OREANDA-NEWS. The metal sector remains a key profit generator for Rinat Akhmetov's SCM Group.

Despite the recession in the Ukrainian economy SCM Group, the major national financial and industrial group owned by Rinat Akhmetov, generated USD 1.75bn pre-tax profit and invested around USD 3bn in the upgrade of its production capacities and social projects. Experts note that the Group has performed better than its peers from the CIS. This year the Group has wider opportunities for M&A activity.

PricewaterhouseCoopers conducted an audit for SCM Group's performance in 2012, reported SCM press office. Last year the Group's gross income was USD 23.4bn against USD 19.4bn in the year-earlier period: pre-tax profit went down from USD 3.2bn to USD 1.75bn, and profit tax payments made USD 506m.

The industrial production in Ukraine started to fall in July 2012, yet the recession of national economy did not deter SCM from raising investments in modernisation and social projects in local communities from USD 2.5bn to USD 3bn. "We invested more than USD 2.2bn in production upgrade and over USD 800m in social programmes, including more than USD 20m in projects for communities where we are present," noted SCM CEO Oleg Popov. He said SCM's profits 2012 will be re-invested in the production upgrade, new business development and social projects.

Along with investments in modernisation, the Group's companies spent significant funds to buy new assets. In particular, Metinvest increased its shareholding in Zaporizhstal to 49%. DTEK bought a 45% stake in Zapadenergo, 40% in Donetskoblenergo, over 95% in Belozerskaya coal mine, 25% in Dneproenergo and 50% in DTEK Dneproblenergo. Also, the company acquired Obukhovskaya Coal Mining Group (Obukhovskaya Mine and a coal enrichment plant), Donskoy Antratsit (Dalnaya Mine) and Sulinantratsit (Mine No. 410) from Rostovsky Antratsit. SCM increased its shareholding in Lemtrans, Donetskkoks and Zaporozhkoks. Ukrainian Pharmacy Holding acquired 100% of ASTA, the region's wholesale pharmacy, and Mining Machines bought Svet Shakhtyora Heavy Engineering Plant and Gorlovka Heavy Engineering Plant.

Despite a dramatic drop in sales in the metal industry, Metinvest remains SCM's key asset generating the largest income. Thus, in 2012 Metinvest accounted for 53.4% of the total sales of the Group (against 72.6% in the year-earlier period), while DTEK generated 39.7% (against 25.4% y-o-y).

According to the CEO of Concorde Capital Igor Mazepa, SCM's performance can be regarded as good, given the record drop in prices and sales in global steel markets. Thus, in 2012 the largest Russian steel business Evraz suffered a USD 335m loss vs a USD 453m net profit y-o-y. The company's revenue went down 10.2% to make USD 14.73bn. Sistema with the revenue of USD 34.2bn, which is twice as much as SCM, made USD 1.7bn last year. "Given the results of these companies we can say that SCM's overall performance was good last year. As to the investment growth, Viktor Pinchuk is probably another Ukrainian entrepreneur who had the guts to do so amid the ongoing recession," noted Mr Mazepa.

Metinvest was the Group's largest investor 2012, having invested USD 765m in the upgrade of assets only. In particular, the company introduced the pulverized coal injection technology at Mariupol Steel Plant and started construction of PCI facility at Yenakiyevo Steel Plant, which will allow to reduce the consumption of expensive gas. The analyst of Renaissance Capital Boris Krasnozhenov notes that the only way for businesses to survive amid the unfavourable conditions of the steel market is to invest in the projects enabling to reduce the production costs and improve the product quality. In May, for the first time since 2005, prices for steel billets FOB Black Sea sank below USD 500 per tonne.

Today the mining and metals companies are fighting for every USD 5-10 of their production cost, therefore investments are badly needed, says Mr Krasnozhevov. The expert of BCS financial group Oleg Petropavlovsky notes that the largest Russian steel producers followed in Metinvest's footsteps. "Despite the sales drop, metal producers are stepping up investments everywhere," he said.

According to the CEO of Dragon Capital Tomas Fiala, availability of spare profit and reduction in the value of assets, both in Ukraine and the Eastern Europe, are the factors that allow SCM to buy new businesses. "Today is the time to purchase, and I'm sure this year we can anticipate new M&As with SCM's participation, given the fact that they have the highest potential in this segment countrywide," added Mr Fiala. Earlier SCM's press office announced they plan to roll out the strategy to ensure businesses within the Group with own gas. SCM Group's assets need 6bn m3 of gas a year, while today the company owns assets with the annual production of 1.4bn m3 of gas.