United Company RUSAL Plc

Annual Results Announcement for the Year Ended 31 December 2017

Regulatory News:

United Company RUSAL Plc (Paris:RUSAL) (Paris:RUAL):

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UNITED COMPANY RUSAL PLC
(Incorporated under the laws of Jersey with limited liability)
(Stock Code: 486)

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2017

Key highlights

• During 2017, the market environment was favourable for the aluminium industry. Recovery in the London Metals Exchange (“LME”) aluminium price in 2017 by 22.7% to an average of USD1,968 per tonne as compared to USD1,604 per tonne in 2016 together with an increase in volumes of primary aluminium and alloys sold by 3.6% between the same periods as well as a growth in share of value added products (“VAP”) in total aluminium sales to 47.3% in 2017 in comparison with 44.0% in 2016 resulted in the growth of revenue of United Company RUSAL Plc (“UC RUSAL” or the “Company”, together with its subsidiaries, the “Group”) in 2017 by 24.9% to USD9,969 million as compared to USD7,983 million in 2016.
• On the back of strong LME prices and healthy demand the Group’s Adjusted EBITDA increased to USD2,120 million in 2017, an increase of 42.4% as compared to 2016 and the highest result since 2012.
• The Group increased its Adjusted EBITDA to USD586 million in the fourth quarter of 2017 as compared with USD549 million for the third quarter of 2017 despite significant pressure on cost of production. Focus on efficiency and cost reduction initiatives limited aluminium segment cost per tonne increase by 5.4% to USD1,602 per ton in the fourth quarter of 2017 in comparison with USD1,520 in the third quarter of 2017 as a result of the increase in energy and other raw material costs as well as appreciation of Russian Ruble.
• UC RUSAL achieved Adjusted Net Profit and Recurring Net Profit of USD1,077 million and USD1,573 million, respectively, in 2017, as compared to USD292 million and USD959 million in 2016.
• In February 2017, the Company completed its third offering of Eurobonds with the following key terms: principal amount of USD500 million, tenor of 5 years, coupon rate of 4.85% per annum. The bonds proceeds were applied for partial prepayment of UC RUSAL’s existing debt.

Statement of the Chief Executive Officer

In 2017 strong global demand for aluminium ensured a positive market backdrop for the industry, with UC RUSAL’s estimates showing that global demand for the metal grew by 6% throughout the year to 64 million tonnes. The global aluminium market balance was left in a deficit of around 1 million tonnes whilst the LME price grew by 22.7% year-on-year (“YoY”).

Alongside this positive macro backdrop, UC RUSAL’s fourth quarter and full year results demonstrated continued momentum. The Company delivered robust operating results and sales volumes growth, which, coupled with the LME price’s solid improvement, led to the fourth quarter revenue increasing by 11.6% quarter-on-quarter (“QoQ”) to USD2,745 million. Despite a rise in cost inflation, UC RUSAL’s management succeeded in keeping costs under control to reach USD586 million in EBITDA with a healthy margin of 21.3% in the last quarter of the year.

The full year results seemingly demonstrated UC RUSAL’s solid position in its core business. Revenue increased to nearly USD10 billion while full year 2017 EBITDA was up by 42.4% to reach USD2,120 million. Importantly, 2017 saw UC RUSAL achieve further progress in key strategic priorities. Production of value added products reached approximately 50% in total output. We launched our bespoke brand of low carbon aluminium, “ALLOW”, which we believe will be in demand from climate-conscious customers. We also expanded our product portfolio with new downstream acquisitions.

Throughout the year, UC RUSAL continued to improve its debt profile by actively pursuing capital markets opportunities and engaging with its strategic financial partners. Post reporting period, the Group successfully tapped into the Eurobonds market and offered USD500 million of bonds. Overall, the Groups’s debt structure provides for minimal liquidity risk and greater operational flexibility, which leaves the Group in good shape for 2018.

Vladislav Soloviev Chief Executive Officer

23 February 2018

Financial and Operating Highlights

			Quarter ended 31 December				Change, quarter on quarter, (4Q to 4Q)		Quarter ended 30 September		Change, quarter on quarter, (4Q to 3Q)		Year ended 31 December				Change, year-on- year
			2017		2016				2017				2017		2016
			unaudited		unaudited				unaudited
Key operating data
(’000 tonnes)
Aluminium			945		930		1.6%		931		1.5%		3,707		3,685		0.6%
Alumina			1,991		1,939		2.7%		1,965		1.3%		7,773		7,528		3.3%
Bauxite			2,944		2,841		3.6%		2,742		7.4%		11,645		12,187		(4.4%)
(’000 tonnes)
Sales of primary aluminium and alloys			1,000		922		8.5%		968		3.3%		3,955		3,818		3.6%
(USD per tonne)
Production cost per tonne in Aluminium segment1			1,602		1,344		19.2%		1,520		5.4%		1,508		1,333		13.1%
Aluminium price per tonne quoted on the LME2			2,101		1,710		22.9%		2,011		4.5%		1,968		1,604		22.7%
Average premiums over LME price3			161		151		6.6%		162		(0.6%)		163		159		2.5%
Average sales price			2,263		1,799		25.8%		2,124		6.5%		2,105		1,732		21.5%
Alumina price per tonne4			445		307		45.0%		310		43.5%		354		253		39.9%
Key selected data from the consolidated statement of income
(USD million)
Revenue			2,745		2,027		35.4%		2,460		11.6%		9,969		7,983		24.9%
Adjusted EBITDA			586		412		42.2%		549		6.7%		2,120		1,489		42.4%
margin (% of revenue)			21.3%		20.3%		NA		22.3%		NA		21.3%		18.7%		NA
Profit for the period			440		645		(31.8%)		312		41.0%		1,222		1,179		3.6%
margin (% of revenue)			16.0%		31.8%		NA		12.7%		NA		12.3%		14.8%		NA
Adjusted Net Profit for the period			350		44		695.5%		262		33.6%		1,077		292		268.8%
margin (% of revenue)			12.8%		2.2%		NA		10.7%		NA		10.8%		3.7%		NA
Recurring Net Profit for the period			451		207		117.9%		436		3.4%		1,573		959		64.0%
margin (% of revenue)			16.4%		10.2%		NA		17.7%		NA		15.8%		12.0%		NA

¹ For any period, “Aluminium segment cost per tonne” is calculated as aluminium segment revenue less aluminium segment results less amortisation and depreciation divided by sales volume of the aluminium segment.
² Aluminium price per tonne quoted on the LME representing the average of the daily closing official prices for each period.
³ Average premiums over LME realized by the Company based on management accounts.
⁴ The average alumina price per tonne provided in this table is based on the daily closing spot prices of alumina according to Non-ferrous Metal Alumina Index FOB Australia USD per tonne.

Key selected data from consolidated statement of financial position

			As at				Change year- on-year
			31 December 2017		31 December 2016
(USD million)
Total assets			15,774		14,452		9.1%
Total working capital5			1,761		1,691		4.1%
Net Debt6			7,648		8,421		(9.2%)

Key selected data from consolidated statement of cash flows

			Year ended				Change year- on-year
			31 December 2017		31 December 2016
(USD million)
Net cash flows generated from operating activities			1,702		1,244		36.8%
Net cash flows generated from investing activities			2		104		(98.1%)
of which dividends from associates and joint ventures			806		336		139.9%
of which CAPEX7			(842)		(575)		46.4%
Interest paid			(493)		(452)		9.1%

⁵ Total working capital is defined as inventories plus trade and other receivables minus trade and other payables.
⁶ Net Debt is calculated as Total Debt less cash and cash equivalents as at the end of any period. Total Debt refers to UC RUSAL’s loans and borrowings and bonds outstanding at the end of any period.
⁷ CAPEX is defined as payment for the acquisition of property, plant and equipment and intangible assets.

Overview of Trends in the Aluminium Industry and Business Environment

Highlights for the full year 2017

• Global aluminium demand rose by 6% in 2017 to 64 million tonnes, amid coordinated economic growth in major regions of the world, including China, Europe and North America. In 2018, global demand is expected to build on the positive foundations of the past year to increase by 5% to 67.3 million tonnes. Robust demand growth left the global aluminum market balance in a deficit at around 1 million tonnes in 2017 and is expected to rise to above 2 million tonnes in 2018.
• Global aluminium supply is expected to grow by 2.8% in 2018 compared to 5.7% growth in 2017. In China there is strong evidence of the implementation of supply side reform in the Chinese aluminum industry in 2017 with more than 10 million illegal operating capacity and projects having been cut.
• As estimated significant part of aluminium smelters closed during current winter cuts season will not return to the market due to severe environmental regulation for smelters emissions in 26+2 cities, high restarting costs and current low profitability.
• Chinese semis exports stay under significant pressure from international anti-dumping initiatives and there have been recent announcements for further investigations under Section 232 alongside the possible introduction of new duties on Chinese semis exported to the US. As a result, aluminium Midwest premium in the US hit USD12 c/t with potential move to USD14 c/t.
• The reported aluminium inventories in the world ex-China fell further to ~ 2.9 million tonnes at the end of 2017, down ~ 1.0 million tonnes from the level at the end of 2016 to historical low level for stock to consumption ratio of 36 days compared to 115 days peak in mid of 2015.

The LME aluminium price rose 22.7% YoY in 2017 and reached USD2,256/t on January 2, 2018, nearly a six-year high, consolidating later at a new level of USD2,200/t as a result of widespread capacity cuts in China and a steady reduction of LME stocks - further evidence of a global market deficit. The rising cost inflation in China made a significant share of operating Chinese aluminium capacity barely breakeven by the end of 2017.

Aluminium demand

Global aluminium demand rose by 6% to 64.2 million tonnes in 2017. In the world excluding China, demand grew by 3.7% to 29.2 million tonnes, while Chinese demand increased by 7.8% to 34.9 million tonnes. Despite high aluminium prices there is a slow process of restarting capacity capability outside of China due to lack of competitive power tariff and high restarting costs.

China continued to lead global growth in 2017, with its economy confounding expectations of a slowdown. Full year GDP increased by 6.9%, an upturn from the 6.7% pace of 2016 and well above the official target of 6.5%. The key driver of aluminium demand, industrial production, mirrored the improvement in the broader economy, accelerating to 6.6% growth in 2017, from 6% the prior year. There was broad based strength across the major aluminium consuming industrial sectors, with construction, manufacturing and transportation all remaining robust. Floor space under construction started in 2017, rose by 10.5%, while auto production rose by 2.1%, but growth in production of commercial vehicles was much sharper, up by 13.8%. Strong investment in the power sector, especially in green energy, also provided further impetus to aluminium demand.

In North America, underlying demand began the year cautiously before strengthening through the year. There was a welcome return to positive growth in industrial production in 2017, rising by 1.8% in the United States, following a contraction in the prior year. Despite a 3.9% decline in North American motor vehicle production, aluminium demand from the sector grew strongly, amid rising intensity of use, especially in the rolled products sector. Construction activity remained solid, with housing starts rising by 2.4% to 1.1 million units, and pointing to a robust outlook for extrusions demand given the lag between starts and aluminium consumption in the build. In 2017 as a whole, primary aluminium demand rose by an estimated 2.6% to 6.8 million tonnes.

The recovery in the Eurozone economy was particularly impressive, with industrial activity improving throughout 2017. Manufacturing PMIs were illustrative of this trend, hitting multi-year highs in regional heavyweights Germany, France and Italy and even the UK shrugged off Brexit fears to increase through the year. The Eurozone manufacturing PMI ended the year at 60.6, its loftiest level since the currency group was formed. In a similar vein, the construction market built on strong growth in 2016, with further gains last year, which resulted in the production in construction index for Euro 28 countries also hitting multi-period highs. The pace of the auto market slowed slightly but vehicle output still rose by an estimated 1.4% across the region, although as in the US, intensity of use gains meant that sectoral aluminium demand ran well ahead of car production. This confluence of positive factors led to aluminium demand growth of 3.2% to 9.4 million tonnes in Europe (including Turkey but excluding Russia).

Japan’s economy carried on the strong momentum from the end of the previous year to accelerate in 2017, driven by a recovery in the industrial sector. This led to industrial production growth estimated at 4.4%, after a minor contraction in 2016. A key component of this growth was automotive, with vehicle production accelerating by an expected 5.6% for the full year, bouncing back from a decline in 2016. The construction market fared less well, with housing starts contracting by a modest 0.1%, although sectoral aluminium demand still increased, benefiting from follow through from buildings that began construction the prior year. In addition to the strength of underlying domestic demand, Japan was boosted by a strong global economy, which was supportive of its exports. This was evident in the aluminium sector as well as the broader manufacturing sector.

Economic activity has remained strong in the ASEAN region, as GDP in major countries such as Thailand, Vietnam and Indonesia, grew at a rate of between 4 and 7%. The region as a whole continues to benefit from major macro drivers such as industrialisation and urbanisation, in addition to investment in downstream industry, including in aluminium. This will result in primary aluminium demand increasing to 6.5 million tonnes or 3.5% in the Asian region (ex China & India) in 2017.

The other major growth driver in the rest of Asia is India, and although its economy slowed in 2017, amid economic reforms, the rate of increase in GDP would still be the envy of most developed countries. GDP is expected to have grown by 6.2% over the year as a whole, although picking up speed in the final two quarters. Industrial production followed a similarly positive trend, pointing to an acceleration in growth in 2018. Even with a slowdown in the economy, primary aluminium demand still rose by an impressive 5.6% to 2.1 million tonnes in 2017.

In our home market of Russia, following two years of negative economic growth, GDP rose by an estimated 1.9% in 2017. A recovery in oil prices supported government revenues and this is fed through into increased government spending on infrastructure. This boosted demand across a range of end uses but especially in the electrical sector. A change in regulations to allow aluminium wiring in buildings during 2017 provides a bullish backdrop for further consumption growth. Primary aluminium demand in Russia grew by 10.9% to 0.8 million tonnes in 2017 and expected to rise to 0.9-0.95 million tonnes in 2018.

Global supply

Global aluminium supply rose by 5.7% to 63.5 million tonnes in 2017. In the world excluding China, supply grew by 1% to 27.2 million tonnes, while Chinese supply increased by 9.5% to 36.4 million tonnes.

In China there is strong evidence of the implementation of Supply Side reform in the Chinese aluminum industry in 2017 with more than 10 million illegal operating capacity and project cuts. As a result, according to Aladdiny data annualized Chinese aluminum production in November has dropped to 35.4 million tonnes from its maximum of 38.6 million tonnes in July of 2017.

The announcement by the Chinese regulator regarding winter capacity cuts which have now been implemented will result in an annualized production losses of approximately 1 million tonnes of metal, and 4.4 million tonnes of alumina, according to UC RUSAL estimates. As estimated significant part of aluminium closed smelters during current winter cuts season will not return to the market due to sevear environmental regulation for smelters emissions in 26+2 cities, high restarting costs and current low profitability.

Larger losses may take place in carbon materials supply including anodes and coking coal, that would to exert an upward pressure on the costs bases for aluminium producers due to squeezes in raw materials supply chain.

Strong antipollution controls and environmental measures continue to be focused towards the energy intensive industries in China in 2018 with intention to further cap and reduce CO2 emissions. Several heavily aluminium producing provinces plan to curb CO2 emissions by 20-23% on average by 2020 from the 2015 level. Starting this year Chinese aluminum smelters start paying environmental tax potentially increasing production costs by 70-100 RMB/tonne for big producers.

In addition to China domestic regulatory measures, Chinese semis exports stay under significant pressure from international anti-dumping initiatives and there has been recent announcements for further investigations under Section 232 alongside the possible introduction of new duties on Chinese semis exported to the US. This may result in a continued drop of exports of Chinese FRP and other aluminium semis products to United States, the second largest Chinese semis consuming market.

Business review

Aluminium

• Aluminium production in 4Q17 totaled 945 thousand tonnes (+1.5% QoQ), with Siberian smelters representing 94% of total aluminium output. Total production dynamics remained largely stable with capacity utilization reaching 97%. The production of value added products (VAP ) in 4Q17 amounted to 469 thousand tonnes (+9.1% YoY), the company maintains VAP production levels as per its guidance at c.50% of total product mix;
• In 4Q17 aluminium sales increased (+3.3% QoQ) totaling 1 million tonnes. In 4Q17, sales of VAPs decreased to 462 thousand tonnes. (-3.5% QoQ). The QoQ decline in VAP sales dynamics is largely explained by a skew towards primary aluminium under existing contracts which led to a decline of VAP’s share in total sales to 46%. The Company expects that the sales mix will trend towards the production mix and targets 50-52% share of VAPs through 2018 on the back of a solid backlog of end-customer product orders for 2018 and the launch of new VAPs capacities;.
• In 4Q17 the average aluminium realized price increased by 6.5% QoQ to USD2,263/t. The increase was due to positive dynamics in LME QP component (+7.1% QoQ to USD2,102/t). The average realized premium component remained almost flat (-0.6% QoQ to USD161/t);
• In 12M17 aluminium production totaled 3,707 thousand tonnes (+0.6% YoY);
• In 12M17 aluminium sales increased (+3.6% YoY) totaling 3,955 thousand tonnes. This increase was achieved largely due to an increase in third party aluminium products sales (+91.3% YoY to 169 thousand tonnes);
• During 12M17, the company as per its strategy continued to grow VAP’s sales, which totaled 1,869 thousand tonnes (+11.2% YoY). The share of VAP’s sales in total sales now stands at 47.3% in comparison with 44% in 12M16;
• In 12M17, the average aluminium realized price increased by 21.5% YoY to USD2,105/t due to positive dynamics in LME QP component (+23.5% YoY to USD1,942/t). The average realized premium component increased by 2.5% YoY to USD163/t).

Alumina

• In 4Q17, total alumina production increased by 1.3% QoQ, totaling 1,991 thousand tonnes. Russian operations accounted for 36% of the total output. The performance of the Company’s alumina assets was largely in line with the production plan.
• The continuation of ramping up capacity at Russian (Urals Alumina Refinery) and Ukrainian (Nikolaev) based refineries post the completion of upgrades earlier in 2017 was largely behind the 12M17 YoY production increase of +3.3%, to 7,773 thousand tonnes.

Bauxites

• In 4Q17, bauxite production increased by 7.4% QoQ to 2,944 thousand tonnes. This is due to a low comparison base in 3Q17 for mines of Bauxite Company of Guyana, Kindia and North Urals. In 4Q17, nepheline output decreased by 7.4% to 1,041 thousand tonnes, due to seasonal decline in production.
• In 12M17 bauxite output totaled 11,645 thousand tonnes (-4.4% YoY). The decrease of bauxite production is largely attributed to a decline in output in 3Q17, due to abnormal weather conditions that affected the operational performance of Bauxite Company of Guyana and Windalco as well as scheduled operational equipment care and maintenance works at mines in Kindia and Timan. Nepheline ore output decreased by 2.3% YoY to 4,332 thousand tonnes.

Financial Overview

Revenue

			Year ended 31 December 2017						Year ended 31 December 2016
			USD million		kt		Average sales price (USD/tonne)		USD million		kt		Average sales price (USD/tonne)
Sales of primary aluminium and alloys			8,324		3,955		2,105		6,614		3,818		1,732
Sales of alumina			769		2,018		381		622		2,267		274
Sales of foil and other aluminium products			323		—		—		240		—		—
Other revenue			553		—		—		507		—		—
Total revenue			9,969						7,983

Total revenue increased by USD1,986 million or by 24.9% to USD9,969 million in 2017 compared to USD7,983 million in 2016. The increase in total revenue was mainly due to the growth of sales of primary aluminium and alloys, which accounted for 83.5% and 82.9% of UC RUSAL’s revenue for 2017 and 2016, respectively.

			Quarter ended 31 December				Change, quarter on quarter, (4Q to 4Q)		Quarter ended 30 September		Change, quarter on quarter, (4Q to 3Q)		Year ended 31 December				Change, year-on- year
			2017		2016				2017				2017		2016
			unaudited		unaudited				unaudited
(USD million)
Sales of primary aluminium and alloys
USD million			2,263		1,659		36.4%		2,056		10.1%		8,324		6,614		25.9%
kt			1,000		922		8.5%		968		3.3%		3,955		3,818		3.6%
Average sales price (USD/t)			2,263		1,799		25.8%		2,124		6.5%		2,105		1,732		21.5%
Sales of alumina
USD million			233		164		42.1%		172		35.5%		769		622		23.6%
kt			492		570		(13.7%)		502		(2.0%)		2,018		2,267		(11.0%)
Average sales price (USD/t)			474		288		64.6%		343		38.2%		381		274		39.1%
Sales of foil and other aluminium products (USD million)			91		65		40.0%		91		—		323		240		34.6%
Other revenue (USD million)			158		139		13.7%		141		12.1%		553		507		9.1%
Total revenue (USD million)			2,745		2,027		35.4%		2,460		11.6%		9,969		7,983		24.9%

Revenue from sales of primary aluminium and alloys increased by USD1,710 million, or 25.9% to USD8,324 million in 2017, as compared to USD6,614 in 2016, primarily due to a 21.5% increase in the weighted-average realized aluminium price per tonne driven by an increase in the LME aluminium price (to an average of USD1,968 per tonne in 2017 from USD1,604 per tonne in 2016), as well as an increase in the sales volumes by 3.6% and slight improvement in premiums above the LME prices in the different geographical segments (to an average of USD163 per tonne from USD159 per tonne in 2017 and 2016, respectively).

Revenue from sales of alumina increased by 23.6% to USD769 million for the year ended 31 December 2017 as compared to USD622 million for the previous year primarily due to an increase in the average sales price by 39.1%, which was partially offset by a decrease in the sales volumes by 11.0%.

Revenue from sales of foil and other aluminium products increased by USD83 million, or by 34.6%, to USD323 million in 2017, as compared to USD240 million in 2016 primarily due to a 20.1% increase in sales volumes of foil. The Company notes the growth in sales of other aluminium products (such as wheels) from SKAD operations, consolidated starting from April 2017.

Revenue from other sales, including sales of other products, bauxite and energy services increased by 9.1% to USD553 million for the year ended 31 December 2017 as compared to USD507 million for the previous year, due to a 6.5% increase in sales of other materials (such as anode blocks by 28.3%, aluminium powder by 12.4%, corundum by 20.0%).

Cost of sales

The following table shows the breakdown of UC RUSAL’s cost of sales for the years ended 31 December 2017 and 2016, respectively:

			Year ended 31 December				Change, year-on- year		Share of costs
			2017		2016
(USD million)
Cost of alumina			728		751		(3.1%)		10.1%
Cost of bauxite			462		372		24.2%		6.4%
Cost of other raw materials and other costs			2,621		2,143		22.3%		36.5%
Purchases of primary aluminium from JV			279		229		21.8%		3.9%
Energy costs			2,149		1,630		31.8%		29.9%
Depreciation and amortisation			472		434		8.8%		6.6%
Personnel expenses			582		491		18.5%		8.1%
Repairs and maintenance			72		60		20.0%		1.0%
Net change in provisions for inventories			2		(11)		NA		0.0%
Change in finished goods			(184)		(69)		166.7%		(2.6%)
Total cost of sales			7,183		6,030		19.1%		100.0%

Total cost of sales increased by USD1,153 million, or 19.1%, to USD7,183 in 2017, as compared to USD6,030 million in 2016. The increase was driven by an increase in volumes of primary aluminium and alloys sold as well as significant increase in electricity prices, railway transportation tariffs and other raw material costs in Russian Ruble in 2017.

Cost of alumina was almost flat in 2017 compared to 2016.

Cost of bauxite increased by 24.2% in 2017 compared to the previous year, primarily as a result of an increase in purchase volume and a slight increase in purchase prices.

Cost of raw materials (other than alumina and bauxite) and other costs increased by 22.3% in 2017 compared to the previous year, due to a rising raw materials purchase price (prices for raw pitch coke increased by 74.5%, raw petroleum coke by 18.1%, pitch by 46.7%, caustic soda by 47.8%).

Energy costs increased by 31.8% in 2017 compared to 2016, primarily due to 13.0% appreciation of Russian Ruble against US dollar between the comparable periods.

Distribution, administrative and other expenses

Distribution expenses increased by 18.6% to USD446 million in 2017, compared to USD376 million in 2016, primarily due to the increase in transportation tariffs as well as the continuing appreciation of the Russian Ruble against the US Dollar between the periods.

Administrative expenses, which include personnel costs, increased by 19.0% to USD632 million in 2017, compared to USD531 million in 2016 and primarily resulted from the appreciation of the Russian Ruble to the US Dollar within the comparable periods.

Gross profit

As a result of the foregoing factors, UC RUSAL reported a gross profit of USD2,786 million for the year ended 31 December 2017 as compared to USD1,953 million for the previous period, representing gross margins of the periods of 27.9% and 24.5%, respectively.

Adjusted EBITDA and results from operating activities

			Year ended 31 December				Change year- on- year
			2017		2016
(USD million)
Reconciliation of Adjusted EBITDA
Results from operating activities			1,523		1,068		42.6%
Add:
Amortisation and depreciation			488		453		7.7%
Impairment/(reversal) of non-current assets			84		(44)		NA
Loss on disposal of property, plant and equipment			25		12		108.3%
Adjusted EBITDA			2,120		1,489		42.4%

Adjusted EBITDA, defined as results from operating activities adjusted for amortisation and depreciation, impairment charges and loss on disposal of property, plant and equipment, increased to USD2,120 million for the year ended 31 December 2017, as compared to USD1,489 million for the previous year. The factors that contributed to the increase in Adjusted EBITDA margin were the same that influenced the operating results of the Company.

Results from operating activities increased by 42.6% to USD1,523 million for the year ended 31 December 2017, as compared to USD1,068 million for the previous year, representing operating margins of 15.3% and 13.4%, respectively.

Finance income and expenses

			Year ended 31 December				Change year- on- year
			2017		2016
(USD million)
Finance income
Interest income on third party loans and deposits			16		18		(11.1%)
Interest income on loans to related party — companies under common control			1		1		—
Net foreign exchange gain			4		—		100.0%
			21		19		10.5%
Finance expenses
Interest expense on bank loans, company loans, bonds and other bank charges, including			(581)		(603)		(3.6%)
Interest expense			(477)		(530)		(10.0%)
Bank charges			(104)		(73)		42.5%
Interest expense on company loans from related parties — companies exerting significant influence			(2)		(7)		(71.4%)
Interest expense on provisions			(6)		(7)		(14.3%)
Net foreign exchange loss			—		(105)		(100.0%)
Change in fair value of derivative financial instruments, including			(287)		(157)		82.8%
Change in fair value of embedded derivatives			(104)		(77)		35.1%
Change in other derivatives instruments			(183)		(80)		128.8%
			(876)		(879)		(0.3%)

Finance income increased by USD2 million, or 10.5% to USD21 million in 2017 compared to USD19 million for the same period of 2016 due to an increase in foreign exchange gain which was partially offset a decrease in interest income on third party loans and deposits at several subsidiaries of the Group. Financial expenses was almost flat in 2017 compared to 2016 primarily due to a decrease in the interest expense on bank loans and net foreign exchange result that was partially offset by an increase in the net loss from the change in fair value of derivative financial instruments and an increase in bank charges.

Interest expenses in 2017 decreased by USD53 million to USD477 million from USD530 million in 2016 following the successful restructuring of the Group’s loan portfolio. The same factor caused an increase in bank charges as a result of amortization of previously capitalized arrangement fees.

The net loss from the change in fair value of derivative financial instruments increased to USD287 million in 2017 from USD157 million for the same period of 2016 following significant LME and other commodities price improvement between the comparable periods that negatively affected the fair value of respective hedging instruments.

Share of profits of associates and joint ventures

			Year ended 31 December				Change year- on- year
			2017		2016
(USD million)
Share of profits of Norilsk Nickel, with			528		688		(23.3%)
Effective shareholding of			27.82%		27.82%
Share of profits of other associates			1		—		100.0%
Share of profits of associates			529		688		(23.1%)
Share of profits of joint ventures			91		160		(43.1%)

The Company’s share in profits of associates for the years ended 31 December 2017 and 2016 amounted to USD529 million and USD688 million, respectively. Share in results of associates in both periods resulted primarily from the profit from the Company’s investment in Norilsk Nickel, which amounted to USD528 million and USD688 million for 2017 and 2016, respectively.

At the date of these consolidated financial statements, the Group was unable to obtain consolidated financial statements of Norilsk Nickel for the year ended 31 December 2017. Consequently, the Group estimated its share in the profits, other comprehensive income and foreign currency translation reserve of Norilsk Nickel for year ended 31 December 2017 based on publicly available information reported by Norilsk Nickel. The information used as a basis for these estimates is incomplete in many aspects. Once the consolidated financial statements of Norilsk Nickel become available, they will be compared to the management´s estimates. If there are significant differences, adjustments may be required to restate the Group´s share in profit, other comprehensive income, foreign currency translation reserve and the carrying value of the investment in Norilsk Nickel reported.

The market value of the investment in Norilsk Nickel at 31 December 2017 was USD8,294 million as compared to USD7,348 million as at 31 December 2016.

Share of profits of joint ventures was USD91 million for the year ended 31 December 2017 as compared to USD160 million for the same period in 2016. This represents the Company’s share of profits in joint ventures, namely BEMO, LLP Bogatyr Komir and Mega Business and Alliance (transportation business in Kazakhstan).

Profit before income tax

UC RUSAL earned a profit before income tax in an amount of USD1,288 million for the year ended 31 December 2017, as compared to a profit before income tax in an amount of USD1,354 million for the year ended 31 December 2016 due to reasons set out above.

Income tax

Income tax expense decreased by USD109 million to USD66 million in 2017, as compared to USD175 million in 2016.

Current tax expenses increased by USD18 million, or 14.8%, to USD140 million for the year ended 31 December 2017, as compared to USD122 million for the previous year primarily due to increase in operating profit.

The deferred tax benefit was USD74 million in 2017 as compared with deferred tax expense of USD53 million in 2016 primarily due to reversal of certain tax provisions, change in fair value of derivative financial instruments and effect of reversal of impairment of non-current assets at several subsidiaries in different periods.

Profit for the period

As a result of the above, the Company recorded a profit of USD1,222 million in 2017, as compared to USD1,179 million in 2016.

Adjusted and Recurring Net Profit

			Three months ended 31 December				Change quarter- on- quarter, % (4Q to 4Q)		Three months ended 30 September		Change quarter on quarter, % (4Q to 3Q)		Year ended 31 December				Change, year-on- year
			2017		2016				2017				2017		2016
			unaudited		unaudited				unaudited				unaudited		unaudited
(USD million)
Reconciliation of Adjusted Net Profit
Net profit for the period			440		645		(31.8%)		312		41.0%		1,222		1,179		3.6%
Adjusted for:
Share of profits and other gains and losses attributable to Norilsk Nickel, net of tax effect			(101)		(163)		(38.0%)		(174)		(42.0%)		(496)		(667)		(25.6%)
Change in the fair value of derivative financial liabilities, net of tax (20%)			66		5		1,220.0%		66		—		267		122		118.9%
(Reversal)/impairment of non- current assets			(55)		(145)		(62.1%)		58		NA		84		(44)		NA
Result from disposal and deconsolidation of subsidiaries including items recycled from other comprehensive income			—		(298)		(100.0%)		—		(100.0%)		—		(298)		(100.0%)
Adjusted Net Profit			350		44		695.5%		262		33.6%		1,077		292		268.8%
Add back:
Share of profits of Norilsk Nickel, net of tax			101		163		(38.0%)		174		(42.0%)		496		667		(25.6%)
Recurring Net Profit			451		207		117.9%		436		3.4%		1,573		959		64.0%

Adjusted Net Profit for any period is defined as the net profit adjusted for the net effect of the Company’s investment in Norilsk Nickel, the net effect of derivative financial instruments and the net effect of non-current assets impairment. Recurring Net Profit for any period is defined as Adjusted Net Profit plus the Company’s net effective share in Norilsk Nickel results.

Assets and liabilities

UC RUSAL’s total assets increased by USD1,322 million, or 9.1% to USD15,774 million as at 31 December 2017 as compared to USD14,452 million as at 31 December 2016. The increase in total assets is mainly resulted from the increase in the carrying value of the investment in Norilsk Nickel, inventories and property, plant and equipment.

Total liabilities increased by USD177 million, or 1.6%, to USD11,330 million as at 31 December 2017 as compared to USD11,153 million as at 31 December 2016. The increase was mainly due to the increase in the Company’s trade and other payables and bonds outstanding that was partially offset by loans and borrowings reduction following the successful restructuring of the Group’s loan portfolio.

Cash flows

The Company generated net cash from operating activities of USD1,702 million for the year ended 31 December 2017 as compared to USD1,244 million for the previous year. Net increase in working capital and provisions comprised USD326 million for 2017 as compared to USD178 million for the previous year.

The Company generated net cash from the investing activities of USD2 million for the year ended 31 December 2017 as compared to USD104 million for the previous year primarily due to an increase in an acquisition of property, plant and equipment in amount USD822 million for 2017 as compared to USD558 million for the prior year.

The above mentioned factors allowed the Company to assign USD411 million of its own cash flows for the debt repayment that together with the interest payments of USD493 million, dividends paid in amount of USD299 million and settlement of derivative financial instruments of USD182 million represent the main components of the cash used in the financing activities with the total amount of USD1,421 million for 2017.

Segment reporting

The Group has four reportable segments, as described in the annual report of the Company, which are the Group’s strategic business units: Aluminium, Alumina, Energy, Mining and Metals. These business units are managed separately and results of their operations are reviewed by the CEO on a regular basis.

The core segments are Aluminium and Alumina.

			Year ended 31 December
					2017*				2016
			Aluminium		Alumina		Aluminium		Alumina
(USD million)
Segment revenue
kt			3,741		7,668		3,891		8,165
USD million			7,847		2,338		6,708		2,071
Segment result			1,852		130		1,157		2
Segment EBITDA8			2,204		232		1,519		90
Segment EBITDA margin			28.1%		9.9%		22.6%		4.3%
Total capital expenditure			350		260		336		146

* Starting 2017 the Company presents two metrics for Aluminium segment: (1) total segment information and (2) information on own aluminium production. The difference between two metrics relates to the intersegment margins, sales of third parties metal and related costs and other non-production costs and expenses. Segment information for the year ended 31 December 2017 presented above relates to own aluminium production, that is different from the relevant segment information presented in the Company´s consolidated financial statements for the year ended 31 December 2017.

The segment result margin (calculated as a percentage of segment profit to total segment revenue per respective segment) for aluminium segment increased to 23.6% for the year ended 31 December 2017 from 17.2% for the year ended 31 December 2016, and increased to 5.6% compared to 0.1%, respectively, for the alumina segment. Key drivers for the increase in margin in the aluminium segment are disclosed in “Revenue”, “Cost of sales” and “Adjusted EBITDA and results from operating activities” sections above. Detailed segment reporting can be found in the consolidated financial statements for the year ended 31 December 2017.

⁸ Segment EBITDA for any period is defined as segment result adjusted for amortisation and depreciation for the segment.

Capital expenditure

UC RUSAL recorded a total capital expenditure of USD842 million for the year ended 31 December 2017. UC RUSAL’s capital expenditure in 2017 was aimed at maintaining existing production facilities.

			Year ended 31 December
			2017		2016
(USD million)
Development CAPEX			356		192
Maintenance
Pot rebuilds costs			109		89
Re-equipment			377		294
Total capital expenditure			842		575

The BEMO project companies utilise the project financing proceeds to make necessary contributions to the ongoing construction projects and do not require contributions from the joint ventures partners at this time.

The Company noted that its auditor, JSC KPMG, has provided a qualified opinion on its audit of the consolidated financial statements of the Company for the year ended 31 December 2017. As it was unable to obtain and audit the consolidated financial statements of Norilsk Nickel for the year ended 31 December 2017, an extract from the audit report provided by JSC KPMG on the consolidated financial statements of the Company is as follows:

Qualified Opinion

We have audited the consolidated financial statements of United Company RUSAL Plc (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2017, the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”), and have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991 and the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Qualified Opinion

As explained in Note 15 to the consolidated financial statements, the Group has estimated its share of profit and other comprehensive income of its associate, PJSC MMC Norilsk Nickel (“Norilsk Nickel”), for the year ended 31 December 2017 based on the latest publicly available information reported by Norilsk Nickel for six months ended 30 June 2017 adjusted by the Group to account for Norilsk Nickel’s performance in the remaining part of the reporting period. As a result of the consolidated financial statements of Norilsk Nickel for the year ended 31 December 2017 not being available, we were unable to obtain sufficient and appropriate audit evidence in relation to the Group’s estimate of the share of profit, other comprehensive income and foreign currency translation gain in relation to that investee of USD528 million, USD28 million of loss and USD216 million, respectively, for the year ended 31 December 2017, and the carrying value of the Group’s investment in Norilsk Nickel of USD3,796 million as at 31 December 2017 and the summary financial information of associates disclosed in Note 15. As a result, we were unable to determine whether adjustments might have been found to be necessary in respect of interests in associates, and the elements making up the consolidated statements of income, comprehensive income, changes in equity and cash flows.

Consolidated financial statements

The following section contains the audited consolidated financial statements of UC RUSAL for the year ended 31 December 2017 which were approved by the directors of UC RUSAL (the “Directors”) on 22 February 2018, and reviewed by the Audit Committee.

The full set of audited consolidated financial statements of UC RUSAL, together with the report of the independent auditor is available on UC RUSAL’s website at http://www.rusal.ru/en/investors/financial_stat.aspx.

Purchase, sale or redemption of UC RUSAL’s listed securities

There has been no purchase, sale or redemption of UC RUSAL’s listed securities during 2017 by UC RUSAL or any of its subsidiaries.

Code of Corporate Governance Practices

UC RUSAL adopted a corporate code of ethics on 7 February 2005. Based on the recommendations of the European Bank for Reconstruction and Development and the International Finance Corporation, UC RUSAL further amended the corporate code of ethics in July 2007. The corporate code of ethics sets out UC RUSAL’s values and principles for many of its areas of operations.

The Directors adopted a corporate governance code which is based on the Code on Corporate Governance Practices as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Hong Kong Listing Rules”) then in force on 11 November 2010. The Directors consider that save for code provisions A.1.7 (physical board meetings at which Directors have material interests), A.4.1 (specific term of non-executive directors) and A.4.2 (specific term of directors) for reasons set out below and also on pages 75-76 of UC RUSAL’s interim report for the six months ended 30 June 2017, UC RUSAL has complied with the code provisions as set out in the Corporate Governance Code and Corporate Governance Report in Appendix 14 to the Hong Kong Listing Rules during the period from 1 January 2017 to 31 December 2017.

The Board generally endeavoured throughout the twelve-month period ended 31 December 2017 to ensure that it did not deal with business by the way of written resolution where a substantial Shareholder of the Company or an independent non-executive Director had disclosed an interest in a matter to be considered by the Board which the Board determined to be material. As a result, there were only two occurrences (out of the thirty two written resolutions the Board passed during the period) when urgent business was dealt with by the Board by way of written resolution where a material interest of a Director was stated to have been disclosed. In each of those instances, the interest of the independent non-executive Director was a potential conflict of interest by virtue of the fact that an independent non-executive Director was also a member of the supervisory council for the parent company of the entity contracting with the Company.

On those occurrences, the written resolutions were passed by the requisite majority excluding the materially interested Director.

Ten Board meetings were held in the twelve month period ended 31 December 2017. With the exception of three of the Board meetings held, where certain independent non-executives were not present, all the independent non-executive Directors were present at the Board meetings held in the twelve month period ended 31 December 2017 where one or more Director(s) had disclosed a material interest.

Of the ten Board meetings held, there were three occasions where an independent non-executive Director had a material interest in the transaction. On such occurrences, the independent non-executive Director abstained from voting and the resolutions approving entry into such transactions were passed by the requisite majority excluding the materially interested independent non-executive Director.

Audit Committee

The Board established an audit committee (the “Audit Committee”) to assist it in providing an independent view of the effectiveness of the Company’s financial reporting process, risk management and internal control systems, and internal audit function, to oversee the audit process and to perform other duties and responsibilities as are assigned to the Audit Committee by the Board. The Audit Committee is assisted by the Company’s internal audit function which undertakes both regular and ad hoc reviews of risk management, internal controls and procedures, the results of which are reported to the Audit Committee. The Audit Committee consists of a majority of independent non-executive Directors. The members are as follows: Mr. Bernard Zonneveld (chairman of the committee, independent non-executive Director, with relevant professional qualifications and knowledge related to accounting and financial management); Mr. Philip Lader (independent non-executive Director); Dr. Elsie Leung Oi-sie (independent non-executive Director); Mr. Daniel Lesin Wolfe (non-executive Director), Ms. Olga Mashkovskaya (non-executive Director) and Mr. Dmitry Vasiliev (independent non-executive Director).

Declaration of Dividend

In August 2017 the Board of Directors of the Company approved an interim dividend in the aggregate amount of USD299.3 million (USD0.0197 per ordinary share) for the financial year ending 31 December 2017. The interim dividend was paid on 10 October 2017.

Material events since the end of the year

16 January 2018			UC RUSAL and ENERGOPROM Group, a leading Russian company specialized in carbon and graphite production, announced the signing of a 5-year Contract for supply of cathode blocks in the total volume of 21.5 thousand tonnes per annum.
17 January 2018			UC RUSAL launched the pilot operation of eight new generation RA-550 pots at RUSAL Sayanogorsk JSC. The total amount of investment in the project amounted to USD30 million.
25 January 2018			UC RUSAL announced the pricing of a third Eurobond transaction with the following key terms: principal amount of USD500 million, tenor of 5 years and coupon rate 4.85% per annum.
05 February 2018			UC RUSAL announced its operating results for the fourth quarter 2017 and full year 2017.

Forward-looking statements

This announcement contains statements about future events, projections, forecasts and expectations that are forward-looking statements. Any statement in this announcement that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include those discussed or identified in the prospectus for UC RUSAL. In addition, past performance of UC RUSAL cannot be relied on as a guide to future performance. UC RUSAL makes no representation on the accuracy and completeness of any of the forward-looking statements, and, except as may be required by applicable law, assumes no obligations to supplement, amend, update or revise any such statements or any opinion expressed to reflect actual results, changes in assumptions or in UC RUSAL’s expectations or changes in factors affecting these statements. Accordingly, any reliance you place on such forward-looking statements will be at your sole risk.

By Order of the board of directors of United Company RUSAL Plc Aby Wong Po Ying Company Secretary

23 February 2018As at the date of this announcement, the executive Directors are Mr. Oleg Deripaska, Mr. Vladislav Soloviev and Mr. Siegfried Wolf, the non-executive Directors are Mr. Maxim Sokov, Mr. Dmitry Afanasiev, Mr. Ivan Glasenberg, Mr. Maksim Goldman, Ms. Gulzhan Moldazhanova, Mr. Daniel Lesin Wolfe, Ms. Olga Mashkovskaya, Ms. Ekaterina Nikitina and Mr. Marco Musetti, and the independent non-executive Directors are Mr. Matthias Warnig (Chairman), Mr. Philip Lader, Dr. Elsie Leung Oi-sie, Mr. Mark Garber, Mr. Bernard Zonneveld and Mr. Dmitry Vasiliev..

All announcements and press releases published by the Company are available on its website under the links http://www.rusal.ru/en/investors/info.aspx, http://rusal.ru/investors/info/moex/ and http://www.rusal.ru/en/press-center/press-releases.aspx, respectively.

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