highlights of 2019

Steeling our businessFor a market downturn

Understanding the cyclical nature of the business, Metinvest was well prepared for the adverse steel market developments in the second half of 2019. Amid considerable challenges, the Group further reduced operating costs, completed crucial maintenance work and implemented the investments planned under the Technological Strategy 2030. It also extended the maturity of its debt portfolio and increased environmental investment significantly. Last, but not least, Metinvest strengthened its health and safety system to achieve its uncompromising goals in this area.

OLEG POPOV CHAIRMAN OF THE SUPERVISORY BOARD download pdf 547kb

OPERATIONS

CRUDE STEEL OUTPUT 7,578KT
IRON ORE CONCENTRATE OUTPUT 29,028KT
COKING COAL CONCENTRATE OUTPUT 2,961KT
SHARE OF STEEL PRODUCTS 86%
SHARE OF PELLETS 38%
POKROVSKE COKING COAL SUPPLIES 2,377KT

FINANCES

REVENUES US$10,757M
EBITDA US$1,213M
NET DEBT US$2,758M
CAPEX US$1,055M
EBITDA MARGIN 11%
NET DEBT TO EBITDA 2.3X

SUSTAINABILITY

LOST-TIME INJURY FREQUENCY RATE 0.790
DIRECT GREENHOUSE EMISSIONS -10%
EMPLOYEE TRAINING SESSIONS 108,742
GLOBAL TAXES PAID US$741M
ENVIRONMENTAL SPENDING US$384M
COMMUNITY SPENDING US$11M

vertically integrated for success

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global operations

KEY ASSETS 14
SALES OFFICES 45
COUNTRIES 100
EMPLOYEES ~67,000
Flowers

UKRAINIAN OPERATIONS

INTERNATIONAL
SALES
71%
IRON ORE SELF-
SUFFICIENCY
313%
ASSETS IN TOP 100
TAXPAYERS UN UKRAINE
7
ENVIRONMENTAL
CAPEX
US$155M
Flowers
Map legend
  • Sales offices
  • Operations
  • Metallurgical
  • Mining
  • Associate or JV
  • Coking coal
  • Coke
  • Iron ore
  • Integrated steel
  • Re-roller
  • Refractories

chairman's statement

ENGAGING STAKEHOLDERSTO ACHIEVE STRATEGIC GOALS

While 2019 was challenging for the global steel industry, Metinvest retained a clear focus on ensuring its long-term competitiveness, investing in technology and pursuing its sustainability agenda. Our goal is to balance the diverse needs of all stakeholders.

OLEG POPOV CHAIRMAN OF THE SUPERVISORY BOARD download pdf 108kb

ceo’s statement

ALL HANDS
ON DECK

In 2019, faced with numerous global events, Metinvest mustered every available resource, including the skills and experience of its team, the dedication of its partners, as well as the continued backing of international creditors and the broader stakeholder community. With their support, the Group was able to continue investing and managing its debt while also achieving steep reductions in the number of safety incidents and remaining on-track in terms of its environmental and other sustainability commitments.

yuriy ryzhenkov chief executive officer download pdf 102kb

stakeholder engagement

BUILDING OUR FUTURETOGETHER

Metinvest works closely with each of its key stakeholder groups to carefully balance their diverse interests. Together with its employees, customers, suppliers and contractors, equity and debt providers, local communities, and government authorities, the Group strives to follow sustainable business practices that will meet the needs of future generations.

Importance for Metinvest

Metinvest’s most valuable assets are its people, without whom none of its achievements would be possible. Around the world, the Group’s almost 67,000 employees mine and process raw materials to make steel, which they then cast and roll into finished products, while office workers and managers support the smooth functioning of the vertically integrated structure and the supply chain that brings the final product to customers.

Engagement

The Group carries out regular employee engagement surveys in order to improve the effectiveness of measures taken to increase employee satisfaction. Staff meetings are conducted with the presence of senior managers who can act on the ideas and concerns raised. Metinvest also provides internal training opportunities. These are used to deliver comprehensive health and safety instruction. In addition, the Group provides internal courses to develop work skills and partners with universities to provide managers the opportunity to increase their qualifications. The Group also maintains a confidential Trust Line, providing staff with a safe means to communicate concerns and complaints.

Results for 2019

During 2019, the average salary in the Group rose by 37% year-on-year in US dollar terms, driven in part by Metinvest’s efforts to expand financial benefits for employees. In addition, the Group is also focused on augmenting non-financial benefits. For instance, a major project is under way to improve employee amenities to raise the quality of overall working conditions. More than 108,000 training sessions were held in 2019 as Metinvest deployed new e-learning tools to facilitate remote learning opportunities. Consequently, Metinvest’s turnover rate decreased year-on-year to 11%. Importantly, the Group hired around 1,500 new graduates as part of its drive to recruit the brightest young minds.

Importance for Metinvest

Meeting the needs of its customers represents Metinvest’s core mission as a business. The Group’s global network of 45 sales offices reaches around 6,800 customers from 100 countries in such diverse regions of the world as Europe, the CIS, MENA, North America and Southeast Asia.

Engagement

The Group strives for excellence through improving customer service, including the quality enhancement of existing products, development of new products tailored to the needs of customers, as well as the optimisation of logistics to minimise delivery times. Metinvest carries out regular communication to measure customer satisfaction levels and swiftly address their concerns. In addition, it organises events and production site visits, as well as participation in public exhibitions, which drive open dialogue.

Results for 2019

As part of its improved customer engagement, Metinvest has carried out the integration of SAP CRM into its operations to standardise the sales process and unify information and workflow overall, which leads to faster decision making and improved transparency. In addition, Metinvest launched 45 new steel products at Azovstal and Ilyich Steel, mainly additional types of hot-rolled plates, cold-rolled coils, galvanised coils and slabs.

Importance for Metinvest

Metinvest’s suppliers and contractors provide many of the goods and services that it needs to achieve its goals. The Group engages with around 6,700 suppliers and contractors to receive key production inputs and perform a wide range of vital services at its facilities.

Engagement

Metinvest engages with suppliers to ensure a fair and level playing field for everyone and to create attractive and convenient conditions for cooperation. The Group has established an extensive yet clear set of requirements to ensure strict compliance with the Code of Ethics, as well as health and safety rules. Technological solutions permit the efficient and regular auditing of suppliers, while streamlining the process for contractors.

Results for 2019

During the year, to improve the efficiency of procurement for all parties and increase the transparency of this process, Metinvest expanded the use of electronic trading platforms. As part of the introduction of the SAP ARIBA SLP Module, the Group has unified the pre-qualification procedures for all suppliers and made it possible to self-register, in line with the overall drive to automate processes. During 2019, there were around 5,000 pre-qualification procedures, which resulted in the selection of about 500 new suppliers, while some 60 existing suppliers were disqualified.

Importance for Metinvest

Metinvest’s equity and debt providers help to provide the financial flexibility to overcome market turbulence. With the ongoing support of shareholders and around 600 investors, bank lenders and a wide range of international financial institutions, the Group continues to implement its Technological Strategy 2030.

Engagement

Metinvest has carried out regular disclosure of relevant financial and non-financial information for more than a decade, and reports publicly available annual and sustainability reports with a strong emphasis on open discussions with the investment community, including via such channels as meetings with the Group’s senior management and participation in conferences.

Results for 2019

During the reporting period, the Group published monthly and quarterly financial results, quarterly operating results, semi-annual and annual financial statements, as well as corporate presentations and other materials. Management communicated regularly with the investment community, including by conducting one deal roadshow and two non-deal roadshows. Metinvest also participated in nine investor conferences.

Importance for Metinvest

The local communities where Metinvest operates are more than just the home of the Group and its workforce. The Group plays a major role in the social, economic and environmental wellbeing of its 2.7 million neighbours in cities and towns throughout Ukraine, Italy, Bulgaria, the UK and the US.

Engagement

Metinvest maintains partnerships with local communities to implement developmental programmes and improve the quality of life, support for and organisation of public environmental, sporting and educational initiatives, as well as regular communication with communities’ representatives to identify key issues and carry out large-scale investment projects.

Results for 2019

During the year, Metinvest expanded its social partnerships through its close work with city development funds in such Ukrainian cities as Mariupol, Kryvyi Rih and Zaporizhia. Their projects cover such key areas as social infrastructure, the environment, education, healthcare, sports and culture. In Italy, Metinvest sponsored several events, including the Genoa half-marathon.

Importance for Metinvest

Metinvest must meet the stringent requirements of government authorities in the various jurisdictions in which it operates. The Group works with regulatory agencies in key areas such as environmental protection, occupational health and safety, ethical business practices, labour rights and financial activity.

Engagement

The Group continued to foster partnership through meeting legal obligations to the state, assisting in the socio-economic development of regions and payment of taxes. The main approach is regular direct communication or communication via public meeting platforms.

Results for 2019

During the year, Metinvest was able to develop its active dialogue with government authorities all around the world and achieve, overall, balanced outcomes providing the Group and its industry with the opportunity to carry out their work without an undue regulatory burden, while contributing their fair share to the development of communities on the local and national scale. Among other opportunities, Metinvest participated in the events of the European Business Association, where it held meetings with senior officials and provided input on legislation with a potential direct or indirect effect on the Group.

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in focus

MODERNISING FACILITIESAND PROTECTING THE ENVIRONMENT

Guided by the Technological Strategy 2030, Metinvest fulfilled its capital expenditure plans in 2019. Among other achievements, the Group expanded production capacity, increased the range of value-added products, reduced costs and improved its environmental footprint.

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DELIVERING ON STRATEGY

The Group’s capital investments have grown steadily since 2017. In 2019, Metinvest fulfilled its investment plan for the year with CAPEX of US$1,055 million, up 17% year-on-year. Total investment was the highest since 2011.

Importantly, US$717 million was spent on maintenance work at steelmakers, re-rollers, iron ore producers, coke plants and coal mines. This represented a 17% year-on-year increase. Strategic projects accounted for US$338 million, up 18% year-on-year. Last year saw important progress on several projects.

KEY PROJECT DETAILS

In the Metallurgical segment, the overhaul of blast furnace no. 3 at Azovstal, at a cost of around US$150 million, was completed simultaneously with the installation of the pulverised coal injection (PCI) unit in June. Now all of the Group’s operating blast furnaces are equipped with PCI technology.

Ilyich Steel completed the revamp of its hot strip mill (HSM) 1700 at a cost of around US$110 million. The first coils were produced in November 2019. The reconstruction of the HSM 1700 is expected to increase its capacity to 2.5 million tonnes of hot-rolled coils per year and enhanced the Group’s sales portfolio of higher value-added products thanks to improved coil quality.

In the Mining segment, CAPEX has focused on improving pellet quality, including the reconstruction of beneficiation and pelletising facilities. At Central GOK, the upgrade of the beneficiation plant at a cost of around US$20 million is designed to enable the production of premium concentrate with 70.5% Fe content, which will permit making pellets used in DRI technology. At Northern GOK, the first phase of the revamp of Lurgi 278-A roasting machine, at a cost of US$6 million, was completed. Other continuing projects at iron ore assets include the construction of crusher and conveyor systems.

In addition, environmental investments were among the key priorities in 2019, with total spending amounting to US$155 million, up 68% year-on-year.

capex US$1,055 M

ImprovingOPERATIONAL EFFICIENCY

In 2019, Metinvest made further progress in continuous operational improvements, sharpening its focus across the business and tripling the gains made in the previous year.

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A CULTURAL SHIFT

In 2019, Metinvest made important progress on growing the effect of operational efficiency to make it more resilient and ensure its long-term competitiveness as a business. Accelerating the pace of this work has become an important element for the Group in achieving its strategic goals.

The process involves optimising operating costs, through both investments in technology, which can deliver long-term productivity gains, and changes to processes within the organisation. It also involves evolving existing work practices. This cannot be a simple topdown approach. Identifying opportunities to achieve operational gains requires a cultural shift in which employees at every level are focused on searching for potential improvements.

DELIVERING RESULTS

This continued organisation-wide focus on operational efficiency allowed Metinvest to achieve US$63 million of savings, compared with US$21 million in 2018. At the same time, the management believes that there are considerable further efficiencies to be extracted from the business.

In the Metallurgical segment, Metinvest enhanced the efficiency of Ilyich Steel’s sintering machines by 13% year-on-year. The rearrangement of operating blast furnaces at Azovstal contributed to a 12% increase in the Group’s average daily hot metal productivity by the end of 2019, and helped to lower blast furnace fuel consumption by 5%.

In the Mining segment, a major project was to reduce the iron content of new tailings at all three iron ore producers, which helped to increase concentrate output. The continuing refurbishment of the Lurgi 278-A and OK-306 roasting machines led to a 5% betterment in productivity at Northern GOK. A positive effect was also achieved through the transformation of the sales function, including the launch of the SAP Customer Relationship Management system.

Importantly, the Group improved efficiencies by continuing to rationalise administrative functions, as well as implementing related IT functions through SAP to unify business processes.

EFFECT OF OPERATIONAL IMPROVEMENTS IN 2019 US$63 M

extendingdebt maturity

In 2019, Metinvest successfully completed a bond issue that smoothed and extended its debt maturity, reducing refinancing risks and strengthening its overall stability.

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PROACTIVE MANAGEMENT

Since its founding in 2006, the Group has built credibility in international financial markets and maintains strong relationships with bond investors, banks and other lenders. During the year, the Group successfully completed the debut dual-currency offering, which helped to effectively extend the maturity of US$440 million of eurobonds due in 2023 by 6.5 years. Net proceeds from the deal amounted to roughly US$350 million.

The Group made a tender offer to holders of eurobonds due in 2023, of which US$944,515,000 was outstanding, to make the cash purchase of up to US$440 million of the paper. At the same time, it carried out a new, dual-currency eurobond offering, including a US$500 million tranche with a coupon of 7.75% per annum due in October 2029 and a EUR300 million tranche with a coupon of 5.625% per annum due in June 2025.

Despite challenging market conditions, Metinvest was able to arrange 10-year, US dollar financing with the lowest US dollar-denominated yield in the history of the Group. The euro-denominated tranche helped Metinvest diversify the currency mix of its debt portfolio and expand the size and quality of the investor base. In addition, it has provided an important source of financing flexibility during the steel price downcycle. As a result, the Group has been able to pay, ahead of schedule, US$75 million of its PXF facility.

CREDIT RATINGS

2019 saw improvements in Metinvest’s ratings. In September, Fitch and S&P both upgraded Metinvest’s credit ratings to “BB-” and “B”, respectively, with a “stable” outlook. After the upgrade, Fitch’s rating was two notches above Ukraine’s sovereign level and S&P’s was in line with it. In November, Moody’s changed its outlook on Metinvest’s corporate family rating to “positive”, affirming its “B3” rating, which is capped by Ukraine’s long-term foreign currency bond ceiling.

CREDIT RATINGS AS OF 31 DECEMBER

FITCH BB-STABLE
S&P B STABLE
MOODY’S B3 POSITIVE

ESTIMATING ORE RESERVESIN ACCORDANCE WITH JORC CODE

Last year, Metinvest arranged a reassessment of its mineral resources and ore reserves in accordance with the JORC Code. The aim was to provide stakeholders with the most accurate data, as well as help the Group’s long-term planning.

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AN INDUSTRY STANDARD

The JORC Code is the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. It is an internationally recognised reporting standard for minerals exploration results, mineral resources and ore reserves that is adopted worldwide for market-related public reporting and financial investments.

Last year, Metinvest appointed a reputable international independent expert, SRK Consulting (UK) Limited, to prepare Mineral Resources and Ore Reserves statements for its Ukrainian iron ore mining assets in accordance with the JORC Code. The assessment process takes into account several external factors, including the latest legislation governing subsoil resource use, health and safety policies, environmental considerations and other important factors.

According to the results of the assessment, as at 31 December 2018, Metinvest’s Mineral Resources totalled 10,163 million tonnes grading 35.2% FeT (total iron) and 26.2% FeM (magnetic iron) and Ore Reserves totalled 2,296 million tonnes grading 34.2% FeT and 25.3% FeM. This reflects the Group’s long-term production profile and support the sustainable supply of iron ore for internal and external sales.

Overall, the Group has invested US$2,481 million since 2011 in its three iron ore assets to maintain operations, explore ore deposits, upgrade production facilities and to manage environmental impacts. As of the date of the assessment and based on current production volumes, Metinvest has sufficient iron Ore Reserves to continue to maintain operations for more than 25 years. Importantly, this assessment helped Metinvest to reconfirm its status as one of the largest iron ore producers in the world, not only based on annual production volumes but also based on iron ore reserves.

MINERAL RESOURCES 10,163 MT
ORE RESERVES 2,296 MT