Message from the CEO

Dear colleagues and partners!

2014 turned out to be a challenging year for Metalloinvest. We operated in a deteriorating global market environment and changing macroeconomic circumstances in Russia in the second half of last year.

In spite of significant external factors, the Company continued to implement its strategy and achieved solid financial results: operating income in 2014 increased by 7.3% compared to 2013.

Metalloinvest’s 2014 financial results reflect wider market trends. The Company’s revenues amounted to USD 6.4 billion, down 13.1% compared to 2013. EBITDA stood at USD 2 billion, a drop of 14.4% year-on-year. These declines are explained by the fall in global iron ore prices. At the same time, the EBITDA margin remained practically unchanged at 30.8%, compared to 31.3% a year earlier. The Company’s Steel Segment made a significant contribution to overall EBITDA, having increased its own EBITDA by nineteen-fold to USD 421 million. The Company made a net profit of USD 66 million. The 93.9% fall in net income, a decline of USD 1.7 billion, was largely the result of FX non-cash items related to the dollar-denominated part of the Company’s debt.

A new executive body was formed in the past year — the Management Board. Its creation played a significant role in enabling the Company to increase its operational efficiency.

During the year, we increased production of iron ore, pellets and hot metal by amounts ranging from 0.4% to 4.8%. The 1.1% drop in HBI/DRI production and the 3.7% decline in steel production came as a result of planned maintenance and closures of inefficient facilities, respectively.

Metalloinvest devotes considerable attention to the efficiency of its production capacities. As such, the Company continued to conclude long-term contracts and develop mutually-beneficial relations with partners. In 2014, the Company signed a range of agreements with Russian companies — NLMK, KOKS Group and Kosaya Gora Iron Works, as well as the Italian steel plant Ferriere Nord S.P.A.

In 2014, Metalloinvest continued to implement its large-scale investment programme, aimed at increasing its production capacities for high added-value products.

One of the Company’s most important investment projects is the construction of a third hot-briquetted iron plant at Lebedinsky GOK. The new facility will have an annual capacity of 1.8 million tonnes. The project will allow Metalloinvest to meet growing demand for highquality metallised resources and maintain its global leadership in merchant HBI production. In 2014, we completed the building and installation of a range of infrastructure facilities at HBI-3. Construction is continuing in 2015.

We have completed the construction of Pellet Plant #3 at Mikhailovsky GOK. In February 2015, the Company began the phased commissioning of the facility’s main equipment. The plant will enable the Company to increase pellet production capacity at Mikhailovsky GOK by 5 million tonnes to 15 million tonnes per year.

In October 2014, pilot production began at Ural Steel’s Coke Oven Battery #6. The implementation of the project will facilitate the production of 690,000 tonnes of high-quality coke annually, meaning that Metalloinvest will no longer need to purchase coke from external sources and thus the Company will reduce its overall production costs.

In November 2014, Metalloinvest commenced pilot production at its oxygen station with a cryogenic air separation unit at OEMK, another significant part of the Company’s investment programme. The new facility meets the plant’s needs for air separation products in full.

We expect to see increased operational efficiency in the Mining Segment following the modernisation of our mining and transport operations and investments to acquire more productive open-pit mining technology.

Metalloinvest carries out its business in a responsible manner and actively contributes to the sustainable development of the regions where it operates. Over the course of many years, the Company has worked in collaboration with the governments of the Belgorod, Kursk and Orenburg regions, as well as the administrations of Stary Oskol, Gubkin, Zheleznogorsk and Novotroitsk to develop and implement programmes as part of various socio-economic partnerships. The investments, made alongside mutual commitments, are aimed at implementing priority social development programmes. Improving quality of life in the regions where Metalloinvest operates is intended to help the Company maintain a highly-qualified workforce for the long term.

Metalloinvest’s results in 2014 demonstrated that the Company has pursued the right development strategy in the areas of production, finances, and investments, and our achievements will act as a foundation for the Company’s continued sustainable growth.

Andrey Varichev,
CEO Management Company


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