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Capital expendituresWe invested US$669.4 million in our steel businessin 2008. Of this, we spent US$241.8 million onnew projects and US$427.6 million repairing andmodernising existing ones.Main ongoing projects• Air separation unit 12• Polymer coated line 2• Coke furnace battery No. 7 (with shop of chemicalproducts recovery No.2)• Blast furnace No. 3• Converter shop: Continuous caster 1-5,slab scarfer machineCostsCost of sales structure• Hot deep galvanized line• Scrap processing shop• Rolling mill-2800• Formed section shop• Sheksna weld pipe mill• Kolpino service centre2008 2007 Change yearonyearUS$ million % of total US$ million % of total%MaterialsCoal 976.6 14.0 606.2 11.6 61.1Coke 106.8 1.5 34.1 0.6 213.2Iron ore 626.2 9.0 507.8 9.7 23.3Pellets 538.5 7.7 465.0 8.9 15.8Scrap metal 1,406.9 20.1 1,074.8 20.5 30.9Ferroalloys and nonferrous metals 616.9 8.8 463.1 8.8 33.2Other materials 693.2 9.9 433.5 8.3 59.9Total materials 4,965.1 71.1 3,584.5 68.4 38.5EnergyGas 187.6 2.7 150.2 2.9 24.9Electric power 190.0 2.7 181.2 3.5 4.9Other energy resources 116.6 1.7 75.4 1.4 54.6Total energy 494.2 7.1 406.8 7.8 21.5Staff costs 631.4 9.0 553.5 10.6 14.1Depreciation and amortisation 391.3 5.6 316.9 6.1 23.5Services 266.0 3.8 204.5 3.9 30.1Other 236.9 3.4 168.2 3.2 40.8Total 6,984.9 100.0 5,234.4 100.0 33.4Costs of sales increased by US$1,750.5 million in 2008, compared to 2007.The main reason for this is an increase in prices formaterials and energy (US$1,384.4 million). Thisincludes the increase in scrap metal costs (US$487.7million), coal (US$358.8 million), iron ore (US$107.0million), pellets (US$90.2 million) and energy (US$82.5million).Costs of sales decreased by US$290.3 million dueto a drop in sales volumes by 848 thousand tonnes;the other factor contributed to the decrease in costsof sales by US$44.9 million is the raw materialsconsumption rate.Other factors contributed to the increase in cost of salesare the following:• Changes in the structure of used raw materials(US$50.2 million);• Loss from exchange rate movements (US$204.4million);• Higher labour costs (US$60.2 million). Higher labourcosts were mainly due to the increase in averagewages and salaries, connected to Russian inflation.• Higher depreciation and amortization of assets(US$63.5 million);• Increase in cost of services, such as insurance, setup and dismantling of equipment (US$54.0 million);• Cost of ferroalloys for production of different typesof steel (US$99.7 million);• Materials obsolescence provision (US$70 million)and fixed costs write-off (US$17.0 million), etc.Decisive managementactions:• Using modern technological materials anddecisions;• Improving industrial efficiency through better use ofenergy and materials;• Optimising purchasing costs;• Reducing functional and operating budgets;• Optimising the workforce and monitoring staffexpenses;• Cutting capital expenditure by focusing only onrepairing and modernising projects;• Implementing policies to reduce net working capitalduring the last quarter of 2008 and all of 2009.62 63