We are a full production cycle Company comprising ore mining enterprises, steel mills and rolled product plants, as well as downstream production businesses. Our production facilities are geographically diversified, with locations in Russia, the United States, Italy, France, Great Britain, Ukraine, Africa, Kazakhstan and elsewhere.

Following a corporate restructuring in April 2008, Severstal now has three divisions: Severstal Russian Steel, Severstal Resources (Mining) and Severstal International. The Severstal Russian Steel division includes Russian Steel, Izhora Pipe Mill, and Metalware. The Resources division comprises Severstal’s assets relating to iron ore, coal and gold mining. International includes North American operations and Lucchini.

Key production figures

In 2009, Severstal reported revenue of US$13,054 million, 41.7% less than in 2008, as a result of very difficult market conditions, particularly in the first half of 2009, which led to lower sales and lower average prices. Crude steel production decreased by 12.8% compared to 2008, and reached 16.7 million tonnes in 2009. EBITDA was US$844 million, 84.2% less than in the previous year. Performance was affected by the difficult global economic and operating environment throughout the year. There was an exceptional drop in the demand for steel in the first half of 2009, as global economic conditions worsened dramatically, and this affected Severstal’s 2009 results negatively. The EBITDA margin decreased from 23.9% to 6.5%.

Severstal Russian Steel is a world-class, low-cost producer of steel which delivered strong results throughout a difficult 2009. In 2009, the division contributed 44.7% of Group revenue, before intersegment transactions, remaining the most important division by share of revenue, even though this decreased from 50.6% in 2008. Severstal Resources’ share of Group revenue, before inter-segment transactions, increased to 13.5% in 2009 compared to 10.3% a year earlier. This increase was due to a lower decline in revenue compared to other divisions. Severstal North America’s contribution to Group revenue, before intersegment transactions, increased from 22.3% in 2008 to 29.1% in 2009, but the total revenue of SNA in 2009 decreased 24.4% in comparison with 2008. This was due to a drop in average prices of 25.6%. Lucchini’s share was 12.7% in 2009, while in 2008 it was 16.7%.

Compared to 2008 Severstal Resources reduced its EBITDA margin by 14.0% to 21.0%. Nevertheless it is still among our most profitable divisions following an increase in revenue in the first half of 2009 and successful cost-cutting initiatives throughout the year. In 2009, Severstal Russian Steel’s EBITDA margin was 21.3%. Lucchini’s EBITDA margin decreased to negative 11.6% in 2009 from 10.8% in 2008, mainly due to a decrease in sales prices. Severstal North America’s EBITDA margin decreased to negative 16.3% in 2009 from positive 7.1% in 2008, mainly due to the effect of one-off gains in 2008 and very difficult market conditions in the first half of 2009.

In 2009, the principal products we manufactured were hot-rolled strip and plate (23.7%), cold-rolled sheet (10.0%), galvanized and other metallic-coated sheet (6.9%), long products (6.4%), and metalware products (3.0%). In 2009, our sales of long products decreased by 65.7%, metalware products by 38.3%, galvanized and other metallic-coated sheet by 18.3%, Semifinished products by 65.1%, hot-rolled strip and plate by 49.5%, and cold-rolled sheet by 30.6%.

Capital investments

In 2009, we invested US$1 billion, 54.5% less than in the previous year, mainly on crucial maintenance projects. In 2010, we will increase our capital expenditure programmes to US$1.4 billion, reflecting our improved confidence in the market outlook. We will spend approximately US$685 million on key projects in the Russian Steel Division, US$356 million in the Resources Division and US$413 million in North America. These investments will support our organic growth and enhance our competitive position. They will aim to enhance our vertically integrated model and mini-mill capacity to target growth in the Russian infrastructure and construction markets, and aim to improve our competitive position in higher-value-added markets in the USA.

Severstal’s capital investments (US$ million)

Segments	2009	2008	Change year-on-year %
Severstal North America	238	694	(65.7)
Severstal Russian Steel	369	709	(48.0)
Severstal Resources	242	413	(41.4)
Lucchini	133	338	(60.7)
Intersegment adjustment	(4)	(3)	n/a
Total capex	978	2,151	(54.5)

In 2009, capital investment programmes at our main steel production in Russia, as well as our steel production facilities in the United States and Europe, were focused on maintenance and achieving operational efficiencies. In 2009 investing activity at Severstal Resources was to reduce costs, explore deposits and undertake industrial safety projects. We incurred the main share of capital expenses in the coal and gold mining operations.

Investments in new production facilities

In 2009, we spent $74.8 million on an ongoing project – TPZ Sheksna, a mill capable of producing 250,000 tonnes a year of electric-welded pipes and other profiles.

Operational efficiency and cost-saving initiatives

The 2009 global economic downturn caused us to review our overall cost structures and undertake steps to improve operational efficiency. In particular we did a lot of work at CherMK – reducing the Si content in hot metal, increasing the tundish ladle lifetime, excluding desulphurization in the strip production process, optimising the BOF charge (varying hot metal and scrap consumption, using low-price scrap), optimising the consumption of ferroalloys and decreasing the cost of repairs.

In 2009, vertical integration became stronger – Severstal Resources provided more than 90% of our coal requirements, which allowed us to maintain volumes and to control costs. Inter-Company supplies of equipment and repair services resulted in savings in capital and repair expenditure. Moreover, consolidation of some material purchases at divisional level achieved a beneficial effect.