Comprehensive programme to increase efficiency during the global economic downturn

RUSAL announces that it has implemented a comprehensive programme designed to reduce costs, optimise the production process and strengthen the company’s position as the world’s most effective aluminium producer cost-wise. The programme will further enhance RUSAL’s competitiveness and support the sustainability of the group’s operations during the global economic downturn.

The programme includes the following measures:

• Reduction of aluminium output by 500,000 tn annually or about 11% of the total production volume by 1 April 2009 by closing unprofitable and environmentally challenging facilities (this includes the 180,000 tn reduction announced in December 2008)
• Alumina production cut by 3.45 mln tn annually or about 30% of the total production volume by mid 2009 by closing and reducing volumes at high cost alumina refineries (to date the production levels has already been reduced by 2.4 mln tn)
• Further reduction of aluminium production costs. By the end of January 2009, the production cost was reduced by 27% compared to Q3 2008. Reduction by another 34% is planned through more effective management of raw materials and energy supplies, optimised transport and logistics services, reduced prices for all types of raw materials by the end of Q2 of 2009
• Decrease management expenses by 60% from February this year
• 5% headcount optimisation and freeze on new hiring implemented
• Significant revision of investment plans, with 2009 expenditure capped at USD 500 mln
• Change in sales strategy; broadening product range and attracting new clients

“Our “Cost Efficiency Leader” initiative has a twin focus on achieving a significant reduction in our production cost and working capital. Our efforts are aimed at both maintaining the core sustainable business and also at positioning the group to recover strongly after the crisis. We are confident that our cost reduction measures will help RUSAL to strengthen its position among the world’s most effective global producers in terms of production costs ensuring financial stability despite relatively low aluminium prices,” said Oleg Deripaska, the CEO of RUSAL.

Reduction of production volumes

The aluminium market has experienced a rapid deterioration over the last six months. While RUSAL’s management team has responded to these challenging conditions by cutting production volumes by 180,000 tonnes during Q4 2008, more action is necessary. The production volumes will therefore be reduced by a further 320,000 tn during Q1 2009, amounting to a total reduction of 500,000 tn of aluminium. The cuts will also help to ease the environmental burden.

Due to an abrupt drop in demand for alumina following the closure of several smelting facilities worldwide, RUSAL will also reduce its alumina output by 3.45 mln tn. This will be achieved through a temporary suspension of the operations at Eurallumina (Italy) and Windalco (Jamaica) and a 50% output reduction at Alpart (Jamaica) and a 37% output reduction at Aughinish (Ireland). The production optimisation will be completed during Q2 2009. These reductions will not affect the supply of RUSAL-produced alumina to its smelters.

The company will continue to actively introduce RUSAL Business System which will provide for better resource-saving and no-waste production, as well as enhance the health and safety performance. This comprehensive programme will also improve the environmental parameters since the level of harmful emissions will be reduced.

Production costs cut

One of RUSAL’s primary ways of increasing efficiency will be to reduce existing production costs. RUSAL already has a highly competitive cost structure, positioned in the first quartile of the cost curve, but plans to implement further improvements. By the end of January 2009, the production cost at RUSAL’s smelters was reduced by 27% compared to Q3 2008. Cutting management expenses by 60% and use of alternative suppliers that offer greater efficiencies will enable the company to reduce costs by a further 32%.

In addition, RUSAL plans to use long-term contracts to buy energy for all its facilities on the open market. This will allow the company to hedge the risks of price changes and provide for predictability of tariffs. The use of optimal routes, selecting transportation companies on a tender basis and agreeing new conditions of transportation will optimise transportation costs to 10%. As a result of these various measures, RUSAL expects production costs to reduce by a further 34% by the end of Q2 2009 compared to production costs in January 2009.

Sales and marketing

In the current environment, the group’s sales strategy has been refined to achieve closer interaction with end-users to create new value-added products that meet the specific requirements of RUSAL’s clients, further improve our customer services and quality of products. RUSAL completed the modernisation of its cast houses which, combined with its advanced R&D base, allows the company to take part in clients’ development of new products and offer them innovative solutions based on the unique characteristics of aluminium. The company also plans to actively develop new areas of aluminum applications and attract additional clients.

Revision of investment plans

As a result of the global economic slowdown and reduced demand for aluminium, RUSAL plans to revisit the implementation schedule of its several major investment projects, specifically the construction of the Taishet aluminium smelter and the Komi Project. RUSAL will channel its main efforts to the completion of the Boguchanskoye Energy and Metals Complex which is one of the key milestones of the federal development programme for the Lower Angara Region (a private-public partnership). RUSAL’s total investment budget for 2009 has been capped at USD 500 mln.