December 2010
SCM 10th ANNIVERSARY
SCM Reviews a Decade of Achievement On 19 November 2010 System Capital Management celebrated its 10th anniversary. To mark the event, senior managers of the company gave a press conference, where they summarized the company’s performance and outlined the development outlook. Over this decade SCM has evolved from a regional business to an international company with assets in Ukraine, Russia, Europe and the USA, whose estimated value of $18.5 bn in 2010 is nine times more than it was in 2004. Today SCM employs 130,000 people working in over 110 companies. SCM annually invests at least $1 bn in organic growth of the Group’s businesses. In 2000 SCM was focused on mining and metals and energy. Today the Group’s portfolio includes finance, telecommunications and media businesses as well as assets in real estate, retail, petroleum products, heavy engineering and other industries. Over the past decade SCM has moved from management
of individual assets to wellstructured industrial holdings with a transparent governance model. Oleg Popov, Chief Executive Officer of SCM, commented on the company’s performance during these ten years: “I believe that our people are the most important factor of our success and the biggest competitive advantage of SCM. Their professionalism, experience and loyalty has helped us to face all the challenges of the past ten years and feel confident about our future.” Speaking about the company’s future, Mr. Popov noted: “I am sure that the next decade will be no less successful than the past ten years. We set very ambitious
On November 10, 2010 the General Shareholders’ Meetings of SCM-owned FUIB (First Ukrainian International Bank) and Dongorbank decided to merge the two banks by
integrating Dongorbank into FUIB. “Today the shareholders of the banks have decided to merge Dongorbank and FUIB. The integration process will
SCM Builds on Media Success Page 2
Joining the European Energy Community Page 3
Metinvest’s EU Steel Mills Page 3
4Rinat Akhmetov, speaking at SCM’s 10th Anniversary goals. Further development of our existing assets is foremost. During the next ten years we will invest over $10 bn in their organic growth. We also plan to increase the value of our assets to over $50 bn. These plans will obviously influence the industrial and geographic priorities of the Group as we are not complacent about our development. Without a
doubt we will make many changes. Yet a number of constant values have not changed over this time and they will remain in future. These are the values and principles of SCM based on professionalism, effectiveness, transparency and responsibility to our shareholders, partners, employees and the whole of Ukraine.”
SCM’s Ambition to be a Leading Player in Finance is Behind Banks Merger start as soon as the National Bank of Ukraine gives the corresponding permission. We hope it will happen in December this year,” noted Ilya Arkhipov, SCM Business
>> Continued on Page 2
SCM Events Page 4
Page 1
SCM BANKS MERGER
w w w. s c m . c o m . u a
NEWS
UKRAINA MEDIA GROUP
NEWS December 2010 SCM Builds on Media Success
4Studio talk show Shuster live
- continued from page 1
SCM BANKS MERGER
SCM Banks Merger Development Director and Chairman of the Supervisory Boards of FUIB and Dongorbank, who is in charge of this ambitious project. According to the annual report data of both banks, as of 01 September, 2010 total assets of FUIB and Dongorbank were UAH 25.8 bn. This will place the merged bank in Ukraine’s top-10 banks ranked by assets. While 90% of SCM’s assets are in the focused on the industrial sector, SCM has always seen banking and financing (represented by its two banks and two insurance companies in the Group) as a core business in the Group’s portfolio. Mr Arkhipov believes that in 2011 the merged bank’s growth will exceed the market average and take advantage of being local to provide flexibility, efficiency and deep understanding of clients’ needs. “If we look at the banking structure, we can see that banks with foreign capital and state-owned banks make the lion’s share of the Ukrainian market. We are going to be one of few private Ukrainian banks ranking among the leading financial institutions of the country. We believe there is always a place for a strong private Ukrainian bank in the national market.” According to preliminary estimates, the merger will increase the bank’s profitability by 10% within the next few years. SCM’s other clear goal, as a result of the merger, is to provide shareholders with
Page 2
SCM has created the Ukraina Media Group to build on its television success with the Ukraina TV Channel. At present the Ukraina Media Group includes: 4 Ukraina national channel 4 Futbol sports channel - Ukraine’s first dedicated football channel launched in 2008 4Donbass regional channel launched in 2009 4Mediapartnerstvo sales house (selling advertising time) 4Digital Ventures Internet Holding (portal TOCHKA.net) Going forward, all SCM Group’s TV and Internet projects will be realized under the umbrella of the new Media Group. Ambitious plans are already in place with the new group scheduled to launch: at least a 20% return on equity, which is expected to exceed half a billion dollars following the results of 2010. “I am confident that the consolidation will help to enhance the bank’s reliability and improve significantly the quality of management and operational efficiency. At the same time we will continue to improve the quality of service and offer innovative products to our clients,” said Mr Arkhipov. According to FUIB Board Chairman, Konstantin Vaisman, the merger was the first step towards the implementation of the new Development Strategy 2010 - 2014, the major goal of which is to lead in Ukraine’s banking market with the level of client service provided. “According to the bank’s development strategy, the main principle in FUIB’s work will be the utmost focus on clients and deep understanding of their needs. FUIB is going to remain a modern high-tech bank pro-viding first-class service to our clients in combination with innovative services,” Mr Vaisman said.
4Ilya Arkhipov, SCM Business Development Director
4Futbol+ sports channel (launch is scheduled for this autumn) 4Movie channel to be launched later this year 4An in-house production company, currently being established 4Novyny news channel to start broadcasting in 2011 The goal of the Ukraina Media Group is to ensure further growth and market leadership of SCM Group’s media assets, to boost their competitiveness by capitalizing on the infrastructure and human resources of SCM’s channels and to achieve synergies. In 2009 Ukraina TV Channel remained the most dynamic channel among Ukraine’s biggest stations with the audience share growing by 45% year on year. In 2010 (January-October) Ukraina ranked second in the National TV Channels Rating with the average share of 9.98% (Source: GfK Ukraine, audience 18+, 50 000+). SCM is the major shareholder of Ukraina, which broadcasts 24 hours a day across 95% of Ukraine (cities 50k+) and is viewed by more than 37 million people a month. Also, SCM owns a publishing business operating under the Segodnya Multimedia holding. However, to date SCM has made a decision not to consolidate the television and publishing businesses under umbrella of the Ukrania Media Group as it does not expect any significant synergies from the consolidation of TV and print media at this time. Yekaterina Lapshina, SCM Director of Media Business Development, said the channel had grown into a strong national player and the media group would ensure further growth and maintain its leadership positions. Ms Lapshina stressed that “SCM is interested in further development of our media business as its importance for the Group continues to grow. Today, our media business is showing good results, but we want to become even stronger and more effective, and to establish ourselves as a leader in all areas of activity.” “To achieve these ambitious goals, our TV channels, print and Internet media should not just have up-to-date equipment, talented, well-trained people, but also operate in compliance with progressive global trends and practices,” she went on to say.
December 2010
Impact of Ukraine’s Joining the European Energy Community Complying with the European Energy Community emissions policy will cost Ukrainian companies $20 billion, says Maxim Timchenko, CEO to Ukraine’s largest independent energy company, DTEK. Mr Timchenko estimated his company would have to spend up to $3 billion on the reduction of solid particle emissions by 2018. Speaking at the conference “Ukraine: Reforms, Competitiveness, Investments”, held by the Foundation for Effective Governance in association with the Financial Times in September in Kyiv, Mr Timchenko said: “Ukraine has been given eight years to comply with the European standards on solid particle emissions. It took others 20 to 25 years to complete this process.” He said that the short time scale posed the greatest risk associated with joining the European Energy Community and said meeting those requirements was
next to impossible without assistance from the state. Mr Timchenko called for further discussions about the meeting of emissions requirements before ratification by the Verkhovna Rada (the Ukrainian Parliament). “We have made calculations for our companies: to meet the directive Vostokenergo alone will cost $2.5-3 billion, which is above the company’s value.” “For EU countries it was natural to be supported by the state and this was very thoughtful. Private businesses cannot fully undertake such costs but jointly with the state it could be quite possible. Not in eight years but in a longer time scale.” Mr Timchenko said that all Ukrainian thermal energy companies would face such costs. He said DTEK had supported the signing of a Memorandum on Ukraine’s joining the Energy Community last year and was in favour of the process in general. “Yet, there are both positive implications
4Maxim Timchenko, CEO of DTEK
ENERGY COMPLIANCE
NEWS
and significant risks for our country here.” The EU Council of Ministers approved the accession of Ukraine and Moldova to the European Energy Community in December 2009. To complete the accession procedure the parties were required to pass a law on gas complying with the EU regulations. The process will be finalized when Ukrainian politicians ratify the protocol. DTEK, founded in 2005, is the management company for the energy assets of SCM Group.
Metinvest’s EU Steel Mills Ferriera Valsider Founded in 2001, Ferriera Valsider is a producer of hot-rolled plates and hotrolled coils from steel slabs and is part of Metinvest’s Steel and Rolled Products Division. It is located in Vallese di Oppeano in Verona, Italy, approximately 120 kms from Marghera port. The annual capacity of the plate rolling mill and hot-rolled coil mill depends on the balance between plates and coils within the product mix and is approximately 0.4 million tonnes for each mill. In 2009, Ferriera Valsider produced approximately 0.2 million tonnes of hotrolled steel plate. The plate rolling mill production line is semi-automated. Last year the mill also produced approximately 0.2 million tonnes of hot-rolled coil. The production line of hot-rolled coil mill is fully automated. Metinvest Trametal Established in 1995, Metinvest Trametal is an innovative European producer of high quality carbon steel hot-rolled
plates. The company has a total annual capacity of 0.6 million tonnes with the plates produced being used in ship building, pipe manufacturing and for other industrial purposes. With its headquarters in Genoa and a production site in San Giorgio di Nogaro in Udine, Metinvest Trametal differentiates itself through high levels of customer service, high quality products, technological
innovation, flexibility in its manufacturing and logistical processes, and the efficient and reliable delivery of its products to customers. In 2009, Metinvest Trametal produced approximately 0.3 million tonnes of hot-rolled plate. It is a leader in the European market for structural carbon steel plates. >> Continued on Page 4
The SCM Group Public Report 2009 is Now Available on Our Website Introducing the publication - titled Sustainable Development. New Opportunities - SCM Group’s CEO Oleg Popov described the year as “most challenging”, but said it had left the Group “in good shape” for the future with strengthened market positions in its core industries. The SCM Group Public Report 2009 is available at: www.scm.com.ua
Page 3
METINVEST IN THE EU
In addition to steel production in Ukraine, Metinvest’s European Union based steel mills produced nearly a million tonnes of hot rolled steel plate last year (2009), according to the holding’s Annual report. The company has a strong EU presence with steel rolling mills in Italy, the UK and Bulgaria.
NEWS
December 2010
METINVEST IN THE EU
- continued from page 3
Metinvest’s Steel Mills Spartan Spartan is a steel plate re-roller located in Newcastle (United Kingdom), approximately 15 kms from the port of Tyne, allowing its products to be shipped easily to Northern European markets. The company was established in 2001. Spartan produces plates in a reversing mill using steel slabs, 80% of which are supplied by the Ukrainian steel plants of Metinvest, with the remainder sourced from third parties. Spartan’s annual capacity is approximately 0.2 million tonnes of hotrolled plates. In 2009, Spartan produced approximately 0.1 million tonnes of hotrolled plates. Promet Steel Promet Steel is a re-rolling plant manufacturing long steel products and is located in Burgas, Bulgaria some 25 kms from the sea port. The company was
4Trametal heat treatment furnace integrated into the Steel and Rolled Products division of Metinvest Holding in July of this year. Promet Steel’s rolling mill has an annual capacity of 0.7 million tonnes, which produces long steel products, including rebars, rounds and strips angles. Promet Steel’s facilities also include a specialised rebar production facility and section rolling facility, and
Championing Ukraine’s Economic Integration
SCM EVENTS
As part of its commitment to supporting Ukraine’s efforts to secure stronger economic integration in Europe, SCM was partner to the Independence Day Reception for Ukraine in September in Brussels hosted by Ambassadors Igor Dolhov and Kostyantyn Yeliseyev, who are newly appointed to their roles respectively as Ambassador to Belgium, and Head of Mission to the European Union. The reception attracted more than 250 senior businessmen, diplomats and representatives of Ukrainian and EU institutions. SCM also played a crucial role in supporting the official visit of Prime Minister Mykola Azarov to Brussels on
13 October by being a partner to a major business conference entitled “Ukraine: From Crisis to Growth”. Organised by the EU Ukraine Business Council, the event attracted nearly 200 participants from the European diplomatic, institutional and business communities. Attending the event Jock Mendoza-Wilson, Director of International and Investor Relations said: “It is necessary for Ukraine to have a constructive discussion with decision makers in business, politics and EU institutions. As a Ukrainian business which has major investments in the EU it is important for SCM and group companies to play an active role in this dialogue.”
SCM Attends World Steel Association Conference Senior managers from SCM and Metinvest attended the annual meeting of the World Steel Association in Tokyo this October. The event brought together representatives of more than 160 steel companies across the globe. The SCM Group was represented by SCM CEO Oleg Popov, SCM Director of Mining & Metals Business Development, Amir Aisautov, and the CEO of Metinvest Holding, Igor Syry. Commenting participation of the SCM Group in the conference, Amir Aisautov stated: “We appreciate the opportunity
to participate in the global discussion of the future of mining and metals, make our own contribution to discussing and setting the trends that will drive the global mining and metals growth. We believe that Metinvest as the largest mining and metals holding in Ukraine should participate in this dialogue.” “We discussed the views on the global mining and metals, exchanged experience with our existing and - I hope - future partners as well as made new business contacts for the SCM Group.”
For further information, or to subscribe, please contact: Jock Mendoza-Wilson, Director of International and Investor Relations System Capital Management, 117 Postysheva st., Donetsk 83001, Ukraine ir@scm.com.ua – www.scm.com.ua
a finished product warehouse. In 2009 Promet Steel produced 277,957 tonnes of steel including 269,787 tonnes of rebars and 8,170 tonnes of long steel products (angles, rounds and strips). More Good News for Metinvest Metinvest’s presence in Europe received a further boost as it has been given approval by Gaz de France to supply gas pipes to major European companies. Metinvest International S.A. (responsible for export supplies) was included on the list of authorized suppliers of SAW pipes to Gaz de France, the EU’s largest stateowned oil and gas company, and received the C4Gas S.A. qualification certificate. Jack Maclachlan, Chief Technical Officer of Metinvest, said the certification marked a milestone for the company. “Confirmation of Metinvest’s qualification is a guarantee of our company’s products in fast-developing global energy markets, which be an important outlet for us.” As well as enabling supply to Gaz de France, the certificate is a necessary condition for cooperation with major gastransport companies SPPA.S. Eustream S.A. (Slovakia) and STEWEAG-STEG GmbH (Austria). Metinvest is the only company in CIS (the Commonwealth of Independent States) having the qualification. Metinvest International SA, located in Geneva (Switzerland), is the distribution channel of Metinvest Group. It is responsible for export sales of iron ore raw materials, semi-finished and finished steel products manufactured by Metinvest Group’s mining and steelmaking companies as well as by other companies to international markets outside Ukraine and CIS. Metinvest International has representations and agencies in 12 countries around the world.