www.nmtp.info NCSP GROUP A HARBOR FOR SUCCESSFUL BUSINESS SUCCESSFUL FOR A HARBOR FOR SUCCESSFUL BUSINESS FOR SUCCESSFUL BUSINESS A HARBOR A HARBOR ANNUAL REPORT 2007 NOVOROSSIYSK–MOSCOW NOVOROSSIYSK–MOSCOW NCSP GROUP ANNUAL rEPORT 2007 ness i NCSP Bus ul f GROUP ess cc U S or f or b ar A H акватория успешного бизнеса CONTENTS 2 About the Group 5 Novorossiysk in the Global Transportation Network 6 Key Operational and Financial Indicators 8 Letter from the Chairman of the Board and General Director 10 Investing in Growth 11 Focus on Efficiency 12 Review of Operational Results 14 Companies of the Group 30 Review of Financial Results 34 Information for Shareholders 37 Corporate Governance 43 Social Responsibility 45 Independent Auditors' Report and Consolidated Financial Statements 108 Contact Information Novorossiysk ANNUAL REPORT 2007 NCSP is Russia’s largest port operator maintaining key foreign-trade cargo channel NCSP Group was formed as a result of the consolidation of stevedoring Diagram 1. Largest Russian seaports by cargo turnover in 2007, mln. tons companies by the largest operator at Novorossiysk Port, PJsC NCsP, 90 in 2006. The Group now unites NCSP 6 stevedoring companies working in the Other 2.5 Black sea and the Baltic sea, including: 80 GROUP PJsC Novorossiysk Commercial sea 74.2 Port, oJsC Novoroslesexport , oJsC 78.4 iPP, PJsC Novorossiysk Grain Terminal, 70 oJsC Novorossiysk ship repair yard and LLC Baltic stevedore Company 61.3 THE 60 as well as the service company PJsC NCsP Fleet, which provides towing and 1 bunkering services. 50 IN the text of this Annual report, 40 OUT THE GROUP PJsC NCsP, together with its subsidiary b companies, is referred to as “NCsP A ABOUT Group” or “the Group” or NCsP. PJsC 30 NCsP, as the head company of the 25.40 group, is referred to as PJsC NCsP 24.70 22.2 21.6 or “the Company”. 20 19.6 15.6 13.4 NCSP is the largest port operator in russia that maintains the key channel 10 for the flow of russia’s foreign-trade cargo through Novorossiysk Port, the 0 Novorossiysk Primorsk St.Petersburg Murmansk Vysotsk Vanino Vostochniy Tuapse Kaliningrad Nakhodka southern sea Gates of the country. in Source: NCSP Group data 2007, the Group’s share accounted for around 18%2 of all import and export cargo handling carried out through russia’s sea ports. Diagram 2. Largest European seaports by cargo turnover in 2007, mln. tons the primaRy opeRations Of NCSP are concentrated in the port of Novorossiysk. The port is located in the 450 northeast part of the Black sea and NCSP Other occupies sixth place in terms of cargo 407 traffic among European ports3. it is the 400 single multimodal, ice-free deepwater port in russia’s southern basin allowing 350 year-round navigation. 300 250 200 183 150 140 % of NCSP shares were offered to investors 100 100 88 81 79 69 through an IPO in 2007. 58 19.4 50 Havre 0 Rotterdam Antwerp Hamburg Marseilles Amsterdam Novorossiysk Le Bremen Constance Source: NCSP Group data 1 The term “bunkering” covers the combination of technological operations connected with providing vessels coming into the port with fuel, water, oil and so forth. 2 source: russian Maritime Ports Association 2007 report. SP GROUP 2 3 3 source: NCsP and rotterdam sea Port estimates. c N ANNUAL REPORT 2007 NOVOROSSIySK ACCUMULATES CARGO TRAFFIC FROm ThE LARGEST RuSSIAN EXPORTERS NOvorossiySk is located at the RelatIve proxImIty of Novorossiysk tal Steel Temirtau, Cargill, sUCDEN Diagram 3. Port of Novorossiysk cargo turnover by stevedoring intersection of global transportation companies, 2007, % Port to the world’s primary centers of (sucres & Denrees), WJ Grain, Glencore, routes connecting russia with the trade makes it a very convenient point kazakhmys, kazzinc and many others. Mediterranean, the Middle East, Africa, for the handling of cargo flowing to and south and southeast Asia and North Independent from central russian regions, including NCSP contaINeR teRmINalS ness i and south America. The developed Stevedores, 4% the Urals and the volga as well as are well connected with leading railroad, auto-transport and pipeline NCSP, 96% Central Asia. international container lines like Bus infrastructure of Novorossiysk allows Mediterranean shipping Company s.A. ul f NCsP to efficiently exploit the potential Port Of NOvorossiySk (MsC), CMA CGM, Evergreen, Hapag- of the growing market for export and accumulates cargo traffic from Lloyd, ZiM, ADMIRAL Container lines ess import cargo handling. the largest russian exporters, includ- inc. and others. cc U ing: LUKOIL, Tatneft, sibneft, NLMk, GLOBAL S 4% 96% a group of multimodal port oEMk, severstal, EvrazHolding, or terminals permits NCsP to service all Mechel, rUsAL, TNk-BP, TMk, Mit- f of the main types of cargo conveyed or b by sea, including liquid, bulk, general THE ar and container loads. in 2007, the cargo turnover of the NCsP Group amounted the delIveRy Of containers from SoutheaSt Asia tO Moscow aNd OtheR CeNtRal RussiaN citIeS through A H акватория успешного бизнеса to 79.4 million tons1 and its share of NOvOROSSIySk takeS eIGht dayS leSS thaN by alteRNatIve ROUteS thROUGh the PORtS Of ROtteRdam/hambURG NOVOROSSIYSK IN TRANSPORTATION NETWORK the total cargo turnover of Novorossiysk aNd St PeteRSbURG. Port amounted to 96%. IN 2007, NCsP conducted an initial Source: NCSP Group data public offering (iPo) of 19.4% of its shares on the London stock Exchange (LsE) in the form of global depositary receipts (GDrs) as well, as on the rTs Diagram 4. NCSP cargo traffic by regions, 2007, % stock exchange in russia. NCsP’s GDrs are listed on the LsE under NCsP symbol. ordinary shares are traded on Russian Federation MiCEX and rTs exchanges in russia Australia, 1% under NMTP symbol. Latin America, 3% St-Petersburg North America, 11% moscow 12% Asia, 16% 11% Africa, 20% Rotterdam 3% Europe, 37% KAzakhstan Other, 12% Europe, 37% Novorossiysk North 20% 37% America, 11% 1% Asia, 16% Shanghai 16% Africa, 20% Bombay Latin Source: NCSP Group data America, 3% 1 Here and elsewhere, conversion from cubic meters to tons is based on the ratio of 0.55 tons to 1mЗ, and for containers on the ratio of 14 tons to 1 TEU. These ratios are used by NCsP as indicative numbers and based on assumptions that the Group believes to be well-founded. Any lack of accordance between the data and the factual weight of cargo SP GROUP 4 does not have a significant influence on the indicators for revenue and EBiTDA, as the calculation of tariff rates and according collections carried out on the relevant cargo is 5 c carried out on the basis of 1m3 and 1 TEU, and not by weight. N ANNUAL REPORT 2007 NCSP’S NET PROFIT GreW By 112.5% IN 2007 № 1 seaport in Russia № 6 seaport in Europe by 4 new terminals cargo turnover launched in 2007 ATORS IC ND i AL CI NAN FI ONAL AND № № i FINANCIAL OPERATIONAL 1 6 4 24% of Russian oil ex- 54% of Russian grain 31% of ferrous metals KEY OPERAT KEY AND INDICATORS ports by sea in 2007 exports by sea in 2007 handling at Russian ports in 2007 24% 54% 31% key eveNtS Of 2007: • New specialized Novorossiysk grain • New liquid cargo and bunkering fuel • successful iPo on the London stock terminal with a capacity of 4 million terminal launched into operation Exchange and russian exchanges tons per annum launched into by PJsC NCsP. MiCEX and rTs. operation by PJsC NGT. • Reconstruction of sheskharis oil • Eurobond issue for Us$ 300 million. • Expanded timber and container terminal’s main pipeline. • Assignment of long-term BB+ credit terminals launched into operation rating and ruAA+ national rating by oJsC Novoroslesexport . by Standard & Poor’s and Ba1 credit rating by Moody’s. Table 1. Summary of 2007 results Revenue, uS$ mln 483.4 74.3% EBITDA, uS$ mln 227.9 91.4% through Russian EBITDA Margin, % 47.1 % of total cargo traffic Net profit, uS$ mln 93.7 112.5% 18 seaports is handled by NCSP Group. Cargo turnover1, mln tons 79.4 1.7% 1 According to pro-forma Source: Audited Consolidated Financial Statements of NCSP according to International Accounting Standards SP GROUP 6 7 c N ANNUAL REPORT 2007 NCSP does not intend to stop with what has been achieved and sees great potential in the regional diversification of thE Business OARD OF b TOR c The consolidation of assets also allowed us to optimize and fruitful cooperation which has enabled the THE RE f i our pricing policy, eliminate previously existing tariff successful development of NCsP. We are convinced that AND discounts, and move to the active implementation of the experience which we have gained in the course of our investment program aimed at expanding throughput integrating assets and increasing the efficiency of our DIRECTOR RMAN O capacity and modernization of the handling capacity of business, in combination with the further successful i Novorossiysk Port. implementation of our investment plans, will be HA FROM c capitalized upon in the form of even better results in the BOARD IN 2007 we have completed 4 new modern terminals: future. a wheat terminal at PJsC NGT, container and timber terminals at oJsC Novoroslesexport and a bunkering yours sincerely, TORS AND GENERAL D ROM THE CHAIRMAN c f complex at oJsC iPP. A technical upgrade program was THE RE i implemented at PJsC NCsP and oJsC Novorossiysk ship D repair yard terminals. Container handling for the year f O LETTER increased to 261 thousand TEU (up 55% compared to LETTER THE OF DIRECTORS GENERAL 2006) and grain handling reached a record level of 5,808 thousand tons (up 42% compared to 2006).