Annual Report 2010 - Magnitogorsk Iron & Steel Works

16 22 26 28 32 38 50 72MMK , sBusiness ModelMMK’s Missionand StrategyOJSC MMK Boardof Directors'The Company'sProductionSales MarketsFinancialStatementsCorporateGovernanceEnvironmentProtectionLiabilitiesThe Company's equity grew by 3% y-o-y for 2010, dueto an increase of USD 128 m in retained profit and thepositive revaluation of Fortescue shares.Payables increased by USD 43 m (a 5% increase from2009) to USD 971 m, with the following changes:• increase of USD 86 m due to a 51% increase in costs;• reduction of USD 43 m due to a decrease in turnoverperiod of 26 days.The share of equity in the structure of financingsources is consistently high, and amounted to 64% at31 December 2010.Debt ManagementWhile gross debt increased in 2010 as a result oflarge-scale investment projects, the Company’s debtload remains at a relatively low level. The share ofborrowings on the balance sheet grew from 14.2% to21.4%, with the debt to equity ratio standing at 1:3.GRAPH 310000MMK Group Gross Debt and Equity11 7869 852GRAPH 310 325 10 68640%30%The EBITDA to interest expense ratio rose to 19.1 in2010. The EBITDA to debt servicing costs ratio rose to4.3in 2010. GRAPH 5GRAPH 530,025,0Debt Service Costs and Interest Expenses27,7750050004 02725001 0061 4541 7092 1193 54820%10%2006 2007 2008 2009 2010 0%Total debtEquityDebt/Equity20,015,010,05,001,4200721,21,9200812,11,5200919,14,32010Gross debt, including financial leasing, amountedto USD 3.5 bn as of 31 December2010. The debt toEBITDA ratio stood at 2.21, comparedto 1.65 in 2009. GRAPH 4GRAPH 425002000150010005002 005MMK EBITDAand Debt/EBITDA2 4072 2041 3091 60620%10%EBITDA/Debt serviceEBITDA/Interest ExpenseMMK Group Debt Policy Highlights:• Achieve maximum reduction in borrowing needsby financing day-to-day operations from theCompany's own cash flow to the greatest degreepossible;• Secure long-term financing for contracts related tothe modernization program in order to ensure theCompany’s financial sustainability; GRAPH 6• Diversification of funding between three keycurrencies (US dollars, Euro and Roubles) in order tominimize currency risks; GRAPH 7• Strict adherence to debt covenants, includingmonitoring and compliance with covenants relatingto MMK’s operations.02006200720082009 2010EBITDADebt/EBITDASteel & Style , 10 MMK ANNUAL REPORT 43