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million of insurance settlement proceeds and one-offlosses of $380 million in the fourth quarter related toinventory adjustments and onerous supply contract.We enlarged the scope and scale of our North Americanoperations during the year, acquiring the SparrowsPoint steel mill in Maryland (now named SeverstalSparrows Point) in May, Esmark in West Virginia (renamedto Severstal Wheeling Inc) in August and WCISteel Inc. in Ohio (re-named to Severstal Warren Inc.) inJuly.Although crude steel production was 128.7% higherthan in 2007, production dropped 52.0% in the fourthquarter vs. the third quarter due to lower demand in theNorth American market. Conditions in the US remaindifficult, but I believe that our assets there will createvalue for our shareholders over the long term.At Lucchini, our European business, EBITDA increasedto US$430 million, 3.3% higher than the previous year.In the first nine months of 2008, we saw an increasein production and prices due to strong demand in theEuropean market, although Lucchini produced 37% lesscrude steel in the fourth quarter vs. the third quarteras a result of worsening economic conditions. Theproduction of rails continues to be strong, increasing by84.0% in the last quarter of 2008.Response to the current environmentOur management team has taken decisive action tomitigate the impact of the global slowdown on thecompany, and preserve cash.We have reduced our production levels in line withmarket conditions, lowering our capacity utilisationto 50% in Russia, 40% in North America and 60% inEurope.In February 2009, we announced the temporarycessation of production at Severstal Warren, which willremain idle until conditions improve. We are monitoringour markets closely and are able to adjust productionto meet demand. The market remains volatile: capacityutilisation rose sharply at the beginning of 2009.To maintain staffing levels appropriate for currentproduction, we began a headcount reductionprogramme across the group during the last quarter of2008. We are keeping this under constant review.We have reduced our 2009 capital expenditureprogramme to US$1 billion, down from our originalforecast of US$3 billion. The vast majority of this will bespent on critical maintenance.Severstal has a strong cash position and committedfacilities in place to meet 2009 debt requirements. Asof December 31, 2008, we had unused long-term creditlines of US$951 million in total. In 2009, Managementalso expects to release US$1.2 billion of cash fromworking capital in 2009 as a result of a reduction inraw materials and work-in-process inventories strongcontrol over accounts receivable and overall better cashmanagement.OutlookBecause the market environment remains challengingwith limited visibility, we believe it would beinappropriate to provide any guidance for 2009. Forthe same reason we are not recommending paymentof dividend for the fourth quarter of 2008. We do notanticipate payment of dividends in 2009. This decisionwas not taken lightly, but we believe it is prudent.I firmly believe that economic conditions will improve– and, with them, the demand for steel. We have seensome signs of improvement in the first quarter of2009 and I believe that re-stocking and stimulus plansannounced by many national governments are likely tosupport demand for steel this and next year.We have taken decisive actions necessary to ensurethat Severstal will emerge from the downturn stronger.The events of 2008 have clearly indicated the priorities:with the challenging year ahead our focus is on costreduction, preserving cash building and strengtheningrelationships with our customers. I remain confident inthe long-term prospects for our industry.Alexei MordashovChief Executive Officer14 15