RUSAL announces H1 2009 results

Rusmet reported that UC RUSAL provides an H1 update on the success of its Cost Efficiency Leader program which is aimed at counteracting the consequences of the global economic downturn and increasing the efficiency of the company. Highlights 1. Economic effect from cost reduction measures exceeded USD 620 million in H1. Annualized cost reduction in 2009 is planned to reach USD 1.1 billion. 2. Average aluminium production cost was reduced by 27% by July compared to December 2008. 3. Energy costs were cut by more than 20%. 4. Raw materials expenses decreased by 41%. 5. Bauxite production was 5.8 million tonnes in H1, a reduction of 35.5% compared to H1 2008. The full year reduction of bauxite production is planned to be 5.6 million tonnes. 6. Alumina output was 3.7 million tonnes in H1, a reduction of 34% compared to H1 2008. By the end of 2009 alumina production is planned to be cut by 3.9 million tonnes. 7. Aluminium production was 1.98 million tonnes in H1, a reduction of 10% compared to H1 2008. Total cuts of aluminium output in 2009 are planned to amount to 0.5 million tonnes. 8. Production figures are preliminary and may be revised following audit completion. Mr Oleg Deripaska CEO of RUSAL said that “RUSAL’s half year results demonstrate that we have developed and are successfully implementing a comprehensive program of actions aimed at reducing production costs, which are already one of the company’s key competitive advantages. By the end of the year we plan to reduce costs by another 7% to 8%. This will provide us with a strong margin of safety and will give confidence that RUSAL can succeed in any market conditions. In the near future we intend to sign an agreement with our creditors on a long term debt restructuring and concentrate our efforts on developing a flexible production system capable of immediately reacting to our customer’s changing needs. This will increase the opportunity to utilize our competitive advantages while launching new alloys, which will enable our clients to reduce their costs dramatically by purchasing metal produced in accordance with the specific requirements of their products.” 1. Reduction of Production Output In the Q2 of 2009, as part of its Cost Efficiency Leader program, RUSAL continued to reduce production across its least efficient and environmentally challenged facilities according to previously announced plans. The current reduction compared to H1 2008 is 4.5% at the Siberian smelters and 33% at the Urals smelters. In H1 2009 aluminium output was reduced by 39% compared to H1 2008 at the smelters outside Russia, Zaporozhye Aluminium Smelter, ALSCON and Kubal. RUSAL also completed the optimization of alumina production through the suspension of its operations at Alpart and Windalco and Eurallumina and by cutting volumes by 39.5% at Aughinish helping to balance on the Atlantic market. 2. Production Cost Cutting RUSAL’s key objective is to achieve the lowest production costs in the global aluminium industry. One of the main tools that allows us to reach such an ambitious cost cutting objective is the implementation and development of the RUSAL Production System. It will provide extra savings of resources help standardize work processes in accordance with the current output levels, reduce wastes and ensure the best HSE performance figures in the entire aluminium industry. Through a series of complex cost cutting measures, the company reduced the average cost of production per tonne of aluminium by 27% compared to December 2008. Considerable cuts were achieved in key components of the production cost. The most critical problem today is electricity costs amidst a rapid growth of national power tariffs. Nevertheless, RUSAL was able to decrease its electricity costs by over 20% as a result of reducing the share of electricity purchased at unregulated prices, improving technologies, and increasing the effectiveness of production processes. Raw materials expenses were cut by 41% as a result of new contracts for key types of raw materials. The costs of finished product transportation were reduced by 33% through optimized logistics, new transportation routes, hiring transportation operators on a tender basis and agreeing new transportation terms. Therefore, the total economic effect from these cost-cutting measures in H1 exceeded USD 620 million. Overall the company is expected to achieve USD 1.1 billion of cost reductions not taking into account the investment programs. 3. Optimization of the Management System As part of our efforts to raise the efficiency of the company’s businesses and improve the coordination of our activities while implementing the Cost Efficiency Leader program, RUSAL has completed the restructuring of its management system. In order to shorten the supply chain, the Raw Materials Division became part of the Aluminium Division while the management of the captive energy assets was transferred to the Energy and Construction Division. In addition, 2 new units, Transportation Directorate and Executive Directorate have been set up. The Transportation Directorate is responsible for searching for the most effective routes and logistical schemes and implementation of the program for the fullest utilization of new rolling stock and delays avoidance. The Executive Directorate supervises and coordinates all the ongoing cost-cutting activities. 4. Debt Restructuring The negotiations on the terms and conditions of the long-term debt restructuring are almost finalized. RUSAL is planning to sign the agreement within the validity period of the standstill agreement.