RUSALTurning Consolidation into Global OpportunityTurning Consolidation into Global Opportunity

Investing in Russia and CIS, 7Investing in Russia and CIS, 7thth Annual Conference Annual Conference

New York, 13 MarchNew York, 13 March 200 20033

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Introduction

• Russia’s top companies are Russia’s top companies are consolidatingconsolidating themselves into competitive themselves into competitive players at a players at a fastfast pace pace

• The oil sector was the advance guard…The oil sector was the advance guard…

• ……butbut this impulse this impulse isis spread spreadinging throughout the entire Russian industry throughout the entire Russian industry

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• Second largest primary aluminium producer in the worldSecond largest primary aluminium producer in the world

• Low cost producerLow cost producer

• Cash generative: over $4 billion in annual revenues Cash generative: over $4 billion in annual revenues

• Growing global asset baseGrowing global asset base

• Young, dynamic management teamYoung, dynamic management team

• Ambitious growth strategy – to be the leading aluminium producerAmbitious growth strategy – to be the leading aluminium producer

RUSAL IS…

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Aluminium Consolidation in Russia

• In early 90s, 11 independent smelters accessed the market:In early 90s, 11 independent smelters accessed the market:

- Lack of raw materialsLack of raw materials

- No international marketing expertiseNo international marketing expertise

- No external financingNo external financing

19961996 20032003

Herfindal-Hirschman indexHerfindal-Hirschman index 18881888 62506250

Share of key playersShare of key players Bratsk Smelter – 28%Bratsk Smelter – 28%Krasnoyarsk Smelter – 26%Krasnoyarsk Smelter – 26%Sibal – 13%Sibal – 13%SUAL – 10%SUAL – 10%

RUSAL – 75%RUSAL – 75%SUAL – 25%SUAL – 25%

Vertical integrationVertical integration

(raw materials / primary (raw materials / primary aluminium)aluminium)

SUALSUAL RUSALRUSAL

SUALSUAL

GlobalisationGlobalisation NoneNone RUSAL: assets in 5 countriesRUSAL: assets in 5 countries

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Recent Aluminium Industry Mergers

March March 19981998

Alcoa (USA) and Alumax (USA)Alcoa (USA) and Alumax (USA)

August August 19991999

August August 19991999

March March 20002000

Alcoa (USA) and Reynolds (USA)Alcoa (USA) and Reynolds (USA)

Alcan (Canada) and Algroup (Switzerland)Alcan (Canada) and Algroup (Switzerland)

RRUSALUSAL fo formed rmed through merger of largest CIS aluminium through merger of largest CIS aluminium producers producers

• Global M&A deals in metals and mining industry exceeded $170 bln in past Global M&A deals in metals and mining industry exceeded $170 bln in past 5 years5 years

March March 20012001

BHP (Australia) and Billiton (S. Africa) BHP (Australia) and Billiton (S. Africa)

JanuaryJanuary 20020022 Norsk HydroNorsk Hydro ( (NorwayNorway) and ) and VAWVAW ( (GermanyGermany) )

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Key Drivers of Industry Consolidation

• Better control over production - Better control over production - in March 1999 aluminium prices in March 1999 aluminium prices

slumped to a five-year low of $1,140 MTslumped to a five-year low of $1,140 MT

• Access to cheaper resourcesAccess to cheaper resources – over 60% of bauxite reserves located in – over 60% of bauxite reserves located in

Africa, Australia and Latin America Africa, Australia and Latin America

• Customer demands for higher quality productsCustomer demands for higher quality products from critical end-user from critical end-user

industries – packaging and automotive industries – packaging and automotive

• Market diversificationMarket diversification – penetration to the developed and emerging – penetration to the developed and emerging

markets markets

• Lower cost of capitalLower cost of capital

• Improved operating efficiencyImproved operating efficiency

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Cost Management

• With 50% cheaper power than that of major peersWith 50% cheaper power than that of major peers -- Natural advantages are not to be wastedNatural advantages are not to be wasted

• Key achievements to date :Key achievements to date :

- Labour cost optimisation through reducing workforce by 8% and Labour cost optimisation through reducing workforce by 8% and establishing centralised repair and maintenance for all production establishing centralised repair and maintenance for all production units units

- OOver 20% reduction in transportation cost due to increased ver 20% reduction in transportation cost due to increased volumes, optimised routes and renegotiated tariffs volumes, optimised routes and renegotiated tariffs

- 15% reduction in alumina cost 15% reduction in alumina cost mainly mainly through acquisition and through acquisition and contract renegotiationcontract renegotiation

- 14% cut14% cut in in overhead expenses overhead expenses

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Investment – Key to Achieving No. 1• Portfolio worth over $3 bln Portfolio worth over $3 bln

Capacity expansion at Capacity expansion at Nikolayev Refinery Nikolayev Refinery

Bauxite & Bauxite & AluminaAlumina

Modernisation and capacity Modernisation and capacity expansion at the newly expansion at the newly acquired Friguia refineryacquired Friguia refinery

Participation in privatisation Participation in privatisation of NALCO (India) of NALCO (India)

Dian-Dian bauxite deposit in Dian-Dian bauxite deposit in Guinea Guinea

Four-year modernisation programs for Four-year modernisation programs for Krasnoyarsk and Sayanogorsk Krasnoyarsk and Sayanogorsk SmeltersSmelters

Primary Aluminium Primary Aluminium

Capacity expansion at Sayanogorsk Capacity expansion at Sayanogorsk Smelter Smelter

Construction of a new smelter in the Construction of a new smelter in the Irkutsk region Irkutsk region

Semi-finished & Finished Semi-finished & Finished

New beverage can plant in the Leningrad New beverage can plant in the Leningrad region region

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Market Presence• Broadening customer base to end-users: Toyota, MitsuibishiBroadening customer base to end-users: Toyota, Mitsuibishi

• Improved production mix: share of value added products increased from 19% to Improved production mix: share of value added products increased from 19% to 26%26%

• Higher geographical diversification - North American sales more than doubled Higher geographical diversification - North American sales more than doubled in 2002in 2002

Europe49%

Americas23%

Asia28%

2001 2002

Sales of primary aluminium and alloys by regionSales of primary aluminium and alloys by region

Europe57%

Asia32%

Americas11%

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Financing

• Over $600 mln from international institutionsOver $600 mln from international institutions

• Capital markets Capital markets

- tthree-year Rb3 bln hree-year Rb3 bln domestic domestic bond issuebond issue

- $200 mln from private investors$200 mln from private investors

• Access to long-term financingAccess to long-term financing

- $150 mln investment loans by Sberbank for 5 $150 mln investment loans by Sberbank for 5 years years

- seven-year lseven-year loan under Hermes’ guarantee oan under Hermes’ guarantee

Total financial debt: $1.5 Total financial debt: $1.5 billionbillion

Trade and pre-export finance

41%

Corporate loans35%

Capital markets20%

Investment loans4%

• Further debt issuance opportunities considered, with a view to improve the Further debt issuance opportunities considered, with a view to improve the existing debt structureexisting debt structure

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Key Challenges of Consolidation

• Corporate culture: Corporate culture: learning to listenlearning to listen

• Employee communicationsEmployee communications: : robust program being rolled outrobust program being rolled out

• Absence of corporate brandAbsence of corporate brand: new marketing and communication : new marketing and communication strategy strategy

• Inefficient corporate structure:Inefficient corporate structure:

- Outsourcing service functionsOutsourcing service functions

- Spinning off non-core businessesSpinning off non-core businesses

- Complete buy-out of minority shareholders to take subsidiaries privateComplete buy-out of minority shareholders to take subsidiaries private

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RUSAL’s Outlook• Russian economy will continue to grow, fuelling domestic aluminium Russian economy will continue to grow, fuelling domestic aluminium

demanddemand

• The low interest rate environment favours investmentThe low interest rate environment favours investment

• The coming structural reform will increase competition in the power and The coming structural reform will increase competition in the power and transport sectors to the benefit of all…transport sectors to the benefit of all…

• … … and RUSAL, in particular, as these sectors provide us critical inputsand RUSAL, in particular, as these sectors provide us critical inputs

1,500

1,900

2,300

2,700

3,100

2003F 2004F 2005F 2006F 2007F

International

Domestic

'000

MT

RUSAL’s salesRUSAL’s sales

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Conclusion

• Consolidation has created opportunity for Russian companies to Consolidation has created opportunity for Russian companies to

evolve as global players…evolve as global players…

• … … and potential global leaders in their respective sectorsand potential global leaders in their respective sectors