis threatened financial stability with its stakeholders and potential investors. Greater across the globe. The aluminium industry was not spared. transparency will ensure better understanding of UC Indeed, market uncertainties and volatility resulted in RUSAL. Meetings have therefore been held, and will price pressures, fluctuating product demand, and supply continue to be held on a regular basis, in key global chain disruptions. It was a grim year. investment centres. Special attention is also being paid For UC RUSAL, the overriding goal throughout was to our outreach programme with retail investors. In to stay focused on the Company’s long-term growth, fact, as part of our global investor relations strategy, and remain tenaciously on track with its core business the Company held a major seminar for retail investors in strategies and plans. This, I believe, we were successful Hong Kong in early 2012, in which more than 1,000 local in achieving. investors participated – a clear indication of strong Consider the following: interest. – Not only did UC RUSAL continue to maintain its premier position in the aluminium industry in 2011, the Company’s revenue grew 12% compared to that of 2010.