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Download Annual Report 2020

Standing together

annual report 2020 download pdf 6.76MB

highlights of 2020

What began as a localised outbreak in late 2019 had become a global pandemic by early 2020, creating a colossal challenge for people, businesses and governments worldwide. Metinvest rose to this by working more closely with all stakeholders, and its results for the year reflect these efforts.

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operations

crude steel output
7,323KT 7,578KT 8,268KT
2018 2019 2020
iron ore concentrate output
27,353KT 29,028KT 30,501KT
2018 2019 2020

FINANCES

REVENUES US$10,453M
EBITDA US$2,204M
NET DEBT US$2,111M
CAPEX US$663M
EBITDA MARGIN 21%
NET DEBT TO EBITDA 1.0x

SUSTAINABILITY

LOST-TIME INJURY FREQUENCY RATE 0.520
DUST EMISSIONS 23KT
EMPLOYEE TRAINING SESSIONS 111,197
ENVIRONMENTAL SPENDING US$450M
TAXES PAID GLOBALLY US$612M
COMMUNITY SPENDING US$15M

Worldwide

One of the global
leaders in steel and
iron ore

Established to manage metals and mining assets in Ukraine in 2006, Metinvest has expanded progressively to become an industry player operating internationally. Today, it has production assets in Ukraine, the EU, the UK and the US, as well as a global sales network. As a vertically integrated business, it supplies raw materials and steel products to customers worldwide.

KEY
ASSETS 16
SALES
OFFICES 45
COUNTRIES
OF BUSINESS ~100
INTERNATIONAL
SALES 72%
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Ukraine

A respected leader
locally

With the vast majority of its assets in Ukraine and other European countries, the Group is well connected to all key regional markets by road, rail and sea.

ENVIRONMENTAL
SPENDING US$450M
IRON ORE
SELF-SUFFICIENCY 299%
LOCAL
SALES 28%
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Metinvest was not caught off guard by the tremendous challenges that 2020 presented. Thanks to the achievements of previous years and the reporting period, the Group was able to uphold commitments to stakeholders during the pandemic.

Oleg Popov Chairperson of the Supervisory Board download pdf 2.1mb

Upholding commitments

In 2020, Metinvest stood in solidarity with its stakeholders to help overcome the unprecedented challenges caused by the global pandemic. Supporting them played a crucial role in the Group achieving strong operational and financial results.

Yuriy Ryzhenkov Chief Executive Officer download pdf 1.1MB

Standing together

stakeholder engagement

Striking a balance

Metinvest strives to understand and proactively respond to the various concerns of its key stakeholder groups. By adhering to the principles of sustainability the Group is better prepared to meet the diverse needs of its employees, customers, suppliers and contractors, local communities, equity and debt providers and government authorities.

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employees

responding proactively to covid-19

For Metinvest, the health and safety of employees is an unconditional priority. As part of this, the Group introduced comprehensive measures to protect staff as soon as COVID-19 became a pandemic. From mid-March, it began providing masks, gloves, sanitiser and other personal protective equipment at facilities; introduced social distancing measures; and started regularly disinfecting its premises and own transportation. In parallel, it cancelled all public events and business trips, and transferred employees to remote working where possible. Since then, Metinvest has monitored developments fastidiously and erred on the side of caution throughout.

Results for 2020

Despite the pandemic, Metinvest continued to meet its social obligations to employees and did not change base salaries. In 2020, the Group transformed its bonus system to incentivise such priorities as health and safety, operational improvements and customer focus. It also expanded its My Choice individual social package to cover more employees and offered additional coverage options under the programme. In addition, Metinvest invested about US$7 million as part of an initiative aimed at improving the amenities and other services provided to staff. Its employee retention efforts helped to further reduce overall staff turnover to around 5%. The Group also integrated 2,800 employees from recently acquired assets into the team during the reporting period.

customers

responding proactively to covid-19

As service inherently involves personal contact and smooth delivery, the pandemic created considerable obstacles, at least initially. However, Metinvest overcame these rapidly, largely through the reach of its global sales network and its ongoing digitalisation drive. While a crisis, the situation also created the opportunity to further strengthen customer relationships, and the Group’s local presence was crucial in this regard. In tandem, the sales team adapted to serving customers online rapidly, from negotiating physical orders to providing technical support.

Results for 2020

In 2020, Metinvest advanced the development of its Key Account Management programme by updating the methodology for segmentation and selection of key customers. This helps to improve the customer service culture. Cross-functional teams continue to work actively with such accounts, as in the previous year, in order to provide a complex solution. During the reporting period, the Group’s steelmakers developed 46 new steel products: semis, plates, hot-rolled coils, cold-rolled products, galvanised products and electric welded pipe. A key new product for Central GOK was pellets used in DRI technology, a new market segment for Metinvest.

suppliers and contractors

responding proactively to covid-19

In terms of health and safety, Metinvest has long treated in-house staff and external workers alike, and COVID-19 only reinforced the importance of this. Again from the outset of the pandemic, to protect everyone – whether employed internally or sourced externally – the Group introduced temperature screening at points of entry to facilities and at regular intervals inside. To support this and the drive to contain any wider spread of the virus, it also implemented a contact tracing system for all visitors to premises. As some contractors were unable to visit production sites because of restrictions, digital tools were used during equipment installation, testing, remote training and other activities.

Results for 2020

During the year, to improve the efficiency of procurement for all parties and increase the transparency of this process, the Group added nine assets to its electronic trading system, which now covers 18 assets in total. As part of the introduction of the SAP ARIBA SLP Module reported in the previous annual report, Metinvest 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 2020, there were around 5,100 pre-qualification reviews, which resulted in the selection of about 560 new suppliers, while some 70 existing ones were disqualified.

local communities

responding proactively to covid-19

The pandemic also prompted Metinvest to bolster existing support for local communities where it is present, as they are the lifeblood of the business. Healthcare and social assistance were critical. Working closely with municipal bodies, among other measures, the Group purchased and distributed express COVID-19 tests to medical institutions and food packages to retired employees, as well as installed oxygen supply points and lines at local hospitals. In addition, at the national level, it financed the delivery of over US$1 million of humanitarian aid from China to Ukraine.

Results for 2020

During the year, Metinvest deepened its social partnerships with non-governmental organisations in Ukrainian cities. In addition to Mariupol, Kryvyi Rih and Zaporizhia, this successful model for community relations has been rolled out to Avdiivka. These partnerships help to improve social infrastructure, protect the environment and support initiatives in education, healthcare, sport and culture.

equity
and debt providers

responding proactively to covid-19

Given the situation, working together more closely with investors and bank lenders was also of paramount importance. Mindful that communication also plays a vital role in this, Metinvest gave regular, timely updates to the financial community on its efforts to deal with COVID-19. In March 2020, it took all communication online. In addition, despite the prevailing turbulence, the Group concluded several significant financial transactions, including involving a major Eurobond refinancing, a credit facility from an international financial institution and loans covered by European export credit agencies.

Results for 2020

During the year, Metinvest published monthly and quarterly financial results, quarterly operating results, semi-annual and annual financial statements, and corporate presentations and other materials. The Group worked diligently to maintain the trusted relationships developed with the financial community. Regular communication allowed Metinvest to proactively improve its bond portfolio quality when debt market conditions were favourable. The Group also received continued support from banking partners, signing several new facilities that provided an additional liquidity cushion. Recognising the heightened attention that equity and debt providers are paying to ESG matters, Metinvest is working towards expanding the scope of disclosure in this area.

government authorities

responding proactively to covid-19

As Metinvest is one of Ukraine’s largest employers and taxpayers, its relationships with authorities are central to the country’s prosperity. From the moment that COVID-19 took hold, the Group sought greater dialogue with administrations at all levels, as communication in such times is key. To support national and local budgets, it waived the offer of a tax holiday. In Italy, in response to a government decree in March 2020, Metinvest halted operations at both of its re-rollers for around one month, resuming operations following permission.

Results for 2020

During the reporting period, the Group maintained an active dialogue with government authorities in the cities, regions and countries where it is present. It sought balanced outcomes to ensure that it and the broader industry can operate under a reasonable regulatory burden, while contributing to community development on the local and national scale. To continue providing much-needed budget revenues to local government stakeholders in Ukraine, Metinvest decided to forego tax holidays offered as a form of pandemic relief for businesses. In 2020, the Group paid US$612 million in taxes globally.

in focus

Pursuing greaterefficiency

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In 2020, Metinvest continued to focus on overcoming several challenges, one being an efficiency gap compared with leading peers in the industry. By the year-end, the Group had succeeded in narrowing it significantly.

Overall, Metinvest achieved operational improvements totalling US$376 million during the reporting period, a six-fold increase year-on-year. This was primarily due to reductions in variable costs, driven by such measures as lower equivalent fuel consumption at the steelmakers and improved mining fleet efficiency at the iron ore producers. In addition, Metinvest introduced digital strategies for much of its processes and businesses.

In 2020, the Group’s steel plants delivered operational efficiency gains of US$184 million, primarily from advances in sinter, iron and steelmaking operations. The single largest contributor in monetary terms was better equivalent fuel consumption in hot metal production, which resulted from numerous investment projects and operational measures.

Meanwhile, Metinvest’s iron ore assets made combined operational improvements of US$117 million, mostly from enhanced productivity.

From here, the aim is to sustain the operational efficiency momentum gained in 2020. The Group recognises that each further step will be increasingly difficult. To achieve its objectives, it will need to apply creative solutions and tools, including digital technology such as artificial intelligence.

EFFECT OF OPERATIONAL IMPROVEMENTS US$376M
YEAR-ON-YEAR INCREASE IN THE EFFECT 6x

Investing prudently,executing successfully

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Amid lockdown restrictions and volatile markets, the 2020 investment programme was one of the more prudent in Metinvest's history. Despite all the challenges faced, the Group executed it successfully.

Overall capital expenditure totalled US$663 million in 2020. In line with the priorities, investments in maintenance decreased by 34% and in strategic projects by 45%, bringing their shares in the total to 72% and 28% respectively.

At the steelmakers, the largest strategic projects focused on Ilyich Steel. The revamp of the hot strip mill 1700 was completed with the installation of a new down coiler, and equipment operation has reached the design parameters in 2021.

At the iron ore producers, the upgrade of transportation infrastructure at Northern GOK and Ingulets GOK has progressed, and the new crusher and conveyor systems at both are expected to be completed in the second half of 2021. The systems will cost around US$200 million at Northern GOK and US$50 million at Ingulets GOK.

Despite the uncertainties, environmental CAPEX was ring-fenced and totalled a record US$205 million in 2020, up 32% year-on-year. Among a long list of environmental initiatives, the key project was the modernisation of the sinter plant at Ilyich Steel.

In 2020, Metinvest began the process of updating its technological strategy. In 2021, the Group’s investment priorities include maintaining environmental CAPEX and introducing more digital tools at both iron ore producers and steelmakers. Also in focus will be strategic projects, both existing and new initiatives guided by the technological strategy.

CAPEX US$663M
SHARE OF STRATEGIC CAPEX 28%

Managing liabilitiesprudently

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In 2020, Metinvest worked diligently to ensure that it had the financial flexibility needed in an uncertain environment. In addition to extending its bond maturity profile, the Group launched its first partnership with an international financial institution and a new securitisation programme.

In October 2020, the Group took advantage of favourable market conditions to extend the maturity of its outstanding Eurobonds. While this was effectively a debt-neutral liability management exercise, all bonds due in 2021 and 38% of those due in 2023 were extended to 2027.

Metinvest conducted two simultaneous transactions. The first involved capped tender offers to purchase for cash the US$115 million in outstanding 7.50% Eurobonds due in 2021, as well as the US$505 million in outstanding 7.75% Eurobonds due in 2023. Concurrently, it made a consent solicitation in respect of the 2021 bonds to include an issuer call option.

The second transaction was a new Eurobond offering of US$333 million bearing a fixed-rate coupon of 7.65% per annum, due in 2027.

In December 2020, the Group launched a new accounts receivable securitisation programme for its Italian re-rollers, Metinvest Trametal and Ferriera Valsider, totalling EUR75 million. This landmark deal is also part of Metinvest’s broader strategy to expand its customer base and provide additional, flexible solutions for financing sales in Europe.

In 2020, the Group also arranged its first financing deal with an international financial institution, the Black Sea Trade and Development Bank. Metinvest received a EUR62 million, seven-year credit facility.

NEW EUROBOND US$333M
CREDIT FACILITY FROM BSTBD EUR62M

Strengtheningvertical integration

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Metinvest has consolidated control over Pokrovske Coal, a leading producer of high-quality coking coal in Eastern Europe. This acquisition significantly strengthens the Group’s self-sufficiency in coking coal.

Pokrovske Coal comprises several entities, the main ones being Pokrovske Colliery and Sviato-Varvarynska Beneficiation Factory. Together, they mine raw coal, enrich it and sell coking coal concentrate.

The assets are located on the border of Ukraine’s Dnipro and Donetsk regions, close to Metinvest’s coke producers.

As of 1 January 2019, Pokrovske Coal had JORC Mineral Resources and Reserves of 248 million tonnes and 151 million tonnes, respectively, enough to maintain operations for at least 30 years. In 2020, it mined 6,162 thousand tonnes of raw coal, up 23% year-on-year, and produced 3,184 thousand tonnes of coking coal concentrate, up 12%.

According to management estimates, in 2020, Pokrovske Coal’s revenues fell by 24% year-on-year to US$385 million. The main driver was a decrease in the benchmark coking coal price, partly compensated by greater volumes. EBITDA totalled US$144 million, down 44% year-on-year, amid lower selling prices, giving an EBITDA margin of 38%, down 13 percentage points.

CAPEX increased by 15% to US$121 million, of which 40% was spent on expansion. Key ongoing strategic projects include the construction of new mine block no. 11.

RESOURCES AS OF 1 JANUARY 2019 248MT
EBITDA IN 2020 US$144M

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