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Speech by the Director of SCM New Business Development Nikolay Nesterenko

19.11.2010

Speech at the press-briefing for the 10th Anniversary of SCM.

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Good morning,

I will talk about the SCM’s business, which hasn't been spoken about today. I mean so-called non-core and opportunity businesses of the Group. To manage them, SCM has established a dedicated department with the goal to maximize the cost of liquidity of existing businesses and look for new directions that meet such criteria as the market potential, rate of market development and a good return on investment. Today the department manages four businesses including investments in real estate, heavy engineering, transportation and pharmacies. 

I will start with the real estate. The SCM Group is represented in this sector by ESTA Holding. The company was established four years ago with the primary objective to develop existing real estate assets and projects and search for new projects. Today ESTA's portfolio includes many projects with the total value of over $300 million. Our portfolio is well-balanced and based on office and hotel assets. By the way, it is the portfolio balance and the conservative approach to borrowings that cushioned the crisis impact on us in 2008-2009 as well as helped to work quietly on our strategy and focus on more appealing projects. Our main goal in the real estate sector is to ensure the capitalization. Taking into account the planned actions, I'm sure that to arrive at a $1 billion is fully feasible.

Now I will talk briefly about heavy engineering. In 2010, Mining Machines company started operating under our umbrella. At the first stage it comprised six heavy engineering plants: one in Russia and the other five in Ukraine. No doubt, the flagships in the group have been Druzhkovka Heavy Engineering Plant, Donetskgormash and Gorlovskiy Mashinostroitel heavy engineering plants. All assets within Mining Machines produce the machinery used mostly for coal mining. This industry is appealing to us as it has excellent investment outlooks and a fast growth potential. We know it well as a customer since our core businesses - Metinvest and DTEK - have coal mining assets. As I said we have built the management team for Mining Machines and assumed management of the company in 2010. I am happy to note that over this short period of time we have achieved good results of which I am personally proud. According to our 2010 performance projections we will double the sales and increase business profitability. These achievements have boosted employees’ morale and had a positive impact on salary. The average salary at enterprises has increased by 94% and at some enterprises it quadrupled during the year. The strategy we are developing now is based on three key principles or three pillars: improving the quality of products, entering new markets and expanding the product line. The most ambitious goal is probably to enter new markets as we plan to start operations in 18 new marketplaces within the next two or three years. The next stage of development will be new products, which ensure open mining operations and transportation of mineral resources.

Another new business direction of the SCM Group I wish to mention is the transportation business. This business is interesting from an investment perspective and strategically important for us and the entire country. Many of you probably realize that our country lacks transportation infrastructure and sufficient number of railway cars. This has been a concern for many industrial companies. So, the SCM Group is represented by two assets in the transportation area: Avlita port, which is 100% owned by the Group, and a share in MPS Corporation [Interregional Industrial Union]. Avlita helped us to study the industry and understand the business during the past four years and achieve significant results. Higher transshipment volumes increased our revenues and profitability of sales. You might have heard that we are working on a coal terminal construction project. The decision whether to build the terminal will be made in two or three months after the environmental assessment. The decision, I think, will be announced in January and can increase the strategy and projected figures. As for MPS Corporation its strategy is focused on developing railway transportation business with the primary strategic goals in the area of maintenance and expansion of the railway car park through leasing and acquisition of new railway cars. Secondly, MPS will work to improve railway car efficiency and the quality of services. According to our estimates such approach will boost the company's value by at least five times in five years. I will also add that the strategy of the transportation business development suggests a horizontal integration so that all consumers could receive a full range of services in the field of industrial logistics, railway transportation and port transshipment.

The last business I will talk about is the sales of medicines. In this area the Group is represented by three pharmaceutical networks located mostly in the eastern part of Ukraine. These networks are called Zdravitsa, Dobri Liky and Apteka Centralnaya. At the beginning of 2010 the sales network had 240 outlets with the sales exceeding $60 million. Improving operating efficiency and the quality of services will be our first priority for the future. Our second goal is to expand the geography of operations. In particular, we plan to open new outlets and probably acquire new networks.

That might be all I wanted to say. Thank you for attention!

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