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2021-12-31 ifrs-full:RetainedEarningsMember 253400XSJ4C01YMCXG44 2021-01-01 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 253400XSJ4C01YMCXG44 2021-01-01 2021-12-31 ifrs-full:NoncontrollingInterestsMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:IssuedCapitalMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:SharePremiumMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:RetainedEarningsMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 253400XSJ4C01YMCXG44 2019-12-31 ifrs-full:NoncontrollingInterestsMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:IssuedCapitalMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:SharePremiumMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:RetainedEarningsMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 253400XSJ4C01YMCXG44 2020-12-31 ifrs-full:NoncontrollingInterestsMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:IssuedCapitalMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:SharePremiumMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:RetainedEarningsMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 253400XSJ4C01YMCXG44 2021-12-31 ifrs-full:NoncontrollingInterestsMember iso4217:USD xbrli:shares iso4217:USD xbrli:shares 1 MMK INTEGRATED ANNUAL REPORT 202 1 Prelimi nary approved by the Board of Di rectors of MMK Minutes as of 25.04.202 2 No. 14 Approved by the Annu al General Meeting of Shareholders of MMK Minutes as of __ No. __ MMK INTEGRATED ANNUAL REPORT 2 TABLE OF CONTENT 2021 HIGHLIGHTS ......................................................................................................... 3 ABOUT THIS REPORT ....................................................................................................... 3 AT A GLANCE ................................................................................................................... 7 OUR INVESTMENT CAS E .................................................................................................. 9 BUSINESS MODEL .......................................................................................................... 10 CHAIRMAN’S ST ATEMENT .............................................................................................. 12 CEO’S STATEMENT ......................................................................................................... 14 HOW WE MAKE STR ATEGI C DECISIO NS ........................................................................ 17 FOCUS AREAS FOR THE BO ARD IN 202 1 ........................................................................ 19 STRATEGIC FR AMEWORK .............................................................................................. 20 STRATEGY ..................................................................................................................... 22 KEY PERFORMA NCE INDI CATORS .................................................................................. 24 MA RKET TRENDS ........................................................................................................... 28 STAKEHOLDER E NGAGEME NT ........................................................................................ 30 FINANCIAL CAPIT AL ..................................................................................................... 35 MANUFACTURED CAPITAL ................................................................ ............................. 43 INTELLECT UAL CAPITAL ................................................................................................ 57 NATURAL CAPITAL ................................................................ ........................................ 63 HUMAN CAPITAL ........................................................................................................... 71 SOCIAL AND REL ATIONSH IP CAPITAL ........................................................................... 80 RISK MANAGEME NT ....................................................................................................... 92 GOVERNANCE ................................................................................................ .............. 101 INFORMATION FOR INVESTORS .................................................................................. 128 RESPONSIBILITY STATE MENT ..................................................................................... 136 COMPLIANCE OF THE REPO RT WITH THE I NTERN ATIONAL INTE GRATED R EPORTI NG FRAMEWORK ............................................................................................................... 137 BSI VERIFIC ATION OPINION ...................................................................................... 138 CONSOLIDATED FINANCI AL STATEME NTS FOR TH E YEAR E NDED 31 DECE MBER 2021 139 GLOSSARY ................................................................................................................... 199 CONTACTS ................................................................................................................... 202 MMK INTEGRATED ANNUAL REPORT 3 2021 HIGHLIGHTS FINANCIAL OPERATIONAL SUSTAINABILI TY GROUP REVENUE GROUP STEEL OUTPUT LTIFR $11,869 m 1 3.6 mt 0.62 2020 : $6, 395 m 2020: 11.6mt 2020 : 0. 66 EBITDA GROUP SALES OF METAL PRODUCTS LTISR $4,290 m 12.5 mt 23. 20 2020 : $1, 492 m 2020: 10.8 mt 2020 : 23. 66 1 FREE CASH FLOW SHARE OF PREMIUM PRODUCTS IN GROUP SALES GHG INTENSITY $1,613 m 41.8% 1.95 t CO 2 e / t of crude steel 2020: $557m 2020 : 4 7. 8% 2020: 2.18t CO 2 e / t of cru de steel ABOUT THIS REPOR T This i s the sec ond Int egrated Report of Magni togorsk Iron & Ste el Works (MMK). Our Integrated Report provides quant itati ve and qualitative disclosures on our rel ationshi ps wi th stakeholders and how our l eadershi p, cul ture and strat egy are ali gned to del iver val ue while man aging risks and ch anges to th e external environment. Our Rep ort continues to evol ve towards enhanced di sclosures to meet the requirements of our i nvestors and other stakehol ders. Our purpose We ai m to p roduce and deliver premi um q uality st eel products i n a w ay that g enerates val ue for stakeholders, improves the qualit y of life of our employees and the peo ple whose communi ties are affected by our operati ons and all ows our cust omers, and the worl d, t o benefi t from the p ower and strength of steel . OUR INTEGRATED THINKING 1 At the end of 2021, a methodology for calculatin g injury rates was introduce d. The calculation was made for accidents register ed on the territo ry of the MMK Gr oup's industrial sit e, taking into ac count third-party o rganisations. MMK INTEGRATED ANNUAL REPORT 4 IDENTIFYING MA TERIAL TOPICS Step 1. Identif ication - Benchm arkin g material aspects hi ghlig hted in the reports of in ternational and Russian steel companies - An alysin g information requests from external stakeholders and ESG rating agenci es - An alysin g open sources of informati on (indu stry trends and risks, resea rch, media report s) Drawing up a prelimin ary list of materia l topics Step 2. Priorit isation - Ap proving the li st of materi al topics - El ectronic survey of internal and external stakeholders - Pri oritisin g the list of mat erial topi cs based on the survey results Prioritising the lis t of mater ial topics Step 3. Approv al - Bu ilding a mat eriality matri x - Drafti ng and approving the concept an d structure o f th e R eport, tak in g into account th e prioriti sation result s Building a material ity matrix and a concept of the Rep ort VALUE CREATIO N, PRESERVATION AN D EROSION Value creation, preserv ation and erosion are the consequenc es of how we appl y and l everage our capital s as part of our strategy executi on and are evident i n how these capitals change over ti me, our financi al performance and th e outputs and outcom es for all stakeholders. There are six capitals, which particip ate in the value creation process: financi al, manufactured, intell ectual, natural , human, social and relationship capital. Our valu e creation and preservati on processes are embedded i n our purpo se (page 19 ), descri bed as part of our busin ess m odel on page 10 , and in tegrated int o the way we think an d make strategi c decisions (pages 16 - 17 ). In our Report, we use the i cons below to denot e value creati on, preservati on and erosion: OUR INTEGRATED REPORTING PROCESS ↑ Valu e creation → Value preservati on ↓ Valu e erosion MMK INTEGRATED ANNUAL REPORT 5 The 2021 Integrated Annual Report i s prepared on the basi s of such material s as Man agement Board mi nutes, Board d ecisi ons and approval s as w ell as i nternal and external reporting information as required by th e Integrated < IR> F ramework (2021). A cross functi onal team, led by a m ember of the Management Board, Head of financi al resources, and represented by various departments o f MMK and subject mat ter exp erts across th e MMK Group, produc es several drafts of t he Integrated Report with oversight from Board St rategi c pl anning commi ttee an d the Board. Th e St rategic planni ng committee m embers revi ew and contribut e to the content of the drafts and provi de recommendati ons for the B oard ahead of it s revi ew. Th e Board provi des p relimi nary app roval of the Integrated Ann ual Report and submi ts to An nual General Meeting of Sha reholders (AGM) for the fin al approval . Our approach to integrated report ing The 2021 Int egrated Ann ual Report di scloses da ta on MMK’ s finan cial, eco nomic and operati ng activiti es, and reflects the sustain ability highli ghts of MMK and its subsidi aries from 1 Jan uary to 31 December 2021. Operational and financial results were presented in the Report i n acc ordance wi th the I FRS consolidat ed fi nancial statements of PJS C M MK (the MMK Group’s pa rent company) and the G roup’s Russian a nd foreign sub sidiari es. In the rep orting year, the boundari es of n on -financi al informati on were c omparable to l ast ye ar's discl osure l evels for all areas of the MMK Group's sustai nabl e development to bri ng th e p erimeter of the G roup's fin ancial and n on- fi nan cial reporting closer togeth er. M ore detailed di sclosure b oundari es for quan tit ative i nformati on i n t he a rea of sust ai nable development by mai n themati c content bl ocks will be presented in th e 2021 Sustai nability Report, whi ch will be published in May 2 022. Reporting princip les we adhe re to The overall approach t o reportin g focused on val ue creati on is gui ded by the Integrated Reporting framework ( ), Wo rldSteel recommendati ons, Russian corporate governance code and UK corporate gove rnance code. Financi al statements discl osure i s p erformed in li ne with International Finan cial Reporting Standards ( IFRS). The p rocess of determi ni ng materiality and disclosing sustainability information is carried out in accordance wi th the r ecommendati ons of GR I, SAS B, the Central Ban k of Russi a, and UN CSD standards. More detail ed disclosures on non -financi al reporting, informati on on the basis for n on - financi al reportin g, guideli nes and the perime ter of assurance on sustainabilit y in formation can be found in our 202 1 Sustai nability Report, whi ch will be published i n May 2022. Integrity and assurance of the Report The Board en sures the integrity of th e Int egrated R eport through our integrated rep orting process, the various approvals and sign- offs b y Management Board and the Strategic plan ning committee. Our annual financial statements are assured by our external auditors PricewaterhouseCo opers. MMK’s GHG emissi ons for 2020 and 2021 (Scope 1, 2,3) were veri fied by BSI, a gl obal certifi cation company. We di d not engage an i ndependent practi ti oner to provide l imit ed assurance on thi s 2021 Integrated An nual Report. Thus, some val ues o f non -fi nanci al in dicators present ed i n the R epo rt may subsequently di ffer from the values pres ented in the 2021 Su stainab ili ty Report, si nce i ndependent experts wi ll b e engaged to confirm th e co rrectness of th e i ndicators presented i n t he Sustai nabi lity Report. MMK INTEGRATED ANNUAL REPORT 6 The sustainabilit y information verification can be found in our 2021 Sustainability Report whi ch will be publi shed on Ma y 2022 . The 2021 report ing suite - 2021 Integrated Annu al Report - Appendi ces to the 2021 Integrat ed Annual Report - 2021 Sustain ability Report - t o be publi shed in May 2022 - GRI Index for 2021 - to be pu blished i n May 2022 - SA SB Index for 2021 - to be publi shed i n May 2022 Preliminary appr oval by the Bo ard of Directors The Board acknowledges its responsibili ty of ensurin g the i ntegri ty of thi s Integrated Report. In the B oard’s opini on, this R eport address es all the issues th at are mat erial to the G roup’s abi lit y to create val ue and fairl y presents th e i ntegrated performance of MMK. The Board i s confident that the Report wa s p repared i n accordan ce wi th the International F ramework (20 21). Thi s Report wa s prelimi nary approved b y the Boa rd of Di rectors of M MK on Ap ril 25 2022 ( minutes as of 25 .04.2022 № 14 ). CEO Sh il yaev P.V. Director of LLC MMK - Accounti ng Center Samoyl ova O.Y. MMK INTEGRATED ANNUAL REPORT 7 AT A GLANCE Our operations encompass the entire steel pro ducti on chain and we sp eciali se in premium stee l products. W e have a hi gh-q uality asset base w ith t he position i n the 1st qu artile on t he global cost curve. M MK sha res ar e traded on MO EX (M oscow Stock Exchan ge) and GDRs are traded on th e LSE (London Stock Exchan ge). WE ARE A LEADI NG RUSSIAN METALS COMPANY № 1 16 . 9% MMK GROUP’S RUSSIAN MARKET SHARE $11 , 869 m MMK GROUP’S TOTAL REVE NUE Stee l supplier in the Russian mark et Producer of premium products in Russia Steel supplier for the automotive industry in Russia Supplier of galvanised and polymer coated steel in Russia WE OPERATE ACROSS THREE BUSINES S SEGMENTS, IN RUSS IA AND TURKEY Steel segment R ussia focusing on th e Russian and FSU m arket. Steel segment Tu rkey meeti ng demands of th e Middl e East, European and Asian markets. Coal mining segme nt meeti ng the i nternal needs of th e steelmaki ng busi ness. Coking coal concentrate produc ed from our Kemerovo mi nes is used i n Magni togorsk for the production of coke used i n steelmaki ng . 16.9% 12.7% 10.0% 4.9% 55.5% Market share by compan y i n Russia ММК Peer A Peer B Peer C Other 89.7% 10.0% 0.3% Revenue by segment Steel segment Russia Steel segment Turkey Coal mining segment MMK INTEGRATED ANNUAL REPORT 8 WE INTEGRATE SUS TAINABILITY IN OUR S TRATEGY AND OP ERATIONS LTIFR t CO 2 e / t of c rude steel the Group’s invest ments in local development and philanthropy 2 0. 62 1.95 $16 .3m Core SDGs: Read about our pu rpose, values and cultu re on page 19. MMK’S PRIME GEOGRAPH ICAL LOCAT ION MEA NS I T IS I DEALLY-PLACED T O SUPPLY ITS PRO DUCTS TO T HE REGIONS OF RUSS IA AND FSU WHERE LEVELS OF METAL CONS UMPTION ARE HIGHES T 12 . 480 mt GROUP’S TOTAL S ALES 9. 041 mt GROUP’S DOME STIC SAL ES 3. 438 mt GROUP’S EXPO RT SALES 34567 2 The I ndirect economic impact and Local co mmunities indicators are aggregated because a separate accountin g methodology for these indicat ors is under development. 3 Hereinafter is calculated as th e share of sales in tonnes. 4 Dom estic mar kets in clude Russian and FSU ma rkets t hat are geographically close to t he main production site in M agnitogorsk . 5 Including Steel s egment Turk ey sales. 6 Ukraine, Geo rgia, Armenia, Azerbaijan, Tur kmenistan, Taji kistan, K yrgyzstan, Moldo va. 7 Central and Lati n America, N orth America, Australia. 41% 23% 19% 9% 8% Group export sales by region Middle East Europe Asia Africa Other 62% 10% 28% Group sales structure Domestic ( Russia) Domestic ( FSU) Exports 4 86% 5% 4% 2% 3% Group domestic sales by coun tries Russia Uzbekistan Kazakhstan Belarus Other FS U 5 5 6 7 8 MMK INTEGRATED ANNUAL REPORT 9 OUR INVESTMEN T CASE In a w orld i n whi ch progress rel ies heavi ly on the suppl y of qual ity steel products, MMK p resents unrivall ed potenti al for sustai nable growth in the steel se ctor. Buil ding on i ts l ong -establi shed h eritage, the Company is able t o benefit from a wealt h of opp ortuni ties by maki ng the most of i ts geograph ical and geologi cal advant ages to produce worl d -leading steel pr oducts. COMMON FEATURES 1. Prudent capit al allocati on: Investment projects IRR >20%; More than 100% of fr ee cash flow di vidend payout. 2. Low cost profil e: 1st quartile on the gl obal cost curve. UNCOMMON FE ATURES 3. One of the hi ghest TSR: MMK i s one of t he leaders am ong Rus sian an d world steel compan ies, wit h a 129% TSR generated ove r the past five years (2017 – 2021). 4. Lowest debt burd en: Strongest balan ce sheet in th e sector. Our l ong- term obj ective i s to ensure that the Group’s Net Debt/EBITDA ratio i s no more than 1.0x. Financi al stabili ty remain s a key f ocus for the Group. MMK’s debt leverage remai ns among the industry’s lowest at -0.0 9x Net Debt/ EBITDA as of the end of the 2021 fin ancial year (2020 : -0.06x). Credit ratin gs at or higher than the sover eign ratin g 8 : BBB Standard & Poo r’ s Baa2 Moody ’ s BBB Fitch RARE FEATURES 5. Unique market exposur e: More than 80% of our products are sold i n the domestic market: R ussia and Form er Soviet Union (FSU). The Russian regions where MMK’s customers are based acc ount for over 45% of al l steel consumed in Russia. 6. ММК i s best positi oned for potential u pside as a result of the i mplementat ion of the National Projects ini tiative: When domesti c steel volumes ri se by 10 %, EBITDA c ould i ncrease by 27%; when domestic ste el prices rise by 10 %, EBITDA could increase by 9% 9 . 7. Uni que high-q uality product portfol io: 42% of products sol d are pr emium product s. 8. Unparall eled access to raw materi al base: The forecast ed cool ing of i ron ore prices should support be tter MMK e arni ngs momentum vs p eers in the mid -term. 8 As of 31.12.2 021. 9 Source: J.P . Morgan estimate s. MMK INTEGRATED ANNUAL REPORT 10 BUSINESS MODEL MMK brings together a range of processes to form a cohesive, effective operations : innovative approach to production methods and utilisation of raw materials, culture of operatio nal excellence and digital innovations to drive sustainable growth. CAPITALS VALUE CREATION DRIVEN BY EFFICIENT CORPORATE GOVERNANCE OUTPUTS SSSSSSSSS OUTCOMES FINANCIAL - Net Debt : – $393m - Net Worth: $6,330 m - CAPEX: $1,132m Our purpose MMK aims to produ ce and deli ver premium qu alit y steel products in a way that generates value for stakehol ders, improves the qual i ty of life of our employees and the peopl e whose communiti es are affected by our operati ons and allows our cust omers, and th e world, to benefit from the power and strength of steel . Governance > pages 1 00 -126 Our strategic obj ectives: To be the best suppl ier To be a leader in op erati onal excell ence To be responsibl e, sustai nable busin ess (ESG) Strategy > pages 21 -22 Pig iron production 10.4 mt Crude steel production 13 .6 mt Total sales 12 .5 mt Premium products sales 5.2 mt Total air emissions 12 187. 1 ths ton nes FINANCIAL ↑ TSR: 45.0%, +24. 7 p.p . y-o -y → EBITDA: $4, 290m, +188% y-o-y → FCF: $1, 613m, +190% y-o -y ↓ Slab cash-cost: $400 per t onne , +49% y-o-y Stakeholders im pacted : investors, employees, sup pliers and cont ractors MANUFACTURED - Pig iron (8 blast furnace s): 10 mtpa - Crude steel (3 BOF s ): 10 mtpa - Crude steel (2 EA Fs и 1 DHF ): 6 mtpa Our sustainable v alue chain- enabled b y smart capit al allocation and pr udent risk m anagement MANUFACTURED ↑ Crude steel ca pacity util isation rate (BOF ): 97%, +2 p.p. y-o-y ↑ Crude steel ca pacity util isation rate (EAF ): 89%, +28 p. p. y-o-y Stakeholders im pacted: em ployees, customers Raw materials > pages 45- 47 We use our own iron ore and coal in our product ion Self-sufficiency Production > pages 47 - 51 We are a produce r that carries out every aspe ct of steelmaki ng process Pig iron 10 mt pa output from our eight blast furnaces Crude steel 10 mt pa output from our basic oxygen furnaces (BOF) 6 mt pa output from our electric arc furnaces (EAF) and double-hearth furnace (DHF) Products > pages 51- 55 We produce flat and long prod ucts and focus on premium products Premium product share 10 - 42% Customers > pages 83- 86 We serve the needs of various industries to enable economic growth Industries - Construction - Energy - Automotive - Transport (machin e building , ships , railcars) - Infrastructu re (railways , bridges, guard rails , ETLs and etc.) - Packaging - House hold applia nces Markets Domestic market sales 72% of our sales a re made within the domestic ma rket (Russia and FSU countries) Exports 28% of our sale s are to export ma rkets (Asia , Middle East, Af rica, etc.) INTELLECTUAL - Collaborations (Tech nical Institu tes): 30 - Patents filed: 2 - R&D spend : $5 . 5m INTELLECTUAL ↑ Product innovat ion: 961 ths tonnes , +61.5% y-o-y ↓ Patents grante d: 2, -50% y-o-y Stakeholders im pacted: em ployees, customers HUMAN - Employees : over 53 th ousand - Investment in emplo yee training an d development: $13.7m - 67 ,80 8 person-cours es taken by th e group’s employ ees as pa rt of their training programmes - 44,633 empl oyees completed pre-shift briefing HUMAN → LTIFR: 0.6 2, – 6.1% y-o- y ↑ LTISR: 23. 20, – 1.9% y-o-y ↑ Employee enga gement: 77. 3%, +9 p.p. y-o-y Stakeholders im pacted: empl oyees NATURAL - Capital spend on the environ ment: $186m - Energy intensity: 21.81 GJ/t of crude steel NATURAL ↑ Specific GHG emissions 12 : 1.95 tCO 2 e / t of crude steel , Scope 1+2, – 10 .6% y-o-y ↑ Solid waste utilisation: 14,474. 2 ths tonnes , -1.7% y-o-y ↑ Dust emission int ensity 11 : 1.1 kg / t of crude steel , – 23% y-o-y ↑ Specific air emi ssions 12 : 14. 1 kg / t of crude steel , – 8.0% y-o-y ↑ Total sites co vered under re cultivation management plans 12 : 28 . 5 ha , +38. 6% y-o-y Stakeholders im pacted : local communities SOCIAL AND REL ATIONSHIP - Own sales distribution net work uni ts: 50 - Active supplier base: 2,440 - Investments in local development an d philanthropy: $ 16.3m SOCIAL AND REL ATIONSHIP ↑ OTIF: 72%, +8 p.p. → Savings resu lting from sup ply and procurement st rategies: $7.5 m , +25% y-o-y ↑ Assistance p rovided to 54 schools ↑ Assistance p rovided to 20 , 451 pensioner s Stakeholders im pacted: suppl iers, customers , gove rnment bodies , local communities 10 Hereinafter is calculated as th e share of sales in tonnes. 11 Company data. 65% 40% 17% 75% Scrap Coal concentrate Iron ore Electricity 42% 47% 11% Product portfolio Premium products Hot-rolled products Long and semis ↑ Value creation → Value preser vation ↓ Value erosion To learn more about the production process > page 44 MMK INTEGRATED ANNUAL REPORT 11 A CONFIDENT OUTLOOK ENSURES OUR ABILITY TO CREATE VALUE IN THE FUTURE > PAGES 21 - 22, 27- 28 MMK INTEGRATED ANNUAL REPORT 12 CHAIRMAN’S STATE MENT CHAIRMAN VICTOR RASHNIKOV « Dear colleagues, inv estors and partn ers! At the t ime of this Integrated Annu al Report, ongoing foreign p olicy tensions have intensified as a result o f development s in Uk raine, creating a wide range of uncertainty in both the commodit y and financial markets. Today , w e a re all going through challengi ng times, and I am sure we want a speed y, pea ceful resolution to the current situation. The full nature and pot ential consequences of th e imposed sanctions and rest rictions on b usiness activity are impossible to assess at the mom ent. Nevertheless, we a re taking all necessary measures to ensure the sustai nability of MMK G roup's operations an d continue to work as usu al, flexibly adap ting to new circumstances. Despite the challenges form ed after the r eporting date, I am pl eased to report that the Comp any achieved record produ ction and financial performance in 2021. The MMK team’s outstanding professionalism , ambitions and focus on driving further growth, our long -standin g traditions and self-confi dence al l combine to enable us to achieve our targets and thriv e in challengin g times. Commitment to sustainable deve lopment Steel is i ncreasingl y important i n the m odern worl d. Metal products s uch as steel h ave the hi ghest strength- to -weigh t ratio of any b uil ding material and can be fully recycled many times over. The performance of st eel i s constan tly evol ving and improvi ng, and almost every key i ndustry depend s on it. We are determi ned to harn ess the p ower and st rength of steel for the benefit of our customers an d f or th e w orld; this is what drives our su stainabili ty prog rammes. We ar e not m erely following trends o n the global agenda; fo r MMK, sust ainabili ty factors ( ESG) a re in tegrated th roughout our busi ness. They d rive t he Gr oup’s st rategy to improve the Company’s environmental performance, social responsibili ty and transparency of i ts corporate gove rnance. We ar e gu ided by best practi ces in th is matter. MMK was th e first Ru ssian company t o i nclu de in its R eport di rect, i ndirect and other g reenhouse gas emi ssions verifi ed by BSI Assurance UK Ltd. The R eport also refl ects the Gro up’s contrib ution to the Su stainabl e Develop ment Goal s adopt ed b y the UN. We are incr easing our focus on thi s area, wi th t he Group’s n ewly u pdated strat egy ai ming to r educe i ts CO 2 emissions per tonne of crude steel to th e gl obal average – and even beyond – by 2025. We will achieve this through e nergy effici ency improvements and further upgrades to our produ ction facili ties. We ar e c ontin uously red uci ng producti on emi ssions. W e have carri ed out thi s work n on-stop for 20 y ears, since long b efore th e conc ept of ES G had been thought of. Than ks to our use o f the best avail able technology, we have al ready surpassed global benchmarks in terms of ni trogen ox i de and sulphur di oxide emi ssions. MMK’s level of d ust emissions in 2021 i s hi gher than the ind ustry average , bu t we are worki ng hard to redu ce this; over the past five y ears, we have h alved our dust emissions and have set ourselves new ambi tious goal s for 2025. Focus on shareh older interests MMK remai ns commit ted to its key st rategic g oal of generati ng high total shareholder return. We do so than ks to a robu st capi tal allocation poli cy whi ch provides f or two key a reas: i nvestment i n d evelopment an d a s trong divi dend poli cy. First, we make investme nts in de velopment (including green i nvestment s) to i ncrease economic efficiency, i ncrease pr oduction vol umes, expand the product l ine and reduce environmental imp act. These i nvestments a re central to the st rat egi c goal we set i n MMK INTEGRATED ANNUAL REPORT 13 2019 as part of our 2025 Strategy . W e expect t hat the ach ievement of this goal will have a positi ve effect on the Company 's valu e creation. MMK people are c rucial for our succ ess The last couple of years h ave been extremely chal lenging and I want to thank every one of our empl oyees, from the B oard to th e shop fl oor, for th eir dedicati on, skill and hard work that has hel ped us to succeed as we have. In parti cul ar, I woul d like to pay tribut e to the management of the Company for the way they responded to the global economic shock caus ed by the coronavirus pandemic, fi rstly in overcoming the ini tial crisis and th en minimi sing its effect. Our heritage is th e foundation of o ur future This year, 2022, our Comp any i s celebrati ng its 90th anni versary. Throu ghout its almost century- l ong hi story, MMK has been a recognised l eader of Russia’s metal s industry and one of the l argest metal producers in the world. The past gives us much to c elebrate and , th anks to moderni sation and digit al operations, advan ced technology and promisi ng investment projects, we have co ntinui ng confidence in th e future. Our future is built on 90 years of history and MMK is well placed to continue to go from str ength to strength. We aim t o b e the best supplier in o ur market, a leader in operation al excellence and a responsible, sustainable business. This strategy has p roved successful and, as w e enter our t enth decade, we are a str ong, modern Compan y, fit t o continue as one of the world’s leading producers of metal . » MMK INTEGRATED ANNUAL REPORT 14 CEO’S STATEMENT CHIEF EXECUT IVE OFFICER PAVEL SHILYAEV « Dear shareholders, coll eagues and pa rtners ! The coronavirus pan demic has proven a maj or challenge f or both the global economy and the metals industry which had to operate in an extremely uncertain an d highl y volatile environment. Nevertheless, as early as in 2021, we not only managed to return t o pre-pandemic sales l evels but even surpa ssed t hem by a significant margin, having increased shipment volumes to over 12 million tonnes for the first time since 2007 . Positive market dynami cs an d th e g lobal economic recov ery enabled us to deliver record performan ce ac ross key performanc e metrics. As demand picked u p in our key markets, th e launch of Hot - Rolling Mill 2500 and reversing Cold -Rollin g Mill 1700 following i ts upgrade d rove an incr ease in sal es volume s by 16%, or 1.7 million tonnes of metal product s, compared to 2020 . The robu st sale s gr owth h ad a positive impact on our bottom line, wit h revenu e, n et pro fit, and free cash flow up sign ificantly. EBITDA increased 2.9 ti mes while EBITDA margin reached 36.1% . Investing act ivities We i nvest i n l ine with our vi sion for a sus tain able fut ure for all stakehol ders. MMK G roup’s current S trategy 2025 allows for fund amental upgrades to t he fi rst processing stag es to fu rther reduce p roduction costs, improve p roduct quali ty, and miti gate our envi ronmental i mpact even furth er. We are e xpl oring options t o r educe our carb on footprint together wi th our partne rs, such as usi ng synthesis gas (SYNGAS) to fuel our bl ast furnac es. Thi s technol ogy wi ll reduce our CO 2 emi ssions by a further 600,000 tonnes per year. We h ave mad e progress on a majo r i nvestment p roject to construct Coke-Ov en Battery No. 12 with an annual capacity o f 2.5 million tonnes of dry coke. The fac ili ty’s constructi on c ost is $755 mi lli on. Commissioni ng o f pha se one of Cok e - Oven Battery No. 12 is schedul ed for 2022 . In 20 21, we compl eted the upgrad e of C old -Rollin g Mill 1700 at Rolli ng Shop No. 5 which further str engthened its posit ion i n t he mark et for high -quality rolled products for the autom oti ve industry. MMK an d Pau l Wurth signed a contract last year for the construction of Blast Furnace No. 11. The i nvestment i nto t he project are expected at $1 ,075 milli on. The cutting edge b last furnace wi ll h ave a workin g vol ume of 3,800 cubi c metr es and an annual capacit y of 3 .7 milli on t onnes of pig iron. Th e c onstruction o f Bl ast Furnace No. 11 wi ll be a b reakthroug h for bl ast furnace produ ction at MMK, enabli ng the reti rement of three operati ng furnaces and signi ficantly i mproving the economi c and environmental performa nce of producti on facili ties. Environmental effo rts MMK’s development strategy prioritises building a co mfortabl e, healthy and enablin g envi ronment for people across the Group’s operating regions. We pay particular attention to our envi ronmental progr ammes, wh ich are an integral part of our ESG in itiatives. They use the b est avai lable t echnologies, mod ernise producti on, build the most advanced environmental faciliti es and highly eff ici ent pro ducti on complexes an d reti re outd ated facili ties. By 2025, we will reduce ou r c omprehensive air polluti on index to 5 (consistent with the Clean City concept), and the l evel of greenhouse g as emissi ons at MMK will drop to 1 .8 tonn es of C O₂ -equi valent per tonn e of steel (bel ow the global average). MMK INTEGRATED ANNUAL REPORT 15 Digital innovation To faci litate gain s in operational and functional effici ency, MMK has adopted a Digit alisation Strategy th at reflects gl obal technol ogical trends an d covers al most all functional areas across t he Company’s bu siness. The current po rtfolio span s to 2025 and contai ns ab out 200 d igital i nitiatives. S ome exampl e in novative sol utions in clude data analytics, di gital twins of producti on units and facili ties, Industrial Internet of Thing s, development of cl oud servi ces, us e of robots and unmanned sol utions, and higher mobility of technology. The implementation of these digital initi atives will drive EBITDA in crease by $30 mill ion by 2025. Social strategy Amid t he COVID-19 pandemi c, employee h ealth an d safety remains our top priority. A hard-hi tting awar eness campai gn has dri ven th e vac cinati on rate am ong employees t o 90% at year-end 2021. We focuse d on i mproving the occupat ional safety cultu re whil e conti nuously tackling the root c auses of acci dents, an d th is was refl ected in a decrease i n the LTIFR by 6.1% in 2021 to 0.62 y-o-y . Our target is a LTIFR of 0.45 by 2025. At the same time, support for local communiti es h as traditionall y been high on the C ompany’s agenda. MMK i s activel y i nvolved i n building up the i nfrastructu re i n Magnit ogorsk and adjacent areas, i ncl udi ng cultural and sports fa cili ties, and supports civil society groups and educational instit utions. I n addition, MMK provides assi stance to veterans, peopl e with di sabilities, l arge families, and oth er low -i ncome groups . MMK pays particul ar attention to t he implementati on of social programmes for its employees. MMK’s Social Policy i dentifies 11 supp ort channels for Company employees. S ocial b enefits and guarantees set out i n the collective bargaini ng agreement and th e annu al expansion of the b enefi ts packa g e are addi tional incenti ves for employees. MMK ensures consistent sal ary increases; since 1 July 2021, MMK Group c ompanies have r aised employee wag e rat es by 6 .5%. MMK st rives to meet the highest standa rds in protecti ng and promoti ng human rig hts across i ts operati ng regions. Developing cor porate culture In 2021, MMK was t he fi rst Russian company t o receive a g old accredi tation from Investors i n Peop le, a prestig ious international standard t hat evaluates t he quality of HR manage ment. We can onl y benefit f rom unl ocking the full creative potential of our w orkforce and maxi mising employee engagement. Theref ore, we pay particular attention to provid ing employee t rainin g a nd driving i nnovation and inventi on. MMK’s employee suggesti on scheme, developed i n -house, has prov en effective, as evi denced by the annual imp rovements i n th e number an d quali ty of proposals submi tted, as wel l as by sho rter implementati on ti melines. In 2021, M MK’s innovati ons won s everal gold medals at in ternational inventi on comp etitions in Moscow and Tai pei. Driving for succe ss together I am particularl y grateful to MMK Group employees for their dedi cation, integrity and i nitiati ve. Our strong performa nce in 2021 is the result of hi ghly professional and efficient wo rk of the enti re tea m, eve ryone’s determinat ion t o move forward i n search of new sol uti ons deli vering economic and technol ogical benefits. I would also like t o th ank our shar eholders, i nvestors and pa rtners for t heir t rust i n MMK and thei r commitment to devel opin g our relations . MMK INTEGRATED ANNUAL REPORT 16 As the Chairman not ed above, we live i n a time of unprecedented geopolitical and econ omic challenges. We h ave fa ced the chal lenges of the times more than once - changes in mark et conditions, r estrictions and crises. We a re pre pared for t hem an d know how to w ork in a changi ng environm ent. I am confid ent that joint efforts wi ll not o nly enable u s to consolid ate our pr evious achievements but also reach new heights in th e futu re. » MMK INTEGRATED ANNUAL REPORT 17 HOW WE MAKE STR ATEGIC DECISIONS Despite its compl exity, the deci sion- making process at MMK is neverthel ess tran sparent and suffici ently cl ear to all ow us to reach timel y i nformed deci sions in support of our key strategi c goal - an increase i n total sharehol der return. The entire process c omprises thre e mai n steps: 1. Exploration and analysis We perform STEP an d SWOT anal ysis as well as a ctivel y engage wi th our stakeholders t o understand whi ch internal and external factors have a si gnificant impact on our abili ty to create valu e in the short, mediu m and long term. We analyse in vestor and analyst enqui ries, reports from other companies i n the industry, enquiri es from lo cal communities and our custom ers, and questions received by the Boa rd of Direct ors. Read more – pag es 29 -33 We are continuall y analysing t rends th at wil l have a maj or imp act on the development of t he steel i ndustry i n the future. MMK h as a syst em i n pl ace to moni tor changes in the e xternal environment, new technologi es and new customer requirements. This means we can react flexibly and adapt qui ckly to new condi tions in the i ndustry. Read more – pag es 27-28 Risk-in formed thi nking, i ntegrated i nto our man agement through our risk management system, helps us anti cipate and prevent adv erse outcomes at the same ti me as capit alising on opportun ities. Read more – pag es 91 - 99 2. Active strategy d evelopment and act ualisation Stakeholder feedback, received through a variety of communi cation channel s, helps us identify material topics whi ch, togethe r wi th the i denti fied ri sks, observed mar ket t rends an d oth er factors, form the basi s of our strategy and subsequentl y help us impl ement it consci ously. The Company’s t en -year strategy i s develop ed wi thin the long -term pl annin g process framewo rk with the direct parti cipati on of the CEO, top management and i ndependent membe rs of the B oard of Directors. The st rategy is appr oved by the Boar d of Directors. Every fi ve years, t he l ong -term strategy is reviewed and u pdated. Th e responsi bl e divisi ons annually revi se the mai n provi sions and prerequi sites of t he current strat egy. In the event of si gnificant changes in th e external envi ronment, an earl y review of the st rategy may be initi ated. In 2015, MMK's Board of Di rectors approved the MMK Group's Strat egy to 2025 . In 2020, wi thi n the framework of t he current strategy, the Comp any's strategic priori ties were updated and a focus was pl aced on the active i mplementati on of s ustai nable development pri ncipl es in all areas of the Company's operati ons. Our 2025 strateg y is to drive valu e through sus tai nable growth, deli vering strong p erformance in all aspects of the busin ess. Our goal i s to be the best sup plier to al l our customers by offerin g an optimal product portfoli o and operati ng accordi ng to a continuall y developin g customer -ori ented busi ness model . We stri ve to become an indu stry leader i n operational efficiency, always keepi ng in mind the need to pay cl ose attentio n to sustai nability. We co nti nue to devel op and i mplement d igit alisation in a ll ar eas of our busin ess. Read more – pag es 21 -22 3. Strategy execution and contro l Our approach to capi tal al locati on is d riven by our strat egic ai m to be the b est provi der and leader in both sustainability (E SG) and operational e fficiency: we de cide where t o focus our r esources, guided by our commitment to buil ding a sustainable future. This prioritisati on, in turn, is based on the MMK INTEGRATED ANNUAL REPORT 18 Group's l ong-stan ding reputati on for produci ng qua lity steel products th at make the most of the n atural advantages of our ge ographi c locati on. Read more – pag es 35-37 The B oard of Di rectors and Management Board oversee the imp lementation of the strategy. We measure our performance usi ng a wid e range of key performanc e indicators (KPIs), whi ch are ali gned to the objecti ves of ou r strategy. Every yea r, as part of our executive compensation system, the Company approves company -wi de KPIs. KPIs all ow us to set out in detail our pl ans to ach ieve company-wi de goal s, an d moti vate managers to work on problem areas in their areas of responsi bility. Read more – pag es 23-26 TRADE- OFFS In t he process of making strategic decisi ons focused on long -term val ue creation, we are inevitabl y faced wi th chall enges that requi re comp lex trad e-off decisi ons. The need to make t rade -off decisions mo st often man ifests it self between capit als or components of capital, betwe en differen t time horizons, and between capital s owned by the organi zation and capital s owned by others or owned by none. The most sig nificant trade- offs made in 2021: Capital Trade- off Financi al Focus on sustai nable and organi c growth wi thout the need for c ostly corporat e activiti es, in particul ar mergers and acqui sitions (in iron ore) and di vestitures (in coking coal ) in the raw material s sector Manufactured Restart of steel pr oduction acti vities at the Steel Turk ey segment Intellectual Investments in R&D and di gital technol ogies to reach a new l evel of production organ izati on and consumer value creati on Natural Investments in developm ent in 202 2-2025 in creased by 30% to $1.25 bi llion on the back of si gnificant envi ronmental investments to mi tigate any a dverse environmental impacts on ou r employees and communi ties Human - Fundin g programs and proj ects related to COV ID-19 to k eep employee s healthy an d maintain continuous operations - Investing i n traini ng and development to m eet our goal s of increasing productivi ty and develop ing a cul ture of opportuni ty Social and relationshi p Investments in creati ng a comfortable envir onment in the regions of presence to strengthen and mai ntai n the Company's reput ation MMK INTEGRATED ANNUAL REPORT 19 FOCUS AREAS FOR T HE BOARD IN 2021 Focus areas Matters reviewed Strategy 20 25 execution - Explored options to strengthen the C ompany’s p osition in priority ma rkets, in parti cular in Russia’s automoti ve industry - Agreed to furth er improve the product port folio - Explored options to improve o perational and functional effici ency - Explored options to improve procu rement and su pply chain ma nagement - Approved the pilla rs of the MMK Group’s Strate gy 2025 - Reviewed the ke y performanc e indicators in 2020 - Approved the 2 020 Report o f the Board o f Directors on the Results of MMK’s Priority Activities - Reviewed the result s of digital project s Stakeholders - Reviewed the resu lts of invest or relations activit ies in 2020 - Approved the MMK Group’ s priority HR initi atives for 2021 - Approved MMK’s organisation al structure - Approved the Excha nge-Trade d Bonds Prog ramme - Recommended di vidends for F Y 2020, Q1 2021, 1H 2021, and 9M 2021 - Pre-approved the 2020 Integr ated Annual Repo rt - Reviewed the resu lts of the en vironmental programme Risks - Reviewed the effe ctiveness of MMK’s integrated ris k managemen t system in 2 020 - Reviewed the effe ctiveness of the internal control system in 2020 - Approved the MMK Group’s ris k appetite stat ement - Reviewed cybersecu rity issues Performance of the Board of Directors - Reviewed the results of an ext ernal performanc e evaluati on of MMK’s Boa rd of Directors, Board members and Boar d committees in 2020 - Determined the amount o f remuneration and compen sation paid to Board mem bers during their te rm of office in 202 1 – 2022 - Approved th e Corporate Gov ernance Imp rovement Pro gramme up to 2024 - Reviewed re quirements fo r nominees to th e Board of Directors and assessment criteria - Proposed to consider a pe rformance self - evaluat ion exercise for MM K’s Board of Directors, Boar d members an d Board committees in 2021 BOARD FOCUS AR EAS IN 2022: - Strategy 2025 execut ion - Stakeholders - Risks - Environment - Performance of th e Board of Directo rs MMK INTEGRATED ANNUAL REPORT 20 STRATEGIC FRAME WORK Our Purpose MMK aims to produce and deliver premium quali ty steel products in a way that generates value for stakeholders, improves the qualit y of life of our employees and the peo ple whose communi ties are affected by our operati ons and all ows our cust omers, and the worl d, to benefit from the power and strength of steel . Our vision The MMK Group is a highly e fficient Russian metals producer th at focuses on me eting the n eeds of our cust omers an d adh eres t o th e best p racti ces f or occupati onal healt h and envi ronmental safet y and ensures the ret ention of professi onal, proact i ve and moti vated personnel. Our strategy Is to drive val ue through sustai nable growth, deli vering qu ality in all aspects of the business . The MMK Group focus es on the foll owing core and re levant SD Gs to pr ovide a meani ngful contributi on: 8. Prom ote in clusive and sustain able economic growth, employment and decent work for all 9. Bu ild resili ent infrastructure, promot e sustain able indu strialisati on and foster innovati on 12. Ensure sustai nabl e consumpti on and producti on patterns 13. Take urgent acti on to combat cli mate change and i ts impacts MMK INTEGRATED ANNUAL REPORT 21 Our culture and values The corporate cultu re of MMK is the basi s for achi eving busi ness success and i s cl osely aligned to the Comp any’s st rategy. MMK contribut es to i mprovin g peopl e’s quality of li fe and cre atin g n ew opportuni ties in th e region where i t operates. Ever -gr eater sust ainabi lity i s facili tated by an effective corporate governan ce system to buil d trust with stakeh olders. Our values: - Partn ership app roach to our custo mers - Con tinu ous improvement across all business lin es - Con tinu al development of our p eople, c reation of opportuni ties for personal and prof essional fulfilment - Sa fety at work - R espect for the envi ronment; soci al and envi ronmental responsibili ty. MMK INTEGRATED ANNUAL REPORT 22 STRATEGY Our strategic goa l is to achieve $1 billion E BITDA growth by 2025 by implement ing o ur portfo lio of strategic initiati ves. 12 In comparison with 2019. 13 OTIF (On Time In Full) meas ures delivery timel iness and c ompleteness. Focus area Strategic initi atives Levers Linked capitals Linked risks 2021 2022 targ ets 2025 targ ets Targets Results 12 Status To be the be st supplier 1. Superior pr oduct portfolio Building a superi or product portf olio with a focus on highe r margins through expanding premiu m product range s and improving the se rvice offering Increasing the sha re of high-margin p roducts in the product portf olio Developing custome r services Digitalisation Financial Intellectual Social and relationship Production Market Financial Economic security Be a leader in sales in the Russian market Have the larg est share of premium pro ducts in the Russian market Increase the output of th e most in-deman d innovative products Incremental EB ITDA of $2 6m 16.9% – MMK’s market sha re in sales of steel products, the largest in Russia MMK has the lar gest share o f sales to th e automotive in dustry, coverin g over 50% of the demand, and is the sole supplier for th e production o f AURUS cars 4mt incrementa l premium pro ducts sales – growth of almost 2% by 2 020 72 innovat ive products weighing a t otal of 961 ths tonne s produced an d shipped to the market Target met Target met Target met Target met Be a leader in sales in the Russian market Have the larg est share of sale s to the automotive industry Increase premium products sa les Increase the output of th e most in -demand innovativ e product s EBITDA grow th +$350m 2. Customer focus Customer focu s with continuous improvement o f customer ser vice and developing sales through tradin g houses and digital channels 70% – supply discipline (OTIF) 13 Develop sales chan nels through own distribution network Launch and d evelop MMK Marketplace Implement a CRM system Construction o f a logistics centre Incremental EB ITDA of $1 5m 72% – su pply discipline (OT IF) 15% – sh are of sales through own distribution netw ork Launch of MM K Marketplace: - Over 300 new customers every month ; - 2/3 of custome rs are en d users Proportion of end users in the total nu mber of own distributi on network cu stomers : 76.7% Two standalone units set up a nd two warehouses o pened Launch of th e retail sales p roject: two outlets opened Implementati on of a CRM sy stem: stage 1 completed The project has been implem ented Target met Target met Target met Target met Target met Target met Target met Target met Improve su pply discipline (OT IF) Develop sales chan nels throu gh own distribution net work Develop MMK Ma rketplace: – Attract third- party suppliers – Offer new banking produ cts and expand the pr oduct port folio Increase the share of sales t o end users Set up new un its within the Trading House Develop the reta il sales projec t Implement a CRM system Launch th e logistics centre EBITDA grow th +$60m MMK INTEGRATED ANNUAL REPORT 23 Note: Applied exchange rates for 2021: RUB 73.6 per $ (f or all metrics except for savings resulting from supply an d procurement str ateg ies); RUB 78.0 per $ (f or savings resulting from supply and procurement strategies). 14 Low-cost, high-impact investment projects. 15 CRU data. 16 Target not met due to delay s in equipmen t deliveries, d esign, and con struction and installati on caused by COVID-19 constrain ts. 17 Target not met because sin ce 2021 calcu lation covers injuries sustained by third parties at the MMK Group’s sites. 18 Comprehensiv e Air Pollution Index. To be a lead er in operational excellence 3. Leaders hip in production efficiency Excellence in production throu gh higher production volumes, upgrad es, and cost redu ction driven by the continuous improvement o f internal processes Organisational and technical measure s Energy management Baby CAPEX 14 Innovation and employ ee suggestions Digitalisation F inancial Manufactured Social and relationship Production Market Economic security Maintain th e position of a low-cost produce r on the global cost cur ve (HRC) Implement 19 Baby CAPEX projects with an economic benefit of $1 6.0m Leader in energ y efficiency: The MMK Group’ s energy intensity 21.81 GJ/t of st eel Incremental EB ITDA of $2 20m MMK remained in the Top 10 of the wo rld’s lowest-cost pr oducers 15 12 Baby CAPEX projects imple mented with an economic bene fit of $7.5 4m The MMK Group’ s energy in tensity 21.81 GJ/t of steel Target met Target not m et 16 Target met Remain in the Top 10 of the world’s lowest -cost producers Implement 21 Baby CAPE X projects with an economic be nefit of $12.4m Leader in energ y efficiency EBITDA grow th +$610m Boost BOF ste el output (+1 mt ) 4. Excellenc e in procuremen t and supply chain management Excellence in procurement an d supply chain management aligne d with global best practices and ensu ring the most efficien t material and ser vice procurement $5 m savings result ing from supply and procurem ent strategies Incremental EB ITDA of $9 m $7 .5m savings result ing from supply and procurement st rategies Target met Develop catego ry managemen t to cut costs EBITDA grow th +$20m To be a responsible, sustainable business (ESG) 5. Zero injuri es Digitalisation Automating sa fety systems Robotic process automation an d video analytics OHS supervisi on Creating a cult ure of engagement an d innovation Natural Human Social and relationship Production Sustaina bility 0. 57 – LTIFR Implement automa ted safet y systems 0. 62 – LTIFR Automated saf ety systems implemented in the coke sho p Target not m et 17 Ongoing 0. 56 – LTIFR Implement and develop automated system s in the coke, blast furnace, an d BOF sh ops Exclude employe es’ presence in high-risk areas Reduce LTI FR to 0.45 and fatalities to zero 6. Corpora te culture of opportuni ties Encourage emplo yees suggestions Increase emplo yee engagement b y 5% $8.2m economic bene fit from implem ented employee suggest ions 77.3% employee engagemen t Target met Target met Encourage emplo yees suggestions Increase emplo yee engageme nt Halve time- to -market for new products Manage enga gement 7. Continuo us improvemen t of environmenta l performanc e and reduction in C O 2 emissions 2. 00 specific CO 2 emissions (tonnes of CO 2 per ton ne of steel), Scope 1+2 1. 95 specific CO 2 emissions ( tonnes of CO 2 per tonne of steel) , Scope 1+2 Target met 1. 98 specific CO 2 emissions ( tonnes of CO 2 per tonne of steel), Scope 1+2 Reduce specific CO 2 emissions to 1.8 ton nes of CO 2 per tonne of steel Achieve full tran sparency of environmenta l data and disclose th em to all stakeholders Further impro ve CAPI 18 MMK INTEGRATED ANNUAL REPORT 24 KEY PERFORMANCE I NDICATORS Category KPI 2019 2020 2021 Financial performance * Total share holder return (TSR), % 17 .7 20 .3 45 .0 +24.7 p. p . year- on -year Link to strateg y To be the be st supplier To be a leader in operationa l excellence Measurement TSR calculati on reflects genera tion of sharehold er value thr ough share p rice appreciation and dividends paid ov er the repo rting period Performance overview TSR increased, driven by posit ive market cap dynamics and high dividend yield due to favourable ma rket conditions Associated capita l Financial * EBITDA, $m 1,797 1,492 4,290 x2,9 year- on -year Link to strateg y To be the be st supplier To be a leader in operationa l excellence Measurement EBITDA is calculat ed based on operating profit adjust ed for dep reciation and loss on disposal of property, plant and equi pment (PP E) (deducted), an d the share of the finan cial results of associates, inclu ding impairment of in vestments in asso ciates (added) Performance overview EBITDA hit a r ecord level due to favourable market con ditions, with EB ITDA margin up 12.8 p.p. year- on -year to 36.1 % Associated capita l Financial * Free cash fl ow, $m 883 557 1,613 x2,9 year- on -year Link to strateg y To be the be st supplier To be a leader in operationa l excellence Measurement Free cash flow is calculated as net cash from operating activ ities plus interest received an d proceeds from disposal of PPE and intangible assets, net of purchase of PPE and int angible assets (CAPEX) Performance overview FCF increased 2.9 times year- on -year, r eflecting higher sale s volumes an d metal prices Associated capita l Financial MMK INTEGRATED ANNUAL REPORT 25 Sales and market share * Sales volu mes , mt 11 .3 10 .8 12 . 5 +15.7 % year- on -year Link to strateg y To be the be st supplier Measurement The volume of metal products sold within the period Performance overview Growing demand fo r met al pr oducts in Rus sia and globally led to a 16% year- on -year inc rease in consolidated sales of the MMK Group metal pro ducts Associated capita l Manufactu red Social and relat ionship * OTIF 19 , % 54 64 72 +8 p. p . year- on -year Link to strateg y To be the be st supplier Measurement OTIF is calculated as th e number of or ders fulfilled on time in full in the sele cted period div ided by the total numb er of o rders Performance overview OTIF was up 8 p.p. year- on -y ear, confi rming the effectiveness of measures taken to increase the proportion of timely shipp ed orders as part of ef forts to improve customer experience Associated capita l Social and relat ionship Product inno vation 20 , ‘000t 799 595 961 +61.5 % year- on -year Link to strateg y To be the be st supplier Measurement The indicator is calculated as the total volume of products with additional characteristics and new types of products ma stered and ship ped to the market Performance overview The indicator increase d y ear- on -year on t he bac k of a general increa se in the volume of products shipped, as well as due to the expansion of opportun ities to meet customer demand for hot-dip galvan ised, heavy plates and billets Associated capita l Intellectual 19 The indicator co vers MMK onl y. 20 The indicator co vers MMK onl y. MMK INTEGRATED ANNUAL REPORT 26 Operational efficiency Slab cash co st , $/ t 305 269 400 +48.7 % year- on -year Link to strateg y To be a leader in operational excellence Measurement The slab cash cost is calculat ed by dividing costs 21 incurred in th e production pr ocess by th e volume of basic oxygen furna ce (BOF) steel output fo r the period Performance overview The slab cash cost increased 48.3% year- on -year, driven by significantly higher prices of iron ore (over 64 %), coal con centrate (over 80%), and s crap me tal (over 50%) Associated capita l Manufactu red Energy intensi ty , GJ/t of steel 22 . 52 21 . 88 21 . 81 – 0.3 % year- on -year Link to strateg y To be a leader in operationa l excellence Measurement The integrate d indicator is cal culated as th e difference betw een the MMK Gr oup’s total en ergy consumption an d energy gen eration/ut ilisation divided by M MK’s steel product ion Performance overview The 0.3% yea r- on -year re duction in ener gy intensity ac ross the MMK Group in 2021 was due to a 13% inc rease in steel pro duction and a 2.9% decrease in the share of pig iron in th e steelmaking cha rge, which ha s contributed to improving the energy efficienc y of the M MK Group Associated capita l Manufactu red * Savings res ulting from s upply and proc urement str ategies, $m 10 6 7.5 +25.0 % year- on -year Link to strateg y To be a leader in operationa l excellence Measurement Actual savings resulting from supply and procu rement strat egies Performance overview The savings were delivered by expanding the competitive landscape through engaging new suppliers, using corporate discounts an d purchasing identical products from different manufacturer s with more com petitive pricing Associated capita l Social and relati onship 21 Costs incurred in the product ion process include raw materi als (iron ore, pellets, c oking coal, ferr oalloys, scrap met al, and othe r materials), fuel and powe r, labour, re pairs and m aintenance of fixed assets, and other costs. MMK INTEGRATED ANNUAL REPORT 27 Sustainable development * LTIFR, ov er the past 12 months 0. 89 0. 66 0. 62 – 6.1 % year- on -year Link to strateg y To be a resp onsible, sustain able business (ESG) Measurement LTIFR is calculated as the nu mber of lost-time inju ries per mi llion of person-hours worked Performance overview LTIFR decreased year- on -year to 0.62, reflecting a decrease in the number of accidents. This reduction was due to the implementation of measures to imp rove safety cultu re around production and to eliminate the root causes of accid ents Associated capita l Human * Employe e engagement, % – 22 68 .3 77 .3 +9 p. p . year- on -year Link to strateg y To be a resp onsible, sustain able business (ESG) Measurement The indicator 23 is calculated as the averag e percentage of engagemen t at each unit , based on the scores given in answers to survey qu estions in focus group wor kshops Performance overview Employee engagement increased by 9 p.p. year - on -yea r, following remedial actions aimed at increasing job satisfa ction Associated capita l Human CO 2 (greenhous e gas emis sions), t CO 2 e/t of steel (S cope 1+2) Link to strateg y To be a responsible, sustainable busin ess (ESG) 2.13 2.18 1.95 – 10 .6% year- on -year Measurement GHG emissions are calculat ed according to the guidelines of the Russian Ministry o f Nat ural Resources and Environment a s per Order No. 300 dated 30 June 2015, as well as ISO 14 064- 1:2018 and ISO 14067:2 018. The calculat ion includes CO 2 emissions on ly Performance overview The reduction of specific greenhouse gas emissions is mainly due to increased production of electric steel and implementat ion of energy efficiency measures, which directly affects the amount of gre enhouse ga s emissions Associated capita l Social and relat ionship Natural Note : 1. * In dicators included i n MMK’s senior management incentive system. 2. Appli ed exchange rat es: 2020 – RUB 72.4/$; 2021 – RUB 73.6/$ (for al l KP Is except for savings result ing from supply and procurement strategies), RUB 78.0/$ (for savings resulting from supply and procurement strategies). 3. OTIF, product innovation and CO 2 (greenhouse gas emissions) cover MMK only. All other indicators are calculated for the MMK Group. 22 The indicator was not calculat ed in 2019. 23 The engagemen t level is cons idered average if its value ran ges between 5 0% and 80%, high if mo re than 80%, and low if less than 50%. MMK INTEGRATED ANNUAL REPORT 28 MARKET TRENDS Trend Long-term trend description MMK’s response/capabilities Links to capital Timeframe Decarbonisat ion Climate change is affecting no t only national policies but als o the long-term strat egies of co mpanies around t he world am id changing global ma rket patte rns. At the COP 26 summit held in Glasgow in No vember 2021, Russia announced its in tention to achieve carbon neutrality by 2 060; the Euro pean Parliament continues to w ork on its dra ft Carbon Borde r Adjustment Mechanism (CB AM) regulati on. The rapid rise of carbon capt ure and hydrogen technologies wil l help Russia st ay globally competitive We are aware of the scale of the chall enges facing the world in combatting clima te change. Cl ose to 60% o f development investments a re channelled toward s environment al projects. We harness the best avail able technologies to meet our targets of reducing C O 2 emissions to 1.8 tonnes pe r tonne of steel by 2025. The two ongoing landm ark projects – Co ke-Oven Battery No. 12 and Blast Fu rnace No. 11 – will help us redu ce our gross CO 2 emissions b y 2.8 million tonnes by 2025 and achieve our decar bonisation ta rgets – Natural – Social and relationship Long-term trend Green econom y Our customers are striving more and mo re to becom e CO 2 - neutral and a re considering th e entire life cycle of products. Concepts such as smart cities, smart buildin gs and zero- emission vehicles have becom e commonpla ce. Steelmakers th erefore nee d to develop innovativ e, unique, customised and high-quality premiu m products n ot only to make the pro cess of steel production as eco-friendly as pos sible, but also to pr ovide our cust omers with th ose products which support them in satisfying all the new environmental requirements At MMK we unde rstand tha t the weight o f products such as steel structu res and vehicles will continue to bec ome lighte r despite maint aining their stre ngth. That is why we focus on the development of new steel grades cha racterised by thei r light weight and strength. The new steel gra des we ha ve designed in response to emerging global trends – such as MAGSTRONG, cryogenic steels, and bimeta l grades – h ave already been warmly welcomed by indu stries embr acing the green transition, including renewables, LNG 24 transport an d others – Financial – Manufactu red – Intellectual – Natural – Human – Social and relationship Long-term trend Reuse of resour ces We live in a circula r economy era. Reuse and recycli ng are the key elements of the circular e conomy which hav e rapidly become the new normal. Steel is an integral part of t he circular econom y helping to bui ld a sustainable future. Besides being 1 00% recyclabl e itself, the process of steel production is b ecoming more a nd more efficient, driven by careful use an d recovery o f energy, water recirculation and the reuse of slag an d tailings in ot her industries We seek to ma ximise the reus e of all the resource s involved o r generated in ou r production fl ow. We reuse meta l-containing wa ste in production pr ocesses. Sludge and met al fines are us ed in the production of cemen t, while our blast fu rnace slag is used as a road fill material. Secondary gase s – blast furna ce and cok e gas – are invol ved in the product ion flow to heat slabs and billets or to generate electricity and steam. Water i s recirculated within the plant for cooling purposes; al most all t he water used in steelm aking is cleaned and eith er reused or r eturned to its source - Financial - Natural - Social and relationship Long-term trend 24 LNG stands f or liquefied natu ral gas. MMK INTEGRATED ANNUAL REPORT 29 COVID- 19 The COVID-19 pandemic has strongly affect ed global econ omic development. Lockdowns an d supply chain d isruptions have pushed inflation up globally an d continue to af fect busines ses around the world. The shortage of semiconduct ors has slowe d down the recov ery of the autom otive market. In recent years, the meta ls industry has seen a significan t market imbalan ce and rising p rices for raw mat erials and m etal products Despite the pan demic- induced challenges, Russia’s car outp ut grew 10 % y-o-y 25 in 2021, whic h, combined wit h our retentio n of a leading position in terms of deliveries in Russia , helped increase our sale s to the auto motive industry. By leveraging our cost opt imisation and BAT 26 implementation programmes, we were able t o stay in the T op 10 of t he worl d’s lowest-cost ste el producers (by cost of hot-rolled coils) - Human - Social and relationship Medium-term trend Geopolitics In 2022 ong oing foreign p olitical tension escalated, as a result of further de velopments in Ukraine, which may ha ve a nega tive impact on c ommodity and financial markets, and increased volatility, particula rly with regard to foreign excha nge rates and financial market s. There is an expectation of further sanct ions and limitati ons on business ac tivity of compan ies operating in respective region s, as well a s consequences on the econ omy in general, but th e full nature an d possible ef fects of these a re unknown Management is ta king the nec essary measur es to ensure the sustainabili ty of the Group's operations. How ever, the futu r e effects of the current econ omic situation are difficult to pre dict and managemen t's current expectations an d estimat es could differ from actu al results - Financial - Manu factured - Intellectual - Natural - Human - Social and relationship Long-term trend Digitalisation The rapid growth of new digit al technology en tering all aspects of the economy is integral to modern com petitive business. Digital technolo gy is embedde d in all processes that keep an enterprise runn ing, helping to create and un lock value for all stakeholders an d making the organisation mo re agile and efficient We aim for lea dership in tech nology and in novation in th e steel industry. Over the past six years, we ha ve develope d and implemented 1 5 digital projec ts for first-stage p rocess optimisation, p roduction man agement, sales/ procurement management, and product quality improvemen t. We have deployed a digita l Machine Lea rning platform to speed up projects and bo ost their per formance - Financial - Manu factured - Intellectual - Natural - Human - Social and relationship Long-term trend 25 Rosstat data. 26 BAT stands for best avail able technologies. MMK INTEGRATED ANNUAL REPORT 30 STAKEHOLDER ENGA GEME NT HEAD OF ESG YAROSLAVA VRUBEL « We ar e c ommitted t o th e concept of sustain ability, which i s an integral p art of the MMK Group's managem ent practic es. In 2021 , we continu ed to integra te sustainabil ity principles in to all aspe cts of the Group's operations, improving our app roach to ESG and striving to achieve the goals of the MMK Gr oup's Development Strategy to 2025. In the reporting period, we mad e sig nificant pr ogress toward meeting our economic, environm ental and social commit ments, implementing our plan ned activities, and streng thening open and trusting relationshi ps with our stakehold ers. An important p riority fo r us is to adhere to industry -leading ESG practic es and international stand ards. We strive t o contribu te to the achievement of the UN Su stainable D evelopment Goals and improve performanc e on key ESG issu es for th e MMK G roup. » The MMK Group recogn ises that th e g rowth and sustai nabilit y of it s b usiness depend on th e successful maintenance of open, long -term relationshi ps with its st akeholders. The MMK Group maint ains an open di alogue with its stakeholders and consi ders t hei r i nterests in its activiti es i n determini ng our future development , includi ng in the ESG sphere. In 20 21, the MMK Group continu ed t o actively engage wi th representati ves of all key stakehold er g roups. In particul ar, we surv eyed more than 400 p eople, incl uding MMK employees, management and ext ernal stakeholders, i n order to pri oritise mat erial topi cs for di sclosure of non - financi al i nformation in th e Group's Report. Mat erial topics are t hose th at ar e the most si gnificant for MMK and i ts subsidiari es' stakehol ders, as well as f or the Grou p in terms of its i mpact on thi s t opic. The resul ts were u sed t o compi le a mat eriali ty matri x, demonstrati ng th e level of mat erialit y of each of the 14 topi cs of econ omic, environm ental and social i mportance. Th e verti cal axi s shows the level of i mportance o f the t opic for external stakehold ers in terms of th e i nfl uence i t has on external stakehold ers i n thei r deci sion -making regarding th e MMK Group. Th e hori zontal axis shows the signi ficance of the topi c i n terms of its i mpact o n the MMK Group's activi ties , as well as the i mpact on the topic by the G roup. Considerin g the needs and expectations of stakeholders, the MMK Group strives to discl ose the most c omplete and reliable information possibl e on al l pri ority ES G ar eas, highli ghting t he key economic, envi ronment al, and social results and achi evements of the Group. The MMK Group acti vel y engages with stakeholders, taki ng into account th eir vi ews and interests. Und erstandi ng the val ues and n eeds of our stak eholders h elps u s buil d trust - based, open, and mu tually beneficial long -term relationshi ps. To identi fy stakeh older expectations and c oncerns, we use a wide range of feed back to ols, inclu ding contact wi th responsible persons and departments, social media, an d customer support cent re contacts . The Compan y hol ds a range of events and meetin gs in order to establ i sh and mai ntain an open dial ogue wit h stak eholders. Read m ore about t he B oar d’s engagement i n 2021 on pag e 107 . MMK INTEGRATED ANNUAL REPORT 31 MATERIAL TOP ICS MATR IX MATERIAL TOP ICS 1 Energy effici ency 8 Local communi ty devel opment 2 Biodi versity 9 Human right s 3 Waste management 10 Employee engagem ent 4 GHG emissi ons and climat e change 11 Corporate gove rnance 5 Air emissi ons 12 Anti -corruption and ethi cs 6 Water management 13 Suppl y chain 7 Occupati onal health and safety 14 Economic p erformance Energy efficiency Biodiversity Waste management GHG emissions and climate change Air emissions Water management Occupational health and safety Local community development Human rights Employee engagemen t Corporate governance Anti-corruption and ethics Supply chain Economic performance 3.50 3.70 3.90 4.10 4.30 4.50 4.70 3.50 3.70 3.90 4.10 4.30 4.50 4.70 Significance of the topic for stakeholders in terms of influence exerted by the topic on the assessment and decision -making rega rding the Group Significance of the topic for the Group in terms of the infulence the group has on it and its impact on the Gr oup’s activities MMK INTEGRATED ANNUAL REPORT 32 Stakeholders Material topics Stakeholder interests and expectations Engagement mechanisms and tools 2021 highlights Key 2021 engagement results Employees Capitals: - F inancial - Manufactured - I ntellectual - Human 7, 9, 10 − Compliance with the Labou r Code, Collective Bargaining Agreement, an d internal regulations an d policies − Decent wages and social benefits − Job retention − Career and developmen t opportunit ies − Safe working conditions and the environment − Ensuring occupational healt h and safety of production (operating) p rocesses − The My MMK corporate ap p − Employee sur veys − Social media − Security Direct or hotline, e-m ail, Ethics post offic e box − Ethics hotli ne, e-mail, Ethi cs post office box − Communicati ons about the activities of the Huma n Resources corporate trai ning centre − Skills contests t o identify th e best employees − Scientific and engineering conferences − Strategic Initiative Program me "Zero Injuries" − Ro llout of ad ditional communication cha nnels at the shop-floor level − Enhancement of all training programm es for the management ta lent pool run at the corpo rate training centre with se ctions on ESG, D&I, safety a wareness, ecology, and huma n rights − Implementati on of the automated "Sa fety Navigator" sy stem 67,808 person-c ourses of training were com pleted by M MK Group employee s 44,633 people had pre-shift briefings LTIFR decrea sed by 6% year- on -year 151 calls to th e Security Director hotlin e Investors Capitals: - F inancial 1, 3, 4, 5, 6, 7, 11, 12, 13, 14 − Sh are price growth an d stable dividend incom e − Fina ncial and operat ional performance − E fficient practices and high standard of co rporate governance and risk management, including sustainabili ty − Im plementation of MM K’s Development St rategy − P revention of envir onmental impact from projects − Im plementation and certification of th e OHS Management S ystem, EMS, and QMS to ISO standards − P reparing and pu blishing HSE reports − Social media, ne ws blogs, and events plan on the Company’ s website − Annual General Meetings − The STATUS On line page for shareholders on the Compan y’s website − Quarterly calls for disclosing of financial results und er IFRS − Site visits for in vestors and analysts − Annual Investo r Day − Non-deal roa dshows (opportunities f or investors t o meet the CEO and senior managem ent) − Participation in in dustry conferences f or investors − Engagement wit h bank analys ts, credit rating a gencies, and E SG analysts − In 2021, two transactions to sell 4.5% of shares by the majority shareholder we re made, with free float inc reased to 20.24% − MMK took part in 17 investor confe rences − Five non-deal roadshows hosted − 236 meetings and call s with investors h eld − On 23 - 24 September, analysts and investors visited MMK’s production facilities − The MMK Investor Da y – MMK Online was held on 7 December The aggregat e average daily trading volume of shares on the Moscow Exchan ge and Lond on Stock Exchan ge grew 2.2 tim es compared to 2020. MMK maint ained investment- grade credit rati ngs in 2021. Two investment banks (Raiffeisen Ban k and Sinara Investment Ban k) launched analytical coverag e of MMK shares. In June 2021, M MK shares were included for the first time in the Moscow Exchan ge’s monthl y Private Investo r Portfolio. MMK won the Corporate & Financial Awa rds for the Best Management o f Investor & Analyst Relation s (Communicate, UK). MMK’s top man agement team ranked fou rth in Institut ional Investor’s 2 021 Emerging EM EA Executive Team ranking MMK INTEGRATED ANNUAL REPORT 33 Customers Capitals: - Manufactured - I ntellectual - So cial and rela tionship 1, 3, 4, 5, 6, 7, 13, 14 − Quality of product s, customer journ ey, and customer fo cus − Orders delivered on time and in full, accu rate delivery − New products − Safe manufactu ring, packaging, sto rage, and transportation of products − Accident-free ope ration of equipment, buildin gs, and structures − Financial performan ce and market pres ence − Integrating sustai nability principles in the Company’s operations − Low-carbon and energy- efficient produ ction − Certification of quality management s ystems at MMK and its subsidiaries − Operation of the Unified Information S ystem for the Management o f Corrective M easures Based on Inspection Results − Annual surv eys to measu re customer satis faction and c ollect feedback − The iCIient MM K mobile app − Implementat ion of a project to set u p just- in -time delivery − Development of a corporate mar ketplace − Holding coordinat ion meetings with consumers 72% OTIF (pe rcentage of deliveries complet ed on time and in full) The volume of steel supplies t o the Russian sh ipbuilding industry increas ed by 1.5 ti mes Consolidated sal es of steel products increas ed by 16% Suppliers and contractors Capitals: - Natural - So cial and rela tionship 7, 12, 13, 14 − Fair and tran sparent procurement p rocess − Delivering on all c ontractual obligations − Promoting sa fety culture − Business ethi cs and anti- corruption measu res − Securing outs ourced HSE processes − Formalising ten der procurem ent procedures − Electronic trading platform − Open Days and supplier conferences − The MMK Sup plier mobile app for suppliers − Efforts to prev ent hazards in t he workplace − Automated sy stem "Electroni c work permit" − Implementati on of the Supplier Relation ship Management ( SRM) system project − Implementati on of an automated system for checking subcon tractors 0.95 LTIFR amon g contract ors 71% of locally sourced supplie s Local communities Capitals: - F inancial - Natural - So cial and rela tionship 2, 5, 6, 7, 8, 12, 14 − Financial performan ce and market pres ence − Social stabilit y in the host region − Investments in regional development − Safe working condit ions and protection of t he environment − Enhancin g environmental performance − Diversifying the economy in operating regi ons and creatin g new jobs − Willingness to co operate with local commun ities − Accessibility (transpa rency) and reliabilit y of information − The Magnitog orsk Metal newspaper, local TV program mes and radio stat ions − Phone calls and let ters to the corporate media office − MMK’s website an d social me dia − Implementing e xternal social programmes an d projects aim ed at developing ope rating regions − Supporting SME s through MM K Industrial Park − Continuing th e Prityazhenie p roject for the construction of a multifunct ional park space − Providing aid to children as part of th e ‘ 21st Century- the Children o f South Urals ’ project − Holding winter s ports competitions − Launch of MM K’s new corporate we bsite $16.3 m investmen ts in local development an d philanth ropy 5.8 units Comp rehensive Air Pollution Index ( CAPI) of Magnitogorsk MMK INTEGRATED ANNUAL REPORT 34 Government bodies Capitals: - F inancial - Human - So cial and rela tionship 2, 3, 4, 5, 6, 7, 8, 12, 14 − Financial performan ce and market pres ence − Legal compliance, including with the anti- corruption legislation − Regional social an d economic development an d employmen t − Timely payment of taxes in full − Improvement of legislation − Innovation and R&D − Meeting environmen tal commitments − Entering into ag reements on social and economi c coope ration − Monthly discus sions of legislat ive initiatives and oth er relevant issu es between MMK specialists and local Magnitogorsk o fficials − Implementati on of external so cial programmes an d projects for the development o f areas where MMK operates − Involvement in public discussions of draft laws an d regulations initia ted by the authorities − Active involvemen t in the implementation of the national Ecolog y project and the federal Clean Air l p roject − Accession to the Anti- Corruption Charte r of the Russian Union of Industrialists an d Entrepreneurs $816 million paymen ts to the state budget on the accrua l basis A2 level in the Anti-Corruption Ranking of Russia n business by the Russian Un ion of Industrialists an d Entrepreneu rs MMK INTEGRATED ANNUAL REPORT 35 FINANCIAL CAPIT AL Undoubtedl y, th e ong oing gl obal business recovery an d t he resulti ng growth in demand for st eel products h ad a major i mpact on the resul ts of the past year. In 202 1, we achi eved an i mpressive performance, conqueri ng several new records. We conti nued to ad here to our prud ent fin ancial and capital all ocation policies, deli vering strong t otal returns to our sha rehol ders. Our p erformance in 2021 demonstrates th e soundn ess of our strat egic ro ute and management's effecti ve deci sions on the path to achievin g our key strategi c goals. 12.5 mt TOTAL SALES OF F INISH ED PRODUCTS 2020: 10.8 mt $11,869 m GROUP REVE NUE 2020: $6,39 5m $ 400/ t SLAB CASH-C OST 2020: $269/ t CORE SDG'S: MATERIAL ISSUES : 1 , 2, 3, 4, 5, 6, 7, 8 , 9, 10, 11, 12 , 13, 14 LINK TO STRATEGY : To be the best suppli er TRADE- OFF : Focus on sustai nable and organic growth wi thout the need for costly corporate activiti es, i n particular mergers an d acqui sitions (in iron ore) and di vestitu res ( in cokin g coal) in the raw material s sector. $4 , 290 m EBITDA 2020: $1 , 495m MMK’s stabl e economi c and operating performan ce ensures the development of the regions where it has a p resence. MMK ful ly meets its obligations to stakeholders and creates ad di tional stakehold er val ue. Balan cing corporate and share hol der i nterests, MM K buil ds a strong i nvestment case and drives stab le economi c growth . In th e mai n regi on where it has a presence, the Compan y i s a backbone enterprise and , as such, i t determin es the soci o -economic si tuation and well -being of many residents. MMK’s and Group compani es’ operat ions impact the region’s econom y b y p rovid ing employment, purchasin g good s and services fr om l ocal suppli ers, and impl ementing social projects. All Group entiti es regularl y pay taxes to the local budget. Direct econom ic value gene rated and dist ributed, $m 2019 2020 2021 1. Direct economic value generated 7, 591 6, 420 11 ,899 Revenue 27 7,566 6,395 11 , 869 Income from financial investments 28 24 23 28 Income from sales of tangible assets 1 2 2 2. Economic value distributed -7, 543 -6, 332 - 10 ,299 Operating expenses -6,292 -5,453 -8, 116 including payroll and insurance premiums 28 - 776 - 718 - 774 Payments to capital suppliers - 935 - 649 -1, 346 including dividend payout 28 - 907 - 623 -1, 321 including finance costs 28 - 28 - 26 - 25 Taxes - 288 - 200 - 816 including income tax 28 - 255 - 167 - 787 including other taxes 28 - 33 - 33 - 29 Investment in local communities - 28 - 30 - 21 3. Economic value retained 48 88 1, 600 27 Based on IF RS consolidated financial sta tements of MMK an d Group com panies. To be a leader i n operati onal excell ence MMK INTEGRATED ANNUAL REPORT 36 CAPITAL ALLOCA TION Our approach to capi tal al locati on i s driven by ou r core st rategic g oal of maxi mising shareholder return whil e creating a sustai nable future. Efficient investm ent program Our i nvestment portfoli o to 20 25 is for th e most part focus ed on projects enabl ing us to deli ver: - output growth, product mix enhancement, and cost l eadershi p; - strong envi ronmental performance. Output growth, product mix enhanceme nt, and cost lea dership Last year’s upgrade of Hot -Roll ing M ill 2500 allowed us t o take advantage of fav ourable market conditions and contri buted to our stell ar operati onal and fina ncial performance. Th e ramp-up of H ot- Rollin g Mill 2500 to ful l capacity i n 2021 enabl ed us to i ncrease th e outpu t of hot-r olled produc ts by 2 milli on tonnes over 2020. In mid- 2021, we restarted th e electric arc fu rnace fa cili ty wi th a castin g and rol lin g module at Steel Tur key segm ent following a suspension caused by e conomic headwinds i n 2012. The f acilit y restart i ncreased MMK Group sal es by 300 t housand tonnes i n 2021, expanded the p resence of MMK Group pr oducts i n gl obal markets, an d made a tangi ble c ontributi on to ou r fin ancial and operati ng performance. The as set is expected to ramp up t o i ts ma xi mum p roduction capa city of 2 mi lli on tonnes per year by the end of 2 022. The i ron ore tail ings beneficiati on line, wh ich all ows fo r p roduction wa ste reuse i n the producti on process, cut the purchase volume of third-party iron ore by more than 400 thousand tonnes per year. Transparent inv estment pro jects execution and EB ITDA delivery , $m Focus on the e nvironmental performance of investme nt project s In 2021, we reduced CO 2 emissions by 11% to 1. 95 tonnes of СО 2 per tonn e of steel. Our strategy to redu ce MMK’s car bon footprint by 2025 will e nabl e a further reduction in specific CO 2 emissions by 10% to 1 .8 tonnes of СО 2 per ton ne of steel through l andmark projects such as Co ke- Oven Bat tery N o. 12 and Blast Furnace N o. 11 . T ogether, t hese projects wil l enable an overall reducti on of greenhous e gas emissi ons by 2.7 mill ion tonnes per y ear. At t he end of 2021, we adjust ed our capital investment pl ans to 2025 and n ow expect an average annual investment to t otal $1,250 mi llion, up from the p reviousl y announced $950 mil lion. 9 15 24 220 390 610 15 50 65 26 325 351 2020 - 2021 гг. P LAN 2022 - 2025 гг. TARGET 2025 г. TARGET Superior product portfolio Customer focus Leadership in production efficiency Excellence in procurement and supply chain management пустышка 270 780 1, 050 MMK INTEGRATED ANNUAL REPORT 37 Capital expenditure grew pri marily du e to increased investment i n green technology, in particular due to a change i n pl ans to build a blast furnace , shorter project ti meframes, and a number of macroeconomi c factors such as acc elerated infla tion and depreciation of the nati onal currency. Revised CAPEX plan for 2 022 – 2025, $m Strong free cash flow generation MMK continu es to generate strong free cash flow ( $1,613 mi llion for 2021) whil e maintaining a high l evel of avai l able liqu idity ( $3.1 billi on as at 31 December 2021), whi ch provides t he G roup with a generous cushion to all ow it to deliver on its strat egic commit ments. The MMK Group’s debt repayment schedul e i s comfortabl y spread out to 2024 and beyond wh il e the average cost o f debt i s 2.6%. MMK’s leverag e remains among the i ndustry’s lowest wi th the Net Debt to EB ITDA rati o of – 0.09x as at the en d of the 2021 (2020 : – 0.06x) . We maintain our net working capi tal turnover at a hi gh level to ensure the sustai nabilit y of our busin ess and maximi se cash fl ow. The Company’s l ong -term g oal i s to keep the Net Worki ng Capi tal to Revenue ratio bel ow 11% – 13%. Credit ratin gs at or higher than the sovereign rating 28 : BBB Standard & Poo r’ s Baa2 Moody ’ s BBB Fitch 28 As of 31.12.2 021. MMK INTEGRATED ANNUAL REPORT 38 Reliable dividend payouts are a key element of our operation s The Group consistentl y generates su ffici ent cash flow to meet its com mitment to the di vid end policy. The Group’ s p olicy sti pulates payi ng out not l ess than 100% of fr ee cash fl ow, subject t o Net Debt/EBITDA bel ow 1.0x. Dynamics of d ividend payme nts for f ive years 29 FINANCIAL REVIEW Sales in tonnes Being a leader in t he Russian market, the Group maintain ed strong sal es to the d omesti c market. In 2021, sales to the domesti c market (i ncluding the FSU ) acco unted for 72 % of the G roup’s sales; thi s was supp orted by g lobal economic recovery an d conti nuing ec onomic growth in Ru ssia, which contributed to increased demand from the construction and au tomoti ve i ndustri es, ma chi ne and railcar bu ildi ng. Th e sha re of exports in 2021 i ncreased up to 2 8 % than ks t o stronge r expo rts of hot - rolled products ami d ful l capacity ut ili sation o f Hot - Rolli ng M ill 250 0 and recommissi oning of ste el production an d hot- rolli ng facil ities at Ste el Turkey segment in mid -2021. Sal es to th e Mi ddle East, Europe and Ameri cas increased ami d strong deman d for metal product s in th ese regions. 29 The ratio of di vidends accrued to the market capit alisation of the c ompany at the en d of th e period. 81% 72% 19% 28% 2020 2021 Group's sales by market, % Exports Domestic market (Russia+FSU) 0.05 0.09 0.08 0.05 0.11 6.2% 14.1% 12.2% 7.1% 11.5% 10 ,755 th s tonnes 12 ,480 th s tonnes 520 1,007 911 591 1,218 2017 2018 2019 2020 9M 2021 Dividends Dividends per share , $ Dividend yield 30 MMK INTEGRATED ANNUAL REPORT 39 Sales to internati onal markets by region , % 30 Revenue In 2021, th e G roup’s revenue i ncreased by 85.6% year - on -year t o $ 11,869 mil lion , reflecti ng higher sales due to the compl etion of Hot - Rolli ng Mill 2500’s moderni sation and an upward trend i n global pri ce indices on th e steel market. Revenue by segme nt , $m Segment 2020 2021 Change Steel Russia 5, 972 11 , 100 5, 128 Steel Turkey 518 1, 184 666 Coal-mi ning 179 445 266 Elimin ations - 274 - 860 - 586 Total 6, 395 11 , 869 5, 474 30 Northern, Cent ral, Latin Am erica and Aust ralia. 36% 41% 35% 19% 17% 23% 12% 9% 1% 9% 2,083 ths tonnes 3,438 ths tonnes 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 0% 20% 40% 60% 80% 100% 120% 2020 2021 Other Africa EU Asia and Far East Middle East 31 MMK INTEGRATED ANNUAL REPORT 40 Cost of sales and slab cash cost The cost of sales wa s 49.8% h igher, year- on -year, at $7,028 milli on, wi th slab cash cost up 48.8% y-o-y to $400 per tonne, reflectin g a surge in the prices for key raw ma terials driven by macroeconomi c trends. Slab cash-cost, $/t EBITDA In 2021, EBITDA more th an doubled year- on -year to $4,290 mi lli on, reflecting strong er r evenue and a l ow base in 20 20. EBITDA margi n was u p 12.8 p.p. to 36.1%. Th e steel Russi a segment’s EBITDA more than doubled year- on -year to $3,909 million reflecting positi ve dynami cs of demand and market quotes. The Turki sh st eel se gm ent’s EBITDA f or 20 21 total led $ 203 milli on, almost six ti mes u p from the previ ous year’s low base, bac ked by stronger steel demand and favourable global market conditions. The coal mining segment’s EBITDA g rew to $ 235 milli on thanks to higher coal conce ntrate prices and sal es amid the gl obal market recove ry. EBITDA by segm ent , $m Segment 2020 2021 Change Steel Russia 1, 440 3, 909 2, 469 Steel Turkey 34 203 169 Coal-mi ning 13 235 222 Elimin ations 5 - 57 - 62 Total 1, 492 4, 290 2, 798 20% 21% 18% 23% 17% 21% 10% 13% 34% 21% 129 9 2 -9 269 400 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00 450.00 500.00 Other Scrap Coal concent rate Pellets Iron ore 2020 202 1 +48.8% Raw mater ial prices Raw mater ial mix Other FX effect MMK INTEGRATED ANNUAL REPORT 41 10.1% 10.5% Working capita l Working capital at t he year- end 2021 i ncreased to $1,432 mi llion amid an upward g lobal pri ce dynamic. The man agement team’s suc cessful efforts to optimi se working capi tal have redu ced the pressure of higher input costs an d steel prices, whi ch resulted in a margin al i ncrease i n the ratio of Net Working Capital to Revenue for the last th ree months to 10.5 % at year -end 2021. Net Working C apital dynamic s CAPEX The Group’s CAPEX for 2021 increased by 63,1% year- on -year to $1 ,132 million, mainly dr iven by further p roject d evelopments pursued u nder t he Group ’s strategy. Other main factors which affected CAPEX were the depre ci ation of th e rouble and i nflationary pressure o n the back of gl obal market trends. Growth projects accoun ted for 67% of C APEX. In mi d-2021 , t he Group completed the reconstructi on of Col d Rolli ng Mil l 1700, providi ng a valuabl e boost to the col d- rolled production capaci ty and premiu m product portfol io. Considerin g p ositive market d ynamics, we recommi ssioned EAF an d hot -rol ling facilities at the Steel Turkey segment in Ju ly 2021. The projec t i s expected to ramp -up hot-r olled producti on up to 2 milli on tonnes pe r year starting 2023 and ampl ify our p ositi on s on growi ng gl obal markets. This p roject will all ow our Turkish asset t o gain a si gnificant i ncrease in EBITDA. We continued the constructi on of our new coke and by-product plant with ongoing co nstructi on and i nstallati on works f or foundat ions, wi th mo re than 15 t housand m 3 of concrete al ready ca st. Th e primary coolers of the by -product recovery pl ant have been i nstalled. In additi on, we signed a contract on constructi on of th e Blast Fu rnace No. 11 coupl ed wi th SYNGAS t echnology. Th e proje ct i mplementati o n will all ow us to si z eably decrease C O 2 emissi ons by 1.7 milli on tonnes per y ear. CAPEX breakdo wn, $m 381 757 313 375 694 1,132 2020 2021 745 1,432 2020 2021 NWC to Re venue L3M rati o NWC , $m Maintenance Development MMK INTEGRATED ANNUAL REPORT 42 -0.06 -0.09 FCF The Group’s FCF almost tripled year - on -y ear to $1,613 mi lli on, reflecting a favourabl e g lobal market dynamic amid ongoing global economic recovery and 2020 year’s low base. This was the highest FCF for th e Group’s over i ts history. Free cash flow , $m Debt The Group’s total debt fo r 2021 was $ 971 million , flat year- on -yea r. As at the end of 2021, the Group held $1,364 million in cash an d deposits in i ts accounts, an amoun t that full y covers its debt. The Group ’s net debt for 2021 totall ed minu s $393 million, while i ts n et debt/EBITDA r atio was – 0.09x , the lowest among l eading gl obal steelmakers. The average cost of debt was 2.6% at the end of 2021. The Group’s substan tial cash balances, coupled wit h $1,771 million of avail able credi t faciliti es, provi de the Group wi th a significant liquidi ty cushion. Total Debt and N et Debt / EBITD A ratio dynamics 2022 PRIORIT IES In 2022, w e will continue to imp lement our investment programme aimed at providing leadership in operational efficiency, expan ding our premiu m product li ne, and i mproving safety and environmental perform ance. A p rudent financial policy, al ong wi th a strong finan cial position an d suffici ent liquidity cushion, wi ll support the implementati on of this pr ogramme. 1,492 EBITDA 2020 2,745 4,290 – 757 – 28 – 738 – 25 – 1,132 1,613 EBITDA 2021 Working c apital Finance cost s Income tax Other Net cash fro m operating activities CAPEX FCF 970 971 2020 2021 Debt , $m Net Debt to EB ITDA 12M ratio MMK INTEGRATED ANNUAL REPORT 43 MANUFACTURED CA PITAL We hav e o utstandi ng expertise i n downstre am processing of roll ed steel ; MMK ’s o perati ons inclu de a l arge steel -producing unit encompassi ng the entire produ ction chain , from extra ction and processing of r aw material s to producti on o f high -tech and premium products. For 90 years now, MMK has f ocused on turni ng out a broad range of me tal products, making use of state- of -the-a rt tec hnol ogy and equip ment. 10 .4 mt PIG IRON 2020: 9.3 mt 13 .6 mt CRUDE STEEL 2020: 11.6 mt 12 .5 mt METAL PRODUCT S ALES 2020: 10.8 mt CORE SDG'S: MATERIAL ISSUES: 1, 3, 4, 5, 6, 7, 13, 14 LINK TO STRATEGY: TRADE- OFF : Resta rt of steel producti on acti vities at the Steel Turkey segment. 5.2 mt PREMIUM PROD UCTS 2020: 5.1 mt 3.4 mt COKING COAL CO NCENTRAT E 2020: 3.1 mt 2021 was a year of overall market recovery and robust demand for m etal products around the world. The compl etion of Hot - Rol ling Mil l 2500’s upg rade in 2020 and th e l aunch o f an el ectric arc furnace facil ity wi th a rollin g module at our Turki sh operation i n July 2021 enabled u s to signi ficantly improve our op erating results and me et the grow ing market d emand . Producti on growth an d favourable mark et condi tions contri buted to an increase i n export sal es. At the sam e time, w e confidentl y maint ain our l eading position i n t he ma rket for Russian flat steel, o fferi ng hi gh -quality products and e ffici ent customer service. MMK remai ns a market l eader, operating as a hig hly efficient, low-cost manufactu rer of metal products, pl aced in the first quartil e on the global cost curve. In 2021, the MMK Group ’s steel output grew by 1 7.4% year - on -year to 13,59 2 th ousand tonne s, whil e its sal es of metal products i ncreased by 16.0% y ear - on -y ear to 12 ,480 thousand tonnes. These increases were driven by fav ourable market condi tions and the hi gh utili sation rate of Mill 2500 followin g i ts moderni sation in 2020. Sal es o f premi um products were up by 1.3% year - on -year t o 5,211 thousand tonne s ami d strong demand for gal vanised steel in export markets . To be a leader i n operati onal excell ence MMK INTEGRATED ANNUAL REPORT 44 Metal products pro duction and sales, t housand tonnes Indicator 12M 2021 12M 2020 % Crude steel production 13 ,592 11 , 574 17 .4 Steel segment Russia 13 ,278 11 , 574 14 .7 Steel segment Turkey 314 – – Pig iron production 10 ,420 9, 344 11 .5 Coal concentrate production 3, 445 3, 059 12 .6 Iron ore production 2, 913 2, 893 0.7 Finished products sales: 12 ,480 10 , 755 16 .0 Slabs and billets 194 20 885 .5 Long products 1, 161 1, 275 – 9.0 Flat hot-rolled products 5, 914 4, 317 37 .0 Premium products: 5, 211 5, 143 1.3 Thick plate (Mill 5000) 829 841 – 1.4 Flat cold-rolled products 873 889 – 1.8 Downstream products, including: 3, 509 3, 414 2.8 Tinplate 169 168 0.1 Galvanised steel 1, 992 1, 735 14 .8 Polymer-coated steel 614 717 – 14 .3 Band 137 130 4.9 Formed section 76 122 – 38 .1 Pipe 72 83 – 13 .2 Metalware 438 418 4.8 Other metal products 11 39 – 72 .2 Share of premium products 41 . 8% 47 . 8% MMK INTEGRATED ANNUAL REPORT 45 A COMPREHENSIVE PRODUCTION PROCESS Premium prod ucts Coal concentrate Coke Pellets Sinter Thick plate (Mill 5000) Blast furnaces Slabs Other down stream products Tin plate Polymer- coated steel Metalwar e 4. 9 m t pa (1 ) 4. 2 mt pa 5. 4 m t pa 6. 4 m t pa 11 .3 m t pa 10 .3 m t pa 2. 0 m t pa 10 .5 m t pa 10 .5 m t pa 0. 2 m t pa 13 .0 – 13 . 7 mt pa ( 2) 1. 2 m t pa 0 .6 mt pa 1. 9 m t pa Hot -rolled products Galvanised steel Cold-rolled products Long products 3. 0 mt pa Iron ore concentrate 8. 9 mt pa 1. 3 mt pa Recyclables 1. 6 m t pa I ro n o re eq uiv ale nt Electric arc furnaces Double-hearth furnace 6. 0 m t pa Basic oxyg en furnaces Slabs 1. 1 mt pa 4. 8 mt pa 3. 0 mt pa M R aw m ate ria ls P ro du cti on P ro du cts Pr im a ry Se c on da ry Pi g iro n St e el Fi ni s he d Se mi -fi nis hed 2. 0 m t pa Casting and rolling module 2. 0 m t pa Scrap metal Billets T Note: (1) The production p rocess diagram sh ows the annual capacity of each pro duction uni t (2) 11.7 million tonnes wh en Hot-Rollin g Mill 2500 reach es its projected production ca pacity of 5.2 million tonnes per year. ● Fo rmed s ec ti on – 0 . 8 m t pa ● Ba nd – 0. 3 m t pa ● Pi p e – 0. 1 m t pa ● Ot h er m etal p rod uc t s MMK INTEGRATED ANNUAL REPORT 46 RAW MATERIALS Market review Iron ore market Average annuali sed raw material prices surged to ten-y ear high s during the year, with the base price i ndex for i ron ore (62% Fe) u p by more than 46% to ab out $1 59 per tonne am id hi gh demand for steel gl obally. The Chi nese gove rnment capped pi g i ron and steel output i n 2021 at 20 20 l evels and from August 2021, its steel output decreas ed by 20% year - on - year which reflected in i ron ore pri c e correction at the yea r-end. Demand for iron ore in the Russi an mar ket was strong in th e fi rst h al f of 2021 and earl y i n 2021, Russian producers o f raw mate rial s saw an in crease in orders both i n Russia an d in the k ey export ma rkets: EU co untri es and Turkey. Exports of R ussi an i ron ore t o Chi na shrank markedl y in 2021, a shift parti cul arly visible in th e exports of premiu m iron ore from Ru ssia. Source: Bloomb erg Scrap metal ma rket Demand an d prices for scrap showed di fferent dynami cs, wi th market pri ces bei ng particularl y high i n Turkey, the US A an d Japan . For most of 2021, Russia i mposed increased duti es on s crap export s outside th e Eurasian Economic Un ion (EAEU), but domestic c omp etiti on prevented p rices from falli ng markedly. Coking coal market Global coking coal markets saw dramati c shifts in trade flows in 2021 as Chi na stopped importing coal s from A ustrali a in late 2020 (nearly 50% o f Ch inese imports) . As a resul t, Chinese imports of c oking feedstock were down 25 % year - on -year, supportin g a n u pward trend i n prices which were up 135% yea r- on - year. Raw materi al supply shortages were most acute in Q3 2021. In Russia, there was no risk of p hysical shortages of raw materials in 2 021, but dom estic prices increased rather rapi dly foll owing th e global market trends. Source: Bloomb erg 40 60 80 100 120 140 160 180 Iron ore index CIF China, USD/t 50 100 150 200 250 300 350 400 Coking coal CIF China, USD/t MMK INTEGRATED ANNUAL REPORT 47 As a result of gl obal market trends , the Group’s cost of sal es i ncreased substant ially, although we miti gated this than ks to our long -term relationshi ps wi th our key suppli ers. The Group ’ s raw materials assets Iron ore Self-suffi ciency: 17% Production capaci ties: i ron ore producti on – 2.4 mt pa Iron content in ri ch iron ore: 48 % Iron content in l ean iron ore: 31 % Our iron o re mini ng unit is based in Magnitogorsk. It mines pr oduce ri ch and l ean iron ores, both of whi ch are used in si nter production. Rich iron ore is u sed d irectly i n si nter pr oduction, whereas l ean iron ore is us ed in producti on of sinter after the ben efici ation process to remove i mpuri ties. Production of i ron ore for 2021 stayed flat year - on - year at 2,913 thousa nd tonnes. Owning an iron ore a sset, combi ned wi th effecti ve processin g of recycl ed material , helped the Company mitigate the negative impact of u pward trends in iro n ore p ricin g in 2021. At the same time, considering the decline in i ron ore prices expected by many market p lay ers in the longer term, MMK is well-p ositioned compared to m ore integrated pr oducers. Scrap metal and r ecyclables Self-suffi ciency: 65% Scrap coll ection: 1 mt pa MMK is a leader i n scrap c ollection an d recyclin g. The use of sc rap and oth er recyclabl es in the production process can si gnificantl y reduce greenhouse gas e missi ons. Our scrap c oll ection and recyclin g faciliti es as well as t he recycl in g of s teelmaki ng waste provide us with a pri me sourc e of environmental ly -friendly iron for a sustai nabl e and green future. In 2021, we i ncreased our s crap coll ection by 32%. We also ramp ed up our recycling of secondary iron- contai ning resources by 4% y ear- on -year to 1.6 mill ion tonnes. Coking coal Self-suffi ciency: 40% Production capaci ties: - Coking coal mining – 5 mt pa - Beneficiati on – 6 mt pa Coal reserves: 273 mt Capacity utili sation rate: 96% Meeting MMK’s demand in Zh grade coking coal In 2021, coking coal producti on i ncreased by 13.2% year- on -year to 5 milli on tonnes, driven by MMK’s growi ng demand and in accordance wi th mi ning plan. The 12.6% year- on -y ear increase in concentrate producti on to 3,445 thousand tonnes was due to a stronger demand from the Magnit ogorsk site. Water reuse The l aunch of efflu ent poli shing facili ties at one of the coal mi nes in 2021 enab les u s to clean harmful i mpurities (sus pended p arti cles, h eavy m etals, organi c comp ounds, etc.) f rom mine water MMK INTEGRATED ANNUAL REPORT 48 and, consequentl y, reduce the environmental imp act. The concentration of suspended parti cl es i n wastewater wi ll be reduced b y 45.5%. Phase 2 of the water treatment facili ties will be commissi oned in 2023, and Pha se 3 in 2024. The through put of th e water treatment fa cilities wi ll double, and water qual it y will mee t the most stringent requi rements. How we integrate sustainability into our business processes - Inc reasing th e share of scrap metal used in steelmaki ng; - Usi ng waste from various metal lurgi cal processes i n sinter charge; - Imp rovement of coke a nd chemi cal operations through const ruction of a n ew coke battery No. 12 and decommi ssionin g of outdat ed equipment with CO 2 decrease by 1.1 milli on tonnes per year. PRODUCTION Global market Steel production and consu mption In 20 21, the g lobal market continued to be affected by the constrai nts of th e ongoing gl oba l COVID-19 pan demic an d the gl obal economi c crises, whi ch l ed to hig h volatili ty in demand and prices in commodity markets. Throughout 2021, th e USA an d Europe conti nued the moneta ry poli cies they started i n spri ng 2020 , whi ch bolstered p rices fo r resourc es, in cluding for rolled steel, and fuell ed inflati on. At the begi nning of Q3 2021, t he state of global markets for roll ed steel started to deteri orate in most regi ons. The downtu rn i n the markets was driven by pand emic -related restricti ons, weaker demand or exhausted quotas in some mark ets, as w ell as by the summe r slowdown in busin ess a ctivi ty. Workforce shortag es we re a k ey i ssue i nduced b y t he pan demi c i n 2021 an d t his had a major impact on l ogisti cs and del ivery t imes for g oods. The m arine ship ping sector fa ced an abrupt downtu rn, wi th shipping an d freigh t rates on a numb er of rout es hitti ng record l evels. At th e end of the y ear, the economic si tuation was exac erbated due to en ergy resources sho rtages and risin g energy costs. According to the Worl d Steel Associati on (worldste el), global crude steel output in creased b y 3.7% to 1,950.5 milli on tonnes over 2021 a mid pent -up demand. The association esti mates that apparent steel use (ASU) for 2021 wi ll grow 4.5% to 1,855.4 mi llion t onnes over the year. Global steel product ion, m illion tonnes Source : WSA In 2021, Asia produc ed 1,382 mill ion tonnes of ste el, up 0.6% year - on -yea r. In 2021, steel producti on i n China decreased by 3% y ear- on -year to 1 ,033 mil lion tonn es. The Chin ese economy has conti nued its strong r ecovery m omentum from 2020 in to ea rly 2021. I n 1H 2021, China saw a ri se i n output and demand, f uelled by strong consu mpt ion across its i ndustries on the back o f the go vernment’s economic sti mulu s programmes. In 2H 202 1, output slowed si gnificantl y, reflectin g a number o f factor s such as the Chinese p oli cy to main tain producti on rat es at l ast yea r’s level, risi ng prices for r aw mat erial s, t he down ward trend i n the r eal estate and aut omotive mark ets, the global energy crisis and environmental restrictions. Steel exports from China in creased by 25% to 0 300 600 900 1200 1500 1800 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1,8 00 1, 5 00 1,2 00 MMK INTEGRATED ANNUAL REPORT 49 66.9 million tonnes, although the Chinese authorities cancelled the r efund of VAT (13%) on exports in the second hal f of the year to mit igate t he shortag e of steel products and curb dom estic prices. In 2021, steel i mports to Chin a decreased by mor e than 27% to 28 mi lli on tonnes. In 2021, I ndi a, the world’s second largest steel prod ucer, ramped up its steel output by 17.8% to 118.1 mi lli on tonnes, at th e same time pl anning new addi tions to i ts capaci ty. Thi s gi ves ri se to expectations that the Indi an steel sector will continue to grow steadi l y. US steelmakers achi eved hi gh growth rates, in creasing thei r steel output for 2021 by 18.3 % year- on -y ear to 86 million tonn es due to new capacity comi ng online, pent up demand bein g released and a return to pr oduction at most faci liti es that were shut down in 2020. In the EU, th e recovery of ste el deman d that began i n 2H 2020 continued to gai n momentum in 2021, dri ven by addi tional sti mulus packages, cheap l oans, and the rel ease of pent -up dema nd. The EU (27-memb er states, excluding the UK) produced 152.5 million tonnes o f steel for 2021, up 15.4% year- on -year. Steel prices In 2021, steel pr ices were affected by the pent -u p de mand, acute shortages of metal products, and risi ng prices for raw mat erials an d energy. Global prices for rol led steel soared i n 2021 to hi t or even e xceed the 20 08 h ighs for h ot-roll ed products. At the end of 2021, markets we re strong ly affected by uncertai nties caused by the resurgent pande mic and th e emergence of new vi rus strains. Hot-rolled coil FO B , USD/t Source : Bloomberg Hot-rolled coil FOB , USD/t Source : Bloomberg 300 400 500 600 700 800 900 1000 1100 1200 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov 2019 2020 2021 Russia China 200 400 600 800 1000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Russia China 1,2 00 1, 1 00 1,0 00 1,0 00 MMK INTEGRATED ANNUAL REPORT 50 Russian market Demand and pri ces for meta l products The Russian economy grew at a 4 .7% rate i n 2021, i ts fastest pace in recent years. Russia’s economy wa s mainl y dri ven b y the post - pandemi c recov ery, wh ich started in the second h alf of 2020 an d conti nued into 20 21. Ag ainst this backdrop, the m etal products ma rket followed the overall trends, albeit wi th its in herently hi gher volatility. Th e tail winds incl uded relatively high oil prices i n the absence of external shocks, as well as fa ctors such as demand recovery in Russia bolstered by a boom i n consum er l endin g, and th e government suppor ting economi c growth through signi ficant allocati ons to previ ously pl anned n ational projects and va rious state prog rammes, e xceedi ng the previous year’s level s. During the fourth quarter of 2021 , despi te the seasonal ity, steel consumpti on hit a n all -year high i n the last quarter, showi ng quarter - on -q uarter growth of +16% a nd more than +11% ov er th e same period l ast year. Thus, during FY 2021 the apparent consumpt ion of metal s in Russi a was up by just 3.8% year- on -year, exceeding expectations. Apparent con sumption and metal product s prices in Russ ia Source : Metal Expert, MetalTorg.Ru Market share by company in Rus sia in 2021, % Source : Metal Expert 16.9% 12.7% 10.0% 4.9% 55.5% MMK Peer A Peer B Peer C Other 10.97 12.36 11.07 12.88 -15% -5% 5% 15% 25% 35% 45% 1 кв. 2 кв. 3 кв. 4 кв. Видимое потребление 2020, млн тонн Видимое потребление 2021, млн тонн Динамика ц ен производителей (к пред. периоду), % Q1 Q2 Q3 Q4 Apparent consumption i n 2020, mt Apparent consumption i n 2021, mt Producer pri ces (quarter- on - quarter chang e), % MMK INTEGRATED ANNUAL REPORT 51 The Group’s production Pig iron Production capaci ties: 10 .5 mt pa Utili sation rate: 100% Pig iron production is supported by eight b last f urnaces within the Mag nitogorsk producti on site with an aggregate capaci ty of 10.5 milli on tonnes of pi g iron per year. In 20 21, we increased pig iron output by 11.5% year- on -yea r t o 10 ,420 thousand tonnes as there were no l engthy overhaul s of blast furnac es. Pig iron output, th ousand tonne s Source : Company data Crude steel Production capaci ties: 16 .5 mt pa Utili sation rate: 89% Steel p roduction capaci ties i nclude th ree con verters an d two electric a rc furnac es at the Magnit ogorsk site and one electri c arc furnace at th e Ste el Turkey segm ent. Annual steel output increased by 17.4% yea r- on -year to 13,592 th ousand tonnes, as no overhauls t ook place at converter faci lities, and the electric arc furna ce facili ty was l aunched at t he Turkish operati on. Steel output, tho usand ton nes Recomissioning of electric arc f urnace prod uction in Turkey In July 2021, we resumed steel and hot -rolled coil pro ducti on at our operation in Turkey, which was hal ted i n 2012 due to an unfavourabl e econ omic envi ronment in the Tu rkish ma rket. The p hased 10,163 9,860 10,013 9,344 10,420 7,000 8,000 9,000 10,000 11,000 2017 2018 2019 2020 2021 12,860 12,664 12,463 11,574 13,592 9,000 9,500 10,000 10,500 11,000 11,500 12,000 12,500 13,000 13,500 2017 2018 2019 2020 2021 11,0 00 10,0 00 9,0 00 8,0 00 7,0 00 13 ,5 00 13,0 00 12 ,5 00 12,0 00 11,5 00 11,0 00 10,5 00 10,0 00 9,5 00 9,0 00 MMK INTEGRATED ANNUAL REPORT 52 commissioni ng of the electric arc furnace facili ty with a casti ng and rolli ng module at the Steel Turkey segment implies a g radual r amp-u p i n production. We produced a tota l of 30 5 thousand tonnes of hot - rolled steel in 2021 an d plan to r amp up to the design capacity of 2 million tonnes by the end o f 2022. How we integrate sustainability into our business processes - Imp rovement of bl ast furnace ope rations with reduction of natural gas consump tion and injection of secondary p roducts of produ ction (s ynthesis gas) as fuel wi th further capture and st orage of greenhouse ga ses (CCUS); - Imp rovement of energy efficiency t hrough enhancem ent of the energy management sy stem and impl ementation of techni cal measures; - Eval uation of the f easibili ty of using energy generated from rene wable energy sourc es; - Inc reasing th e share of re-circul ating an d repeated use of wat er and the efflu ent quali ty; - Imp rovement of proces ses for monitori ng and controlli ng air emi ssions from key sourc es. METAL PRODUCTS Market review : demand across key Russian indu stries Construction In 2021, the c onstruction industry was st eadily b uilding momentum. The ma ssive resi dential constructi on sector sho wed strong demand due to the government’s subsidi sed mortgage programme, the impl ementation of national projects, an d the overall economic recov ery. The am ount of constructi on grew 6 % year- on - year in comparabl e prices. N ew bui lds for the same p eriod m easured 92.6 milli on m2 overall , up by a record 12.7% f rom the previous year. Automotive ind ustry The outpu t of motor v ehi cles in Russia was up 9.1% year - on -year. Thi s growth was dri ven by the rel ease of pent -up demand and t he l ow b ase i n 2020. In the second half of 2021 , th e growth slowed down due t o producti on bottlenecks caused b y a semiconducto r sh ortage. Pipe industry In 2021, th e outpu t of wel ded pip es dropped 3 % year - on -year. Around mid- 2021, the production of large -diameter pipes ( LDP) bega n to recover. In the fou rth q uarter, produ ction of LDP increased by 10.8% quarte r- on - quarter. In 2021, p ipe producti on increased b y more than 25% to almost 2.3 mil lion tonnes. This growth was due to the l aunch of new Gazprom p rojects. Pipes w ere mainl y ship ped for th e constructi on of the Ko vykta – Chayanda section of the Power of Siberia 1 pi peline and in frastructure devel opment i n the North -West re gion. Against thi s background and due to the switch of consume rs t o use seaml ess p ipes , pro ducti on of other wel ded pi pes for t he fuel an d energy sector stagnated . Shi pments of constructi on pi pes al so de clined, al though , according to expert s, t he fall i s transi ent and, given t he posi tive forecasts for the construction sector , the constru ction pipe market is set to r ecover. Railcar manufactu ring For 2021 , th e output of f reight cars gr ew 3 .5% year- on -year, prompti ng an i ncrease i n purchases and producti on of new fr eight cars. There was i ncreased de mand for open rai lroad frei ght cars and fitting platforms for export shipments, the main vo lume of wh ich was r epresented by cargoes of coal compani es amid favou rable gl obal market condi tions. MMK INTEGRATED ANNUAL REPORT 53 Changes in Ru ssia’s metal cons umption b y industry, % Source : Metal Expert , Company data MMK shipment s by sector in Rus sia, % Source : Company data MMK fi rmly occupi es it s ni che i n the Rus sian steel ma rket and has consi stently ranked among the top three Russi an steel makers. MMK i s wel l positi oned to operate successfully at hi gh margins, benefiti ng from its adv antageous g eographi cal locati on in the Russi an market and i ts wi de range of products, in cluding hi gh-margi n steel products. Dynamics and st ructure of the Russian mar ket for rolled steel , million tonne s Source : Metal Expert 2.7% 20.2% 12.1% 8.9% 1.8% 3.8% -28% -18% -8% 2% 12% 22% Трубная промышленност ь Автомобилестроение Вагоностроение Машиностроение Строительство, вторичный рынок и прочие отрасли Итого РФ 0% 10% 20% 30% МЕТАЛЛОТ ОРГОВЛЯ И СМЦ ТРУБНАЯ ПРОМЫШЛ ЕННОСТЬ МЕТИЗНЫЕ И ПЕРЕДЕЛЬНЫЕ ЗА ВОДЫ СТРОИТЕЛ ЬНЫЙ СЕКТОР + (ЗМК и ЛСМ) МАШИНОС ТРОЕНИЕ И ПРО ЧИЕ ОТРАСЛИ АВТОПРОИ ЗВОДИТЕЛИ + АВТОКОМПОНЕН ТЫ МОСТОСТ РОЕНИЕ ПИЩЕВАЯ ПРО МЫШЛЕННОС ТЬ 2020 2021 40.76 43.83 44.37 47.09 45.58 47.32 -40 -20 0 20 40 60 2016 2017 2018 2019 2020 2021 Импорт Внутренние поставки Экспорт 2020 2021 Total Russia Construction, sp ot market, and other industries Machine buildin g Railcar manu facturing Automotive indust ry Pipe industry Food industr y Bridge constru ction Carmakers and parts Machine buildin g and other se ctors Construction Metalware and non- integrated plants Pipe industry Metals trading and service Imports Exports Domestic supplies MMK INTEGRATED ANNUAL REPORT 54 The share of i mports i n the R ussian m etal products ma rket for 2021 decl ined by 16.1% year - on -year. Imports increased in the segments of galvanised stee l (up 20.9%), polymer -c oated steel (up 16.2%), an d h ot-rol led t hin sheets (u p 15%), with shi pments of other metal products down year - on - year. MMK main tains it s leadership in these premi um product mark ets by developi ng strong relationshi ps with customers as well as offering a wi de range of p roducts and excellent customer service. Changes in import s in the Ru ssian market, thousand tonne s 31 Source : Metal Expert The Group’s products Long and hot-ro lled product s Production capaci ties: - long products – 1 .9 mt pa - h ot -roll ed products – 13 - 13 .7 mt pa Capacity utili sation rate : - long products – 94 % - hot-roll ed products – 98 % Long products : 1. 16 m t sold in 2021 , – 9.0% year- on - year. PJSC MMK manufactur es l ong products at i ts facil ities i n Magni togorsk. Its l ong pr oducts ar e used by th e Group i n metal ware producti on and are also suppli ed to the domestic and i nternational metalware, constructi on, machi ne-bu ilding, an d other industri es. In 2021, sales of l ong products de creased b y 9.0% yea r - on -y ear to 1,161 thousand tonnes primaril y as a result of schedu led repairs of rolling equi pment. Hot-rolled product s : 5.91 mt sol d in 2021 , +37% year- on -year. Hot -rol led steel i s produced at faciliti es i n Russi a, and Turkey, an d shi pped to the Group companies to manufa cture p remium product s a s well as to th e d omestic an d i nternational constructi on, machin e-building, and many other ind ustries. In 2021, sales of h ot-roll ed products grew 37.0% year- on - year to 5,914 thousand tonnes, reflectin g higher pr oducti on by Hot -Roll ing Mill 2500 followin g its upgrade i n mi d-20 20 and the rel aunch of steel and h ot- rolli ng facili ties at the St eel Turkey segment i n Ju ly 2021 ami d favourable gl obal market condi tions. 31 Net of rails. 0 200 400 600 800 1000 1200 1400 Оцинкованный прокат Полимеры Толстолистовой г/к прокат Х/к прокат Сортовой прокат Тонколистовой г/к прокат Жесть белая 2020 2021 Tinplate Hot-rolled thin sheets Long products Cold-rolled produ cts Hot-rolled thick sheets Polymer-coate d steel Galvanised steel 1,0 00 1, 2 00 1,4 00 MMK INTEGRATED ANNUAL REPORT 55 Premium product s Production capaci ties: 6 mt pa Premium p roducts sales : 5.2 mt , +1 .3% year- on -year Capacity utili sation rate : - Thick pl ate (Mill 5000) – 99% - Cold-roll ed products – 9 1% - Coated steel product s 32 – 89% In 2021, sales of premi um product s were up by 1.3% y ear- on -yea r to 5,211 thousand tonnes. A margi nal 1.4% year- on -year d ecrease i n sales of th ick pl ate by Mill 50 00 to 829 t housand tonnes was due to e qui pment overhauls durin g the y ear. Cold -roll ed pr oduct sales for 2021 decreased sligh tly year- on -year to 873 t housand tonnes. In May 2021, we l aunched the newly u pgraded Cold - Rollin g Mill 1700 at th e Magnitogorsk sit e. The 14.8% in crease in g alvani sed ste el sal es i n 2021 to 1,992 thous and tonnes was du e to stronger demand b oth domesti call y and globally ami d positi ve macroeconomi c trends. Sales of polymer- coated ste el for 2021 fell 14.3% t o 614 thousand tonnes due to hi gher margi ns from sales of gal vani sed steel. Sales of premium products , thous and tonnes How we integrate sustainability into our business processes - Ai ming to make o ur o wn pro duct s p art of t he solution to the chall enges of cl imat e chan ge: the use of th ick pl ates from MMK’s Hot -Rolli ng Mill 5000 i n the constructi on of t he bas e and sup ports of wind -driven generators; - Dev elopment of i nnovative product s with a l ow carbon footp rint - products made of the high - strength and wear- resistan t steels MAGSTRON G. 2022 PRIORIT IES In 2022 w e in tend to fu rther strength en our l eadershi p in Russia, whi ch is our priori ty market, and mai ntain our leadi ng position i n the premium produ cts market by e xpanding our product range. We will conti nue developi ng our Marketpl ace, lau nched i n 2021 . Sales exce eded 10 th ousand tonnes i n 2021, an d we have pl ans to i ncrease sal es through the Ma rketplace sev eral ti mes over by diversifyi ng our customer base. 32 Galvanised and polymer-coated st eel. 4,253 5,426 5,482 5,143 5,211 2,000 3,000 4,000 5,000 6,000 2017 2018 2019 2020 2021 6,0 00 5,0 00 4,0 00 3,0 00 2,0 00 MMK INTEGRATED ANNUAL REPORT 56 We plan to ramp up produ ction of hot-roll ed products at the Steel Turkey segment , and expect to reach full production capacity by the year-en d. O verall , we aim to in crease our output to 1.6 milli on tonnes in 2022. As a busi ness fi rmly commi tted to sustai nabili ty, we wi ll ma intain our f ocus on bui l ding a cul ture of saf ety at work, maki ng fu rther progress t owards our goal o f z ero -injuri es operati ons. We wi ll also continu e to reduce emissi ons and water dischar ges. The new c oke an d by -product pl ant that we are bui lding will reduce both producti on costs and our environmental footprin t. MMK INTEGRATED ANNUAL REPORT 57 INTELLECTUAL CAPITAL We seek to i mprove our practi ces usin g all availab le i nstruments an d impl ement an i nnovative approach to t ransformi ng of our busi ness acti viti es. We take f ull advantage o f the l atest t echnologies and R&D sol utions to incre ase effici ency and boost our p erformance as a responsi ble, sustainabl e busin ess. Ou r Digi talisation strategy represents o ur commitment to inn ovation in the reali sation of our projects. $10 m INCREMENTAL E BITDA IN COME FROM DIGITALI SATION STRATEGY $5 .5m R&D SPEND 961 ths tonnes OF NEW INN OVATIVE PRODUCTS P RODUCED CORE SDG'S: MATERIAL ISSUES: 1 , 3, 4, 5, 6, 7, 9, 10 , 13, 14 To be the best suppl i er LINK TO STRATEGY: TRADE- OFF : Investments i n R&D and di gital t echnologi es to r each a new level of produ ction organi zation and consu mer value creati on 4 2 PATENTS G RANTED AND 2 APPLICATION S FOR A N INVENTION SUBMI TTED A changing business envi ronment and incr easing competiti on drive the MMK Group to leverag e opportuni ties in rese arch , technological development, and digitali sation to reduce the negati ve impact on the environment, local commun iti es, and MMK employees. The MMK Group’s research and t echnical capabili ties are aimed at driving product innovati on (inclu ding products with a low envi ronmental impact) , whil e our di gital i niti atives enabl e p rocess optimisati on and transformati on, del ivering gai ns in producti vity, safety, and tran sparency. In t he report ing period, the Digi tal Commi ttee was establi shed, a gove rning body responsi bl e for implementi ng the Digi talisati on Strategy, ch aired by the CE O and comp osed of top manage rs. Th e Committee reviews an d vets digital i nitiatives and projects. The Commi ttee consi ders and makes decisions on a whole range of issues related to the digi tal initiati ves and their tr anslati on into pro jects . It m onitors imp lementati on and takes decisi ons on i ndividual digitali sation projects and the project portfoli o as a wh ole, updat es the MMK Digitali sation Strategy, an d addresses meth odologi cal and organisati onal issues that contribute to th e successful i mplementati on of the Strategy. As a resul t of resol uti ons of t he Digi tal Commi ttee, c enters of ex cellence (Internet of Things, BI , RPA, Machi ne Learning, and Mobility) were set up wit hin MMK. In 2021, the Di gitali sation Expert Group (DEG) was establi shed to add ress the chall enges of digital transformati on. T he key role of t he DEG is t o generate new di gi tal ideas, conduct comprehens ive expertise of initiati ves submitted to the Digi tal Commit tee, an d form a creative environment that promotes t he a ctive parti cipation of MMK busi ness uni ts’ employees in di gital transformation. Led by the Chi ef Di gital Transformati on Officer, it is c ompo s ed of dig ital champ ions an d the heads of centers of excellence. Digit al champions re present vari ous units of MMK across 11 busi ness lines and combi ne their activi ties with their ma in jobs on the shop fl oor. Their task i s to generate and impl ement new digital ideas that are subsequentl y submi tted for di scussion to th e Ex pert Group an d, together with other matters rel ated to di gitalisati on, to the Expert Counci l. In 2021, regul ations governi ng the activi ties of collecti ve bodies respon sible for digi talisati o n (Digi tal Commi ttee, DEG) were up dated and approved. Plan s fo r 20 22 incl ude t he development and approval of the R egulations on Manag ing Di gital Projects and the Regu lati ons on Digit al Procurement. MMK INTEGRATED ANNUAL REPORT 58 The Securit y Director is r esponsi ble for organising interacti ons on information security between MMK uni ts, wi th the Inf ormation Securi ty Tea m of th e Securi ty Uni t reporting to hi m. The h eads of units desig nate employees responsible for informati on security within thei r teams. The Group’s standi ng commissi on on technical protection of in formation and automated process control syst ems (APCS) coordi nates and manages in formation securit y at MMK and th e MMK Group subsidiari es. MMK compli es with Russ ia’s l egal requi rements for criti cal informati on infrastructur e and personal data prot ection. The Chi ef Executi ve Officer is responsib le for organi sing personal data processing. MMK has a standi ng commi ssion on personal d ata protecti on in pl ace, which i s chaired by the Director for Huma n Resources. Information securi ty man agement an d personal data protecti on a re governed by a numb er of internal documents i ncludin g standards, guidelin es and regulati ons of MMK an d the MMK Gro up. I n the reporting per iod, an Information Security Policy was adopted an d published on the MMK we bsi te in the Documents of Compan y secti on. In Dec ember 2021, Gui deli nes for A ssessing Informati on Security Risks were appr oved by the CEO and made effecti ve at the Company. DIGITALISATIO N, RESEARCH AND IN NOVATION Digitalisation and innovation Unlocki ng the potential of di gi tal technol ogy an d innovati on i s a strategi c driver of th e MMK Group’s sustai nable growth and devel opment. By combi ning information and operational techn o l ogies and processes into a unified digital platform, we were abl e to s et u p more s ecure, transpar ent, and smart producti on operati ons. The digital plat form i s a key element of the Company's digi tal transformation. The digi tal platform i s a set of comp onents for data col lection, storag e and management, platform manag ement, and tool s for deployi ng di gital services. Transi ti on to a sing le pl atform wil l enable the Comp any to reduce the time (up to 60%) and cost (up t o 25%) of i mpl ement i ng di gital projects , as w ell as t o optimi se operating costs for supporti ng digi tal solutions (up to 20 %). Th e main contri buters t o these improvements are an i ncrease in data col lecti on, dat a quali ty, structured storag e, and the use of s pecial modules to quickl y buil d digi tal solutions. Th e most st riki ng examples ar e projects i n t he field of Data Science usi ng machi ne l earning methods, ad vanced an alyti cs and Bi g Data to bui ld pre dicti ve and optimi sation mathematical models. Digital platform is t he core of digital transform ation at MMK MMK INTEGRATED ANNUAL REPORT 59 During 2021, we continued to advan ce our approved projects wi thin MMK’s Digi talisation Strategy, whi ch includes 197 projects and i nitiati ves. Our 2020 – 2024 di gital p ortfolio sup ports the priority focus ar eas of t he MMK Group’s D evelopment Strateg y: Strategic pil lars Strategic objectives Key areas of digitalisatio n Number of digital projects To be the be st supplier - Customer focus - Superior p roduct portfolio - Using Big Data and machin e learning to buil d mutually beneficial partne rships - Implementi ng platform solut ions for custo mer interaction 10 To be a leader in operational excellence Leadership in production ef ficiency - Using mathema tical modellin g to streamline product ion processes - Predictive an alytics to impr ove maintenan ce and repair performance - Machin e vision for product quality control - Creating digit al twins and developing IoT tech nologies 148 Excellence in procurement an d supply chain management - Unmann ed vehicles to optimi se internal lo gistics - Using Big Data and digital twi ns to optimise the supply chain - Digitisation o f supplier relati onship managemen t processes 32 To be a responsible, sustainable business (ESG) Continually improving environmenta l performance an d reduction in CO 2 emissions - ML 33 - gas leak detection of coke batteries - ML - monitoring acciden tal emissions 7 Zero injuries - MV 34 employee trac king in haza rdous areas - MV - monitoring OHS compliance The estimated economic imp act from the digitali sation strateg y for 2020 – 2025, $m HR manageme nt and HSE projects In the reporti ng p eriod, the Health , Safety and En vironment Directorate implemented a numb er of i nnovative occupati onal health projects, i ncludi ng the r ollout of a system for employee tracki ng i n hazardous areas wi thin the coke shop . The system’s purpo se i s to create th e sa fest p ossi ble wo rkplaces through the automati on of production processes. The s ystem is innovative i n that i t detects employees in hazardous areas (1 to 10 meters away from a movi ng machine) and sends a si gnal to perform a forced shutdown of the equipment. This feature wi ll be i mplemented in the coke sh op by mi d -2022 and is also being actively depl oyed in the blast furnace , electric- arc furnace and basic -oxygen furnace shops. 33 ML - Machine Lea rning. 34 MV - Machine Vision. 10 20 30 Incrementa l EBITDA in 202 1 vs 2019 Incrementa l EBITDA in 202 2-2025 vs 2021 Incrementa l EBITDA in 202 5 vs 2019 MMK INTEGRATED ANNUAL REPORT 60 In 20 22, i t i s expected to s cale up the oc cupational heal th project which was imp lemented i n the BOF shop i n 2021 . The project c onsists i n organi sing daily OHS checks of employees wi th th e use of fa ce recogni tion terminal s i nstalled i n the subdivisi ons. VR -technol ogies are i mplemented at the MMK Safety School to tr ain employees on occupati onal safety i ssues . In the repo rting period, the Safety Navigator system wa s rolled out to captur e haz ardous activi ti es an d con ditions at producti on sites. The mobile app wi ll enable shop man agers and foremen t o capture various OHS breach es and ga ps by taking pictures. A s probl ems are fixed, the system ticks off the checkli st, and a weekly report is generated for the en tire ente rprise. The MMK Group leverages inn ovative s oluti ons to address envi ronment al i ssues. To t his end, we impl emented a pi l ot proj ect wit h machin e vision technology to captu re emissi ons from c oke-ov en batteries and coke shop, as wel l as from BOF a nd EAF sh ops. In late 2021 , w e lau nched an HR managemen t pl atform to track MMK employees’ ca reer development and tr aini ng. In add iti on, a mobil e ap p for shop -floor staff has been developed and rolled out to hel p th em keep track of qual ity and producti vity metr i cs, i ncluding OTIF (On Ti me In Full , the number of orders ful fill ed on time in full in the selected peri od divi ded by the total nu mber of orders), both for the entire plant and for their specifi c shop area an d u nit. The app is design ed to motivate employe es to m eet the MMK Group’ s global strategic in dicator target In 2021 , we impl emented t he followi ng digi tal projects to r educe emissions i nto the atmosphere: ML - gas leak detectio n of coke batter ies - CAPEX – $0 .7m - Reduction of CO and hy drocarbon emissi ons – 21% ML -monitoring a ccidental em issions - CAPEX – $0 .2m - Reduction of dust emissi ons from steelmaki ng – 24% MMK INTEGRATED ANNUAL REPORT 61 Cooperation to drive innovation In 2021, the MMK Group signed 25 new agreements wit h partners for R&D, producti on operations, and pre-f easibili ty studi es. T o elaborate di gital i nitiati ves , impl ement di gital projects and R&D, MMK partn ered with: - Nos ov Magni togorsk State Techni cal Uni versity represented by L LC R&D MGTU; - Skol kovo Innovati on Centre (Mos cow) ; - Innop olis Uni versity (Kazan ); - AI Cluster (Novosi birsk) . In the reportin g peri od, the Temporary Procedure for Organi si ng and Implementi ng R&D, Production Operations, and Pre-f easibil ity Studies at MMK wit h the Involvement of Third Parties was approved and adopted. Digital transform ation of m aintenance and repair oper ations MMK conti nues to impl ement di gital solutions for main tenance and repai r. Dedicated systems are i ntroduced to monitor process equipment maintenance using NFC tag s and a system to track maint enance an d repair staff, which enabl es map ping a dynami c walk-around route. The e xpected economic benefi ts include a redu ction in inventory and human resource requirem ents by up to 3%. The foll owing maintenance and repai r initi atives were lau nched in 2021: - Cent rali sation of weighi ng pr ocedures (centralised within MMK’s single weighing contro l room); - Di gital worker model (empl oyee trackin g system) ; - Th e centr e fo r predi ctive diagnosti cs of MMK’s process equipment (centrali sation of competent experts in the di agnostic control centre to i mp rove the reli ability of p rocess equi pment operation and reduce unpl anned downti me). These projects improve the effici ency of MM K’s equip ment repair services and d eli ver an additi onal economic benefi t of over $ 1.15 mill ion. As part of the L eadership in Prod uction Efficiency st rategic i nitiati ve, 92 activities w ere design ed in 2021 to upgrad e MMK’s equipment by 20 25, ai med at improving equi pment performan ce an d reducing maintenance and repair costs. These initi atives wi ll reduce or eliminate equipment failure s by upgradi ng production unit s. In 20 21, a new uni t, the Centre for P redi ctive Diagnosti cs o f MMK’s Process Equipment, was set up to ensu re comp rehensi ve monitori ng, diag nostics, and predicti on of equ ipment failures to streamli ne maint enance and repair p lan ning. The p roject will h elp reduce l osses c aused by unpl anned downti me of core process equi pment by up to 3% and swi tch to a condition -based mai ntenance strategy R&D The MMK Group’s resea rch and development (R& D) and technol ogy projects cover th e entire value chai n, focusi ng primaril y on research into metal lurgy and the environment. R esearch i s consistentl y aimed at improving the MMK Group’s approaches to process management, optimi sing the use of natural raw materi als and energy resou rces, and de velopin g high-t ech products. In 2021 , th e MMK Group full y achieved its objectives: the Gr oup hit 100% of its targets in improvi ng technol ogy an d developi ng new type s of products, and ensu red the c ompleti on of all R&D projects. MMK i nvestments i n digitalisati on , R&D and rati onali sation activi ty i n 2021 was approxi mately $5.5 milli on . As of th e end of th e reporting period, 13 projects w ere ful l y i mplemented and closed, wi th a total expected economi c imp act of $669,700 per yea r. Cluster technol ogy for producing hi gh-strength cold-rol led and hot-di p g alvani sed fl at -rolled products of di fferent types from steel of th e same chemical compositi on, a h igh -tech sol ution for the au tomotive indu stry developed joi ntly by MMK and Bardin Central Research Insti tute for Ferr ous Metal lurgy, was awarded the gold medal at the 27th internati onal industri al exhibition Metal - Expo’2021. MMK pioneered the producti on of S900MC ul tra -hig h-strength hot- rolled steel coi ls wi th wall thickness from 4.0 to 8.0 mm. The new te chnol ogy enabl ed us to m eet th e entire ran ge of techni cal MMK INTEGRATED ANNUAL REPORT 62 requirements for the pr oducts. We plan to devel op an d operationali se technology for manufa cturing new corrosion -resistan t hot-roll ed coils from new steel grades of strength clas ses K52 – K56. In addit ion, d uring the reporti ng period, we co mpleted r esearch and devel opment wit hin th e followin g government-s ponsored proje cts: - Li nes o f n ew multi functional material s for ext reme condi tions h ave b een developed (j ointly with th e Ministry of Sci ence and Hi gher Educati on); - Technol ogies hav e been developed (join tly wi th the Mini stry of Industry and T rade) for producing breakthrough col d- rolled automotive pl ates wi th i mproved c orrosion r esistance, surface quality, and formabi lity for th e automot ive and oth er industri es. INFORMATIO N SECURITY AND CYBE R RISKS In 2021, the Company i mplemented a numb er of in formation protection and cyber risk miti gation measures. - It also signed a contract f or imp lementing technology sol uti ons to protect its critical informati on infrastructure. - A t otal of 25 producti on units across MMK conducted c omputer securi ty incid ent drills. - Th e Company si gned a servi ce contract for organising and running an i nternal commun ications campaign until Ap ril 2022 to raise awareness of i nformation securi ty issues among M MK emplo yees. - Th e Company has al so impl emented a pil ot project on mobil e device control . - MMK runs regular camp aig ns to identify and elimi nate vuln erabilities across key data assets. - Two n ew personal data information systems hav e been upgraded wi th techni cal safeguards. In the reporti ng p eriod, 507 breach es of i nformation security requirements were i denti fied at MMK (with a total of 64 9 b reaches at the MMK Gr oup). A t otal of 127 MMK o r M MK Group em ployees were discip lined over the i ncid ents. Guidelin es on Incident Manag ement i n the Co rporate Informati on System o f MMK and MMK Group Subsidiaries set forth the general procedure for employees to respond to su spected information security / cyber se curity breaches. MMK also r oll ed out a Response Pl an t o Handl e and Resp ond to Computer Securi ty Incidents and Cyberattack s. Regular newsl etters are sent out to update e mployees of th e MMK Group o n the thr eats of phishing emails an d the rul es of handli ng such l etters. Empl oyees can r eport suspected phi shing email s to a singl e address at s [email protected] . 2022 PRIORIT IES Next year, the MMK Group pl ans to: - i mplement a digital transformation plan focused on boosting idea generation and acce lerati ng projects; - d evelop digital strategies for b usiness segments (metal l urgy, roll ed pro ducts, and maint enance and repair) ; - conti nue developi ng the li nes of new mult ifunctional mat erials for extreme condi tions ; - conti nue developi ng and o perati onalisin g technology for the producti on of breakthroug h cold - rolled automoti ve plates wi th improved properti es for various i ndustries ; - l aunch a project t o devel op chemi cal compound an d new t echnologi es to produc e niobi um - free steel; - conti nue protection measures for i ts cri tic al information in frastructure, corporate n etwork resources, and APCS n etworks ; - conti nue to raise empl oyee awa reness of informa tion security i ssues ; - i mplement the informati on security risk mana gement and m obile devi ce control proces s es. The C ompany h as establi shed a bl ueprint for rollin g out i ts Securi ty Operations Centre (S OC), a computer security centre created t o protect an d improve t he r eli ability of the MMK Group’s IT infrastructure. MMK INTEGRATED ANNUAL REPORT 63 NATURAL CAPITAL We f ocus on ensuring environmental safe ty at all stages of the product li fe cycle and supportin g global efforts to combat cl ima te chang e. We a re contin uously working to imp rove our environment al management system, decreas e greenhouse gas emissions, and mitigate clima te risks. The impl ementation of the best avail able technol ogies enabl es us to achi eve the establi shed targets related to responsibl e environmental practices and cl imate change. 45 .9 5 mt of CO 2 e MMK’S GROSS GH G EMIS SIONS (SCOPE 1, 2, 3) 21 . 81 GJ/t of crude steel THE GROUP’S ENE RGY I NTE NSITY 5.8 COMPREHENSIVE AI R POLL UTION INDEX (CAPI) CORE SDG'S: MATERIAL ISSUES: 2 , 3, 4, 5, 6, 7, 8, 12 , 13, 14 LINK TO STRATEG Y : TRADE- OFF: Investments in devel opment in 2022- 2025 i ncreased by 30% to $1.25 billi on on the back of signi ficant environmental investments t o mi ti gate any adve rse envi ronment al i mpacts on our employees and commu ni ties 1. 7% REDUCTION IN WASTE GE NERATION ACROSS THE GROUP YEAR- ON -YE AR The MMK Group suppo rts gl obal efforts to preve nt cli mate chang e and imp lements best practi ces to reduc e g reenhouse g as (GHG) emissions. MMK’s Environmental Pol icy establ ishes cl i mate-change commitments at the G roup l evel, wi th 1.8 t onnes of CO 2 equi valent per tonne o f crude st eel set as a 2025 target (Scope 1 an d 2) in the Group’s Strategy 2025. High energ y effi ciency and produ ction upgrades are t he key steps taken by the G roup t o d ecarboni se i ts val ue chain. Offeri ng more i nnovati ve low-carbon products (MAGSTRO NG hi gh- strength steel grade) to our customers is al so a major acti on area. The MMK Group i s co mmit ted to i dentifying and assessi ng c lima te- related physical and transition risks as recommend ed by TCFD ( Task Force on Cl imate -R elated Finan cial Discl osures) 35 , wi th climate risk management made part of th e corporate ri sk managemen t system. Cl ima te risk metri cs are r eviewed by th e Gr oup’s seni or manag ement and consid ered as a p art of b usiness pl anning, and specificall y i n desi gning climate -acti on i nitiatives. Cl i mate agenda is reg ularly discussed at t he Board meetings to track progress on our ann ounced decarboni sation ini tiatives. Environmental safety is a top pri ority for the Group as we remain commi tted to embeddi ng environmental impact mi nimisation and ma nagement i nto our op erat ions. The MMK Group’s seni or management is closely in volved in the review of envi ronmental agenda at the Board an d HSE Committee meetin gs and keeps t rack of progress o n plan ned environmental activities. The C EO makes sure the envi ronmental management s ystem is effective, whil e the Di rector for Healt h, Safe ty and Environment is i n charge of managi ng the process. The MMK Group al so has the Environ mental Protection Laboratory, a u nit that sets the requi rements for the environmental management system (EMS) and checks environmental compli ance across production un its. The envi ronmental ma nagement syst ems of M MK and some of its sub sidi aries are certified t o ISO 14001 or G OST R ISO 14001 (i ts Russian equi valent) and are sub ject to regular surveill ance or recertifi cation audit s by an ind ependent b ody. I n 2021, th e ab ove sys tems successful ly pass ed an external surv eill ance audit to verify pr evious c ertificates of conformi ty. Al so, 2021 saw the EMS coverage expanded to MMK’s uni ts invol ved in the sale of fin ished pr od ucts. 35 More informat ion about clima te risk mana gement will be p rovided in th e 2021 Susta inability Report. To be a responsi ble and sustainabl e business (E SG) MMK INTEGRATED ANNUAL REPORT 64 MMK’s Environ mental Policy , which includ es gui ding pri nciples and c ommi tments for all area s of environmental prot ection, i s maint ained as a key h igh -level d ocument. No cha nges were m ade to the internal EMS documents by th e MMK Group i n 20 21. CLIMATE CHANGE AND ENERGY EFFIC IENCY Combating climate change The MMK Gr oup’s Strategy 2025 sets an am biti ous goal of reduci ng specifi c GHG emi ssions to 1.8 tonnes of CO 2 equival ent per tonne of crude steel (Scope 1 and 2) by 2025, largel y through major innovati ve i nvestment projects (construction of Coke-O ven Battery #12 and Blast Furnace #11) which will curb t otal GHG emissi ons by more than 2.8 mi lli on tonn es of C O 2 equi valent. These projects ar e already underway. In 2 021, progress was made in constructi on and i nstall ation for t he new coke - oven battery, slated for c ommi ssioning in 202 3. During the year, MMK signed a contract for the construction of a new blast furnace. Th is project involves the use o f the foll owing state - of -t he-art technol ogies to reduce GHG emi ssions: − Top-fired hot- blast stoves. − Top-pressure recove ry turbi ne to generate electri city without gas firing . − SYNGAS inj ection in to the furnace shaft to lowe r the co ke rate. − Bell ows-type tuyere stocks to reduce th e coke rate . In 2021, MMK signed a partnership agreement wit h a meta llurgi cal equipment manufacturer to jointl y research and sh ortli st d ecarbonisation initiati ves that can p otentiall y be rolled out at MMK. Looking beyond 2025, the MMK Group i s considering the use of technol ogies such as carbon ca pture, utilisati on and st orage ( CCUS), a s wel l as th e t ransition t o hydrogen -b ased di rect reduc ed i ron (DR I and HBI), and th e use of submerg ed-arc furnaces process. MMK has been takin g i nventory of GHG emi ssions since 2016 , consistentl y improvi ng the q uality and compl eteness of di sclosures. Fo r all direct (Scop e 1) emi ssions, apart from mobi le combusti on, CO 2 emissi ons are cal cul ated based on a l ocal regulatory d ocu ment (Order of th e Russi an Mi nistry of Natural Resources and Environment No. 300 dated 30 June 2015 36 ), while mobile combusti on emissions are cal culat ed according to the gui dance i n t he 2006 IPCC Guidelines 37 . The emissi on factor s we u se for Scope 2 (purchas ed energy) and S cope 3 (upstream and downstream) emissions are based on publi cly availabl e data. MMK’s gr oss (S cope 1, 2, an d 3) GHG emissi ons ov er 2021 total led 38.9 milli on tonnes of CO 2 equivalent, up 2.5% year- on -y ear as the resul t of high er steel outp ut. MMK’s gross (Scope 1, 2, and 3) GHG emissi ons over 2019 – 20 21, million tonnes of CO 2 equivale nt MMK has improved on last year’s performance on specifi c GHG emissions (Scope 1, 2) (1.95 vs 2.18 tonnes of CO 2 equival ent per t onne of crude steel ) l argely through increased EAF steel production and lower coke rat e . 36 Order of the Russian Ministry of Natural Resources and Environment No. 300 On Approval of Recommen ded Practices and Guidelines for Measurem ent of GHG Emissions b y Business and O ther Entities Operating in the Russian Federation, dated 30 June 2015. 37 2006 IPCC Guideli nes for Nation al Greenhouse Ga s Invento ries. 40.7 38.0 38.9 2019 2020 2021 Gross GHG emission s , mt of СО 2 e MMK INTEGRATED ANNUAL REPORT 65 Quanti fication of G HG emissi ons (Scope 1, 2, a nd 3) across th e MMK Group’s key operati ons marked an i mportant mil estone in 2021 . Total GHG emissi ons of MMK and its 11 subsi diaries amounted to 45.95 mill ion tonnes of CO 2 equival ent in 2021, wi th resul ts verifi ed by BS I, an i ndependent internati onal organisati on. Making our first Carbon Disclosure Project (CDP) discl osure and scorin g a C rating for the 2020 climate change metric was another milestone for the Group during the year. We are planni ng to make CDP discl osures a regular exercise to track progress in managin g o ur GHG emissi ons and climate risks Energy efficie ncy and c onsumption The CE O ann uall y approves targets for saving key energy resources we consume, as wel l as the energy savi ng an d ene rgy efficiency p rogramme, whi ch i ncludes i nitiatives to cut energy c osts acr oss the Group. These initiati ves not only save costs bu t al so g o a long way towards reducing GHG emissions. MMK’s En ergy Pol icy se ts out th e Group’s approach t o energy savi ng and efficiency dri ven by improvements in the energy manag ement system , energy moni tori ng and rati oning, empl oyee traini ng, and energy recovery. MMK’s energy manage ment system (EnMS) has been c ertified to ISO 50001:2018 by an internati onally recogni sed organisati on. In 202 1, EnMS suc c essfull y passed an external surveill ance audit followin g preparat ions which involved a n internal audit programme a cross MMK ’s u nits and employee train ing, wit h recertificati on audit schedul ed for 2022. The Group made the followin g improvements to i ts energy managem ent system in 202 1: − Updat e of the standards that set requ irements for sustainab le energy u se / acc ountin g for energy consumption, as wel l as for th e stages i nvolved i n proposing and i mplementi ng energy efficiency projects . − Start of th e devel opment of a l oad manag ement project to r educe electrici ty consumpti on during peak hours when pri ces are the hi ghest. − Launch of monthly meetin gs wi th b oth MMK employees i n charge of powe r fa ciliti es and subsidiary representati ves t o further incentivi se t he wo rkforce to take own ershi p of energy management and effi ciency. − Furth er imp rovements t o t he Energy Managem ent Pl atform, and lau nch of M MK - Evoluti on, a single system to register, monitor, and manage sugg estions, ideas, and projects. The in tegration of this new busi ness s ystem wi th an idea tracki ng modul e wi thin th e Energ y Manag ement Pl atform h as enabled MMK to i mplement more energy effi ciency suggesti ons and do it faster. The Energy effici ency map, a r ecent i mprovement to the An alyti cs modu le of the Pl atform , h as enabled real- time analysis and adju stment of fuel and energy consumpt ion at MMK un its. The c overage of the Anal yti cs module is expected to b e extended in 2022. 2021 saw a number o f ene rg y savin g and effici ency i niti atives, i ncludi ng low-bu dget, high- impact projects (qu ick wins) and effi ciency su ggestions submi tted through t he En ergy Manag ement Platform. Also, the provider under o ur energy services agreem ent 38 partially upgraded lig hting fixtures within MMK ’s Chief Power Engi neer Office shop - level g eneral lig hting systems. In 20 21, we re duced our c onsumpti on of natural gas b y minimi sing bleeder losses and bo osting the u se of secondar y en ergy resources (coke oven and bl ast furnace ga ses) to powe r ou r cent ral and steam turbine pow er pl ants. To reduce b leeder c oke ga s losses, MMK swi tched to dail y pl anning of coke ga s consumpti on an d an alysed deviati ons f rom targ ets. 2021 saw a coke gas - fired mi ni-CHPP (small combined heat and power plan t) up and running. Upgrade of a turbi ne’s d uct section with replacement of stator/rotor stages and diaphragms also cont ributed to reducing our c onsumpt ion of natural gas. The MMK Group’s energy intensi ty for 2021 was 21.81 GJ/t o f crude steel, down 0.3% year - on - year, largely due t o a 13% increase i n steel produ ction and a 2.9% reducti on in pig iron rati o. 38 The cost savings generated t hrough th e agreement ar e shared between a beneficia ry and a se rvices provider. MMK INTEGRATED ANNUAL REPORT 66 MMK ’ s energy con sumpti on for 2021 is 24.72 GJ/t of crude steel . The MMK Group sees bright pro spects for the use of r enewables for power generation. I n 2021, MMK and an ene rgy company si gned a memor andum of cooperati on in renewable en ergy. Un der thi s agreement, MMK is con sidering renewable el ectricity p urchases for powerin g it s assets and/or purchasing Inte rnational Renewabl e Energy Certi ficate St andard (I -R EC) gr een certifi cates. We a re also looki ng into the vi ability and economics of a wind farm project near Magni togorsk . ENVIRONMEN TAL PROTECTION MMK d efined envi ronmen tal goals i n compli ance wi th i ts Envi ronmental Pol icy. Fol lowin g these goals the MMK Group develops and ap proves a n annual Environmental Programme wh i ch sets out a range of envi ronmental protection initiati ves ( water an d air protection, initiatives to extra ct value from waste, and land reclamati on). In 2021, The MMK Group developed its Environmental Programme until 2030. MMK’s environm ental goals are se t in the Environmental Programme until 2025. To timely track progress towards the se goal s, MMK reviews actu al performance agai nst annu ally approved targ ets. MMK ’ s environment al targets 39 Within the Sinter Shop, Blast Furnace Shop, Coke and Ch emical By-Products Pla nt, Electric Arc Furnace Shop, an d Oxygen Converter sh op. № Environmental targets 2021 Plan 2021 Actual 1 Reduce Magnitogorsk ’ s CAPI to (units) 5.6 5.8 decline less than 5% 2 Reduce gross air emissions of pollutants to a level not exceeding (‘000 tonnes/year) 195.7 187 .1 3 Reduce specific dust emissions to a level not exceeding 39 (kg/t of steel) 0.92 0. 74 4 Reduce specific sulphur dioxide emissions to a level not exceeding 5 (kg/t of steel) 0.38 0. 32 5 Reduce specific nitrogen oxides emissions to a level not exceeding 5 (kg/t of steel) 0.5 9 0. 57 6 Use waste as secondary material resources in sinter charge (million tonnes/year) 1.86 1. 97 7 Recycle operating and waste slags (million tonnes/year) 10.3 10 .2 8 Perform the biological stage of damaged land reclamation of the Western Quarry in the Magnitnaya Mountain on an area of 8.14 hectares (%) 100 100 9 Perform the technical stage of damaged land reclamation at Phase 3 of the Western Quarry in the Magnitnaya Mountain on an area of 7 hectares (%) 7.0 9.8 10 Reduce specific GHG emissions to a level not exceeding (tCO 2 e/t of crude steel) 2.12 1. 95 11 Plant saplings under the greening and landscape restoration programmes (pcs.): MMK 6, 684 7, 764 Magnitogorsk 1, 620 1, 620 12 Conducting a comprehensive environmental survey and developing measures aimed at preserving, restoring and enhancing biodiversity,% 100 100 13 Perform the stocking of the Magnitogorsk Reservoir (carps ‘000 pcs .) 200 200 14 Define requirements for MMK suppliers that have an impact on the environment with awareness of their responsibility, (%) 100 100 MMK INTEGRATED ANNUAL REPORT 67 As i n the previous year, there w ere n o maj or e nvironmental i ncidents or accid ents as a r esult of t he Group’s operati ons in 2021. R egulat ory i nspections found n o si gnificant envi ronmental viol ations and d id not impose a ny non -fi nancial penalties i n 2021. In the reporti ng p eriod, no signi ficant environmental complaints were re ceived from lo cal communi ties about the MMK Gr oup’s operations. In 2021, MMK’s envi ronmental efforts were recogni sed with awards an d hi gh rankings : − MMK won th e Clean Ai r nati onal envi ronmental award in th e Eco-Fri endly Company cat egory. − MMK signi ficantly i mproved it s positi on in WWF Ru ssia’s Envi ronmental Responsibili ty Rati ng, now ranking fou rth. − MMK won the nati onal ECOTEC H LEADER award in the category "C onstructi on of Envi ronme ntal Faciliti es" for the impl ementation of it s environmental strategy . − The qu alit y of envi ronmental discl osures earn ed accl aim fr om AK&M and Expert R A rati ng agencies. Air quality imp act Air quality i mprovement is hi gh on the MMK Group’s environmental age nda. Comprehensi ve Air Polluti on I ndex (CAPI) 40 of Magni togorsk is a key metric to measure the Group’s impact on air quality. Best practi ces an d ad vanced techn ologi es ad opted by th e Group , in recent yea rs, hav e been p ushing CAPI towards ou r 2025 target of l ess than 5 un its. Comprehensive Air Pollution Index over 2 019 – 20 21, units In 2021, the Group’s gross emi ssions totalled 252 , 208 .8 tonnes, 10.3 % up year- on - year. MMK Group emi ssion reducti on initiati ves in li ne wi th th e Magni togorsk Compreh ensive Emissi on Red uction Plan, Emission Allowance Compl iance Plan, MMK Group ’s Envi ronmental Programm e unt il 2030, as well as annual programmes such as M MK G roup ’s Env ironmental Programme, Programme fo r the Redu cti on of Coke and By -Product Emissions, and Programme for t he Reducti on of Mi ning and Beneficiati on Emissions. The MMK Group conti nuously moni tors an d control s i ts emissi ons, wit h emission moni toring systems install ed for the ma in sources. In 2021 , MMK roll ed out 14 systems for p rocess uni ts i n its shops. The MMK Group is developin g a programme for g atherin g, storing, and analysing the emissions data. In the reporting period, an air quality monitoring station was launched in the Bruskovy villag e in Magnit ogorsk. In 2021, MMK imp lemented a rang e of ini tiatives to cut emissions from coke -oven batteries at coke an d b y-product fa cili ties. These i nvolved i nstalling emissi on detecti on and monitorin g systems (automated systems for detecti ng emissi on rat es from door l eaks and v ideo cameras on c oal storage bins), as well as technical measures t o fix c oke gas l eaks (i nstalling gas -ti ght doors and pneumati c sealin g system s, an d retrofi tting g as supply pipi ng and accessori es). The purchas e of two cok e ov en machin es with a coke -side dedu sting sy stem re duced the G roup’s coke dust emissi ons. Also, i n 2021, MMK was const ructin g a n ew Coke-Ov en Battery #12, whi ch will come on stream i n 2023, retiri ng obsolete facili ties, and reduci ng emissi ons. MMK i mpl emented a nu mber of emission cutting initi atives at its mi ning and beneficiation faciliti es in 2021: installati on of dust suppression systems in the burden preparation and blast furnace 40 CAP I is calculated a s a sum o f t he fi ve main pollutant s (particu late matter, carbon mono xide, ni trogen dioxide, f ormalde hyde, and benzo(a) pyrene), with absolute values of each con verted to th e number of maximum permissible conc entrations (M PCs). 6.8 6.1 5.8 2019 2020 2021 CAPI , units MMK INTEGRATED ANNUAL REPORT 68 shops; r etrofittin g of absorpti on facili ties at s ul phur capture syste ms to improve th e cleani ng of sinteri ng flue gas; and constructi on activiti es t o retrofit gas- cleani ng units at electric arc fu rnace (EAF) and basic oxyg en furnace (BOF) shops. Water impact The MMK Group i s commit ted to sust ainable and responsible water consumpti on as i t impl ements initi atives to reduce fr eshwater wi thdrawals and poll utant concentrati ons in wastewat er. The bul k of water u sed by the MMK Group comes from the Magnitogorsk reservoir, which is not a wat er-stress ed a rea 41 . Acco rding to the Wo rld Resources Insti tute (WRI) atl as 42 , an i nternati onall y recognised water ri sk t ool, th e h ost region of t he Ste el Turkey segment is e xperienci ng high wat er stress. Ste el Turkey se gment regularly measu res water yi elds of active w ells and analyses wat er samples on a dail y basis. In 2021 , no d ecrease in yi elds or changes in freshwat er qu ality were obse rved from the previ ous year . Steel Turkey segment is taking steps to reduce freshwat er consumpti on: − In 2021, a p roject was i nitiated to use neutr alised wat er f or th e sl udge co oling process, wi th progress made i n layin g a pipeline between th e neutrali sation facili ty and the sludg e dump . − A reverse osmosi s facility was install ed to pre- treat and desalt seawater for subsequent uses. − MMK i s explorin g the feasibili ty of rainwater har vesting projects fo r water saving . To furth er reduce water with drawals, th e Group is b oosting water recircul ation and sequenti al reuse (in mul tiple processes). Risks associ ated wi th pollu tant discharges t o water b odies are a ssessed and managed accordin g to the relevant environment al risk category in the corporate risk management sy stem. In order to reduce thes e water ri sks, the MMK Group m onitors wat er q uali ty across al l water wit hd rawal sources and water di scharge facili ties, as wel l as take s st eps to fu rther improve wa stewater treatm ent and phase out discharges. In 2021, MMK upgraded a mechani cal and biochemical wastewater treatment unit at its coke and b y- product ope rations. The c ommissi oning of a wastewater disposal system in 2021 to divert wastewat er from the Dolomi te open pit to Sl udge Du mp # 2 eli minated discharges (about 3.7 thousand tonnes p er year) i nto the Sukhay a Rechka Ri ver. The MMK Group proacti vely engages wi th stakeh ol ders on water management i ssues. In 2021, MMK t ook pa rt i n two meetin gs of the Basi n Council for th e Ural Basin Di strict. Also, the MMK Group supported the Russi an Steel Ass ociati on’s initiative concerni ng pricin g for surface water in take. Resource use and waste m anagement The MMK Group ’s operati ons generate Cl ass 1 to 5 waste (from extr emely haz ardous to vi rtuall y non-hazardous, ac cording to Russian classification), in cluding mining and beneficiation waste, in particular tailing s, gangue, and overburd en. Th e MMK Group i s constan tly reducing waste gen eration whil e boosting the waste recycl ing /reuse and safe disposal rat es. The heads of MMK’s u nits are u ltima tely respon sibl e for wast e man agement, i ncl uding support for envi ronmental initiati ves under app rov ed programmes, as well as complian ce with applicable regulatory r equirements and pr ovisions contai ned in in ternal d ocuments. The h ead of the Ru dni k unit at MMK’s mini ng and beneficiation operations i s responsi ble for man agi ng mini ng and beneficiation waste. The MMK Group has an extensive list of internal documents (EMS stand ards, operational procedures, etc.) covering waste management activities, including monitoring and maintenance processes for a tai ling s disposal facili ty (Sludge Dump #2). The Group moni tors an d i nspects waste dispo sal sites as part of i ts en vironmental mon itoring process. We pay pa rticul ar attenti on to hazard ous faci liti es, such as Sl udge Dump #2 and CHPP ash dump, wi th dedi cated teams moni toring so il, ai r, and radi ation l evels every year, and establ ishing groundwater comp ositi on and properties every qu arter. 41 This conclusion is based on the plan for integrated manage ment and protection of water bodies in the Ural River basin (Russia n part) prepa red by th e Russian Research In stitute for Integrated W ater Managem ent and Protection (FGBU R osNIIVH) as requested b y the Nizhne-Volz hsky Basin Wate r Departmen t of the Fede ral Water Res ources Agenc y. 42 Aqueduct Wate r Risk Atla s (wri.org). MMK INTEGRATED ANNUAL REPORT 69 In 2021, th e Group ( MMK an d 11 subsi di aries) generated a total of 14. 5 milli on tonnes of waste, inclu ding 11 .9 million tonnes at MMK, of whi ch 3.5 million tonnes was mining and beneficiation waste, down 1.7% year- on - year 43 (down 4% y ear- on -year at M MK). Thi s reduction wa s due to a decrease i n gangue volumes by 27 %. The prop ortion of w aste put bac k i nto the production process at t he MMK Group i ncreased by 61.8% i n 2021 (74.3% at MMK ), a s we chose to outs ource th e recycli ng and decontami nation of some waste pr eviously di sposed. In 2018, MMK added a n iron ore tailings beneficiati on line t o the sludge section at i ts ore beneficiati on pl ant. This l ine recovers c oncentrate wi th i ron c ontent of over 53 % f rom w et tai lings in Sludge Dump #2 to produce si nter at l ow cost. Over the recent years, the plant was retrofit ted into a unique facility for the R ussian metall urgical industry that b oasts a h igh -capacit y spi ral concentrator. In the reportin g period, MMK pr oduced 415 thou sand tonnes of i ron ore concentrate. Apart from recycled sludge, recycl ables li ke blast furnace waste and dust, mill scale, and screening s are used i n sint er makin g. R ecycled waste ac counts for mo re th an 20 % of si nter burden, whil e the share of reused i ron-contai ning waste i s close to 100%. In 2021 , M MK m oved forward wi th the project for l ubricant/coolan t recycl ing at rolli ng shops. In parti cular, we pr epared the design document ati on, purchased part of th e requi red equipment, made some constructi on progress, and r evamped the process buil ding. The facili ty is expected t o c ome on stream in l ate 2022. In th e re porti ng per iod , MMK initiated two con struction projects – a l andfill for mi ning and beneficiati on operatio ns, and a dry cooli ng si te for blast furnace slag . Also, in 2021, the MMK Group pressed ah ead wi th it s ini tiatives to cl ose and remedi ate wast e disposal and iron ore mi ning sites. Projects were developed t o rem ediate tailings and sl ag dumps. MMK made preparati ons f or reclai ming t he land at the Eastern op en pi t of Magni tnaya Moun tain. As for the Western open pi t, techn ical an d biologi cal stages reclai med 7.0 an d 8.1 hectares, r espectivel y. Al so, reclamation at the Podotval noye op en pi t was undertaken. In 20 2 1, M MK also l aunched a project to close thr ee l andfill cells for Class 3 oil waste and reclaim disturbed land. F ollowi ng a public consultati on in 2021 on th e right -bank taili ngs dam recl amation project, th e potential environmental impact of th e project was foun d to be acceptabl e. The MMK Group is commi tted to maintaining an open li ne of communi cation to its stakeholders to discuss environ mental protection issues and wast e manag ement i n parti cular. As pa rt of the W orld Environment Da y, MMK arrang ed the col le ction of spent bat teries and mercury -contai nin g l ight bu lbs in local communi ties, and e ngaged students and members of the Union of Young Metallurgi sts NGO to clean up the ci ty of Magni togorsk. Biodiversity Prior to l aunchi ng an investment project, MMK identi fies and assesses any biodi versity risks posed by the p roject and, i f necessary, d esigns compensat ory measures. MMK Group compan ies do not have op erati ons i n area s t hat are i nternationall y, nationall y, or l ocally recogni sed as val uable in terms of biodi versity. A CEO- approved Biodi versity Conservati on an d Improve ment P rogramme for t he Ch elyabi nsk Region i s in effect at the MMK G roup until 2023. The Programme i nvolves the fol lowing initi atives: − Cons erving and i mproving bi odiversity i n areas and water bodi es near MMK’s facili ties . − Restori ng and enhan cing the bi odiversity of fi sh stocks of the Ural River . − Enhan cing th e biodiversit y of the active storage portion of the Magn itogorsk reserv oir . − Greeni ng parks, po cket park s, soci al infrastructure faciliti es, streets and road s, and th e Company’s site i n Magnitogorsk . Conducti ng a comprehensi ve environm ental survey and devel oping i nitiatives to support biodiversity on adjacent lan ds are the essential stage of th e f irst initi ative. In 2021, a c ontract was 43 Comparative data of this indicator for previous periods, which were present ed in the 2020 I ntegrated Annual Report and earlier, have be en recalculat ed in compliance with the modified calcu lation metho dology int roduced in 2021. MMK INTEGRATED ANNUAL REPORT 70 signed wi th th e Severtsov Insti tute of Ecology and Ev olution, Ru ssian Academ y of Sci ences, to accompli sh this task. Also, in 2021, MMK compl eted the fin al stag e of fish stocking in the Magnitogorsk reservoir by rel easi ng more than 20 0 th ousand carp fry. Th us, th e reportin g pe riod witn essed the ful l compl etion of a compensatory m easure for th e separation dam built in 2018. In 2021, the MMK G roup conti nued b uilding g reen spaces in Magnitogorsk, p lanti ng more than 1,500 tree and 7,800 shrub sapli ngs in th e city, inclu ding at the sites of MMK ’s enterprises. 2022 PRIORIT IES Next year, MMK Group pl ans to: − Furth er i mprove it s energy manag ement syst em, in parti cular through di gital projects and improvements to i ts climate risk assessment a nd management p rocesses. − To conti nue graduall y reduce its GHG emissions on the path toward s carbon neutral ity . − To i mplement i ts annu al energy saving and energy effi ciency program me, as well as energy efficiency measures under its e nergy servi ces agreement (lighting upgrades and in stallation of frequency changers fo r steam boil er feed pumps). − To focus on ai r qual ity improvement agend a as part of i ts annual and medium -t erm programmes/pl ans. In parti cular, we wi ll forge ah ead wi th ongoing investment p rojects and further improve emissi ons monitori ng and control . − Bui ld a wastewater aerati on syste m which will reduce concent rations of iron, manganese, and petroleum products i n wastewater. Our medium -term plan s involve buildi ng a neutrali sation facility at Rollin g Shop #5 and upgradi ng the pri mary settling tan ks at blast furnace op erations. − Conti nue exi sting waste man agemen t and l and recl amation projects at retired facil ities, and also implement new initiati ves u nder the an nual Environmental Programme and t he MMK Group’s Environmental Programme unt il 2030. − Conti nue to i mpl ement biodiversity initiativ es under the Programme, specifi cally, the stocking of th e Mag nitogorsk reservoir with an expanded mix of fish speci es ( grass carp and big head), greening of Magni togorsk and the MMK sit e, surv eys of th e species comp ositi on of the flora and fauna near th e MM K site, and the d evelopment of app ropriat e initiatives. MMK INTEGRATED ANNUAL REPORT 71 HUMAN CAPITAL Our p eople are an essential element of the MMK Group's success. The knowledge , professionali sm and achi evements of all our employees make u s one of th e wo rld’s largest steel producers. T her efore, we attach parti cular importance to empl oyee’s well -bei ng and occupati onal safety, de velopment and in clusion. We respect hu man ri ghts, as well as prom ote di versity and equal opportuni ties. 53 , 285 people THE GROUP’S A VERAGE HEADCOUNT 25 . 3% PERCENTAGE OF WOMEN AMONG GROUP EMPLOYEE S 2020: 28. 3% 100% PERCENTAGE OF MMK EMPLOY EES COVERED BY THE COLLECTI VE BARGAINING AG REEMENT 2020: 100% CORE SDG'S: MATERIAL ISSUES: 2, 3, 4, 5, 6, 7, 8, 9 ,10, 12, 14 LINK TO STRATEGY: TRADE-OFFS: - fun ding for prog rammes and projects rel ated to COVID- 19 to keep employees h ealthy and maint ain continuous operati ons; - i nvesting in training and development to me et o ur goals of increasin g productivity an d developi ng a culture of opportuni ty . 0. 62 LTIFR, LOST T IME INJU RY FREQUENCY RAT E 24 , 554 PERSON-COUR SES TAKEN BY THE GROUP’S EMP LOYEES AS P ART OF THEIR OHS T RAINING PROGRAMMES Highly skill ed employees are the MMK Group’s key asset and the crucial element of its success, since t he Group’s pr oduction and ope rational effi ciency i s di rectly l inked to th eir pr ofessional ism, soci al well-b eing, and health. Creating decent and safe working conditi ons, improving the incentive and traini ng systems, and promoti ng employee d evelopment, as well as respectin g h uman rights ar e absolute pri orities for the MMK G roup. Functi onal HR manag ement at the MMK Group compl ies with MMK’s recomm ended stan dards. Depending on th eir sc ale and headcount, MMK enterpri ses have departm ents charg ed wit h HR responsibili ties and headed by HR lead ers. In 2021, MMK updated a number of i nternal documents, and developed and implement ed the HR Poli cy, Youth Poli cy, and other HR ma nagement poli cies – all availabl e on MMK’s websi te in th e Human Ri ghts sectio n. The Company performs regular identi fication and analysis of HR ri sks, designi ng relevant miti gation measures. In the reporti ng period, pri ncip al HR management risks remain ed unc hanged from 2020. As of 31 December 202 1, MMK’s average h eadcount totall ed 5 3,285 peopl e. Creating a safe w orkin g environment and p rotecti ng the h ealth of MMK Group emp loyees an d contractors i s our top priori ty as outli ned in th e MMK Group’s Strat egy 2025. Occupational heal th and safety (OHS) is regulated by the Health, Safety and Environment Commi ttee of the Board of Directors and dedicated sp eciali sts responsibl e for OHS across the organi sation. The Healt h, Safety and Environment C ommit tee hol ds meeti ngs every year i n accordance wit h the annual schedul e to di scuss OHS i niti atives an d acti vities, ac cidents an d in cidents, and othe r important safety matt ers. The Committee held th ree meetin gs in 2021. Al l acti vities devel oped and impl emented followi ng the meeting s are aimed at reduci ng in jury rates. To be a resposi ble and sustainabl e business (E SG) MMK INTEGRATED ANNUAL REPORT 72 Matters related to e nsuri ng healthy and safe working co ndi tions are g overned by t he MMK Group’s internal regulations and statutory requi rements. MMK’s main regul atory d ocument is the Occupational Health and Sa fety Policy , which outlines occupational safety goals, pri nciples, and commitments. The provi sions of the Poli cy apply to contracto r employees as wel l. At ten Group compani es, i ncluding MMK, the OHS manag ement system i s certi fied to ISO 45001 and has passed an ext ernal surveillan ce audit for compli ance with thi s standard in 2021. OUR EMPLOYEES Attraction, retenti on, and motivat ion The MMK Group actively cooperates wi th se condary and high er vocati onal educati on i nstitutions, and holds i ndu stry-specifi c conferences and other events to attract new tal ent. The MMK G roup u phol ds the requirement for job applican ts to have a vocati onal background or a relevant i ndustry skill s certifi cate. In 2021, empl oyees wi th an indu stry- specifi c d egree acc ounted for 93.3 % of new hi res at MMK Attracting new employees and engag ing yo ung talent Runnin g career gui dance ev ents for Mag nitogorsk school students i s th e first step i n at tracting potential employees to MMK and th e MMK Group. Prior to th e in troduction of C OVID -19 safety measures, M MK offered gui ded tours for school stude nt s, doi ng about 150 tours a y ear for m ore than 2,500 vi sit ors. Thi s pr ogramme will resume once th e si tuati on returns t o n ormal. As p art of MMK’s career gui dance efforts, MMK Group executives paid an ann ual visit to schools on 1 Septemb er 2021 and spo ke to fut ure g raduates. In ad diti on, the Un ion of Y oung M etall urgists runs car eer gu idance events at school s, with young wo rkers telli ng graduates about their own care er choices. The MMK Group offe rs i nternshi p oppo rtuni ties at i ts faci liti es for stude nts o f i n dustry-speci fic vocational education institutions. In 2021, a total of 1,565 students compl eted internshi p programmes at MMK’s p roduction units. O nce they are award ed their degrees, young speciali sts are hired by MMK’s and the MMK G roup’s production uni ts in accordance with their quali fications. Each candid ate’s professional skills, averag e diploma score, and knowledge of forei gn languag es are all taken i nto account. In the reporting period, the 4+ Programme was developed and laun ched to attract uni versity students and provi de targeted trai ni ng for them along wi th scholarships on behal f of the Compan y. The programme wi ll continue in 202 2. Special staffi ng quotas for y oung t alent remain in place. Every year, MMK hi res 500 to 60 0 graduates of vocational educati on institu tions and young people who h ave completed post -g raduation mili tary service. In 202 1, the MMK Group suc cessfull y met it s target of hi ring at least 500 graduates of vocati onal educati on i nstitutions and youn g peopl e who have c ompl eted post -graduati on mili tary service. New empl oyees attend an i nducti on workshop to famili arise themsel ves with MMK’ s busi ness lines, goals, values, and missi on. During t he workshop, yo ung employees meet the Company’s current leaders (includi ng directors) in charge of th e sp ecific busin ess li ne. To onboard an d introduce newl y hired yo ung talent to the cultu re and occupational health and safety standards, uni t -specifi c apprenticeshi p plans are drawn up for all new hires . Employee motivat ion and remun eration The MMK Group makes every effort to offe r de cent workin g conditions and competiti ve sal aries. The current r emuneration an d bonus sy stem cov ers all MMK Group empl oyees. Remun eration is paid in accordance with the R ussian Labour Code and federal labour laws. MMK’s remunerati on sy stem also relies on the pri ncipl es of the I ndustry Tariff Agreement for the Russian Metals and Mining I ndustry for 2020 – 202 2 , MMK’s C ollective Bargainin g Agreement, and corp orate p olici es: Workin g Condi tions Poli cy, Productivi ty Polic y, Equal Opp ortuniti es Policy, Gender Pay Ga p Poli cy, and Employment and Occupation Ant i- discriminati on Policy. MMK INTEGRATED ANNUAL REPORT 73 Salary l evels are review ed on a mon thly basis. In 2021, MMK raised emp loyee wage rat es by 6.5%. The majori ty of MMK Group entities al so adjusted empl oyee wage rates. The min imum salary at the MMK Group e xceeds the statutory minimu m wage. R emunerati on is only dete rmined b y the experience, q uali fications, e xpertise, and performan ce of an empl oyee i n question. MMK may pay remunerati on to mana gers and empl oyees i n key roles i n li ne with contracts for performin g more c hall enging tasks and achievi ng stretchin g targets, wi th progress m easured again st pre-defined cri teria. To motivate employees to h andl e t he tasks fa ced by MMK , additi onal b onuses are used to stimul ate proactive approache s and provi de financial incentives for professional growth . Diversity and equ al opportunit ies The MMK Group supports social and cultural diversity among its employees and strives to buil d a more i nclusi ve work envi ronment. In 2021, at MMK t he foll owing documents w ere devel oped and approved: - Hu man Rig hts Policy - Equ al Opportuni ties Policy - Gend er Pay Gap Pol icy - Yout h Poli cy - F reedom of Associ ation and Protecti on of the Rig ht to Organi se Conventi on Policy . The MMK Group pr ovides equal opportu niti es in traini ng, remuneration, and career developm ent for al l emp loyees of the Group. Comp etitive re crui tment at MMK i s ba sed s olely on each pe rson’s professional and business skill s and personal q ualities. Trai ning i s available to all empl oyees within their job profi les irrespecti ve of their gende r, age, or memb ership in social groups. Since metal s industry jobs i nvolve haz ardous i ndustrial work and un der Russian law such work may not be performed b y women, chil dren, an d di sabled people, MMK has a consi stently hi gh male representation i n its wo rkforce – 74.7% in 2021 . The proporti on of w omen among Company empl oyees remained vi rtuall y unchanged in 2021 at 25.3% (2 020: 28.3%). In li ne wi th Russi an laws, t he C ompany hi res p eople wi th di sabiliti es. In 2021, the MMK Group employed 500 people wi th disabilities (2020: 481 peopl e), which exceeds the quota establi shed by t he government. If an employee wi th di sabilities needs retrai nin g for a n ew job, the Company will cover relevant traini ng expenses. Training and deve lopment The MMK Group provides extensive train ing opportuni ties to un lock the potenti al of it s employees an d dev elop th eir p rofessional skill s, whi ch i s formali sed in i ts i nternal documents. MMK invests heavil y in employee devel opment, training, upskil ling, and professional retr ain ing. A multi -tier corporate t rainin g framework is being impl emented. The Personnel corporate trai ning centre i s the MMK Group’s pri mary b ase t raini ng centre. In 2021, a n umber of trai ning programmes were upd ated and new p rogrammes were de veloped, with empl oyees p rovided wi th access to a di stance l earning system of fering materials for s elf -learni ng and devel opment. Al l tr ainin g courses employees mi ght need to p erform thei r cu rrent task s or to m eet future requi rements a re p aid for by th e C ompany. In additi on to the cost o f courses, the trai ning compensati on package covers 100% of the followin g expenses: travel to the pl ace of traini ng, accomm odation du ring trainin g, compensation for th e inconveni ence caused b y change s in li ving conditi ons (daily allowance), and averag e wag e for th e period of train ing, wit h employees retaini ng their jobs. MMK is building a ta lent pool and maintaining its Regulations on Bui lding and Training the Management Tal ent Pool. The MMK Group regularly sends employees to leadi ng e ducati onal centres in Russia and around the worl d (i ncludin g Stockholm School of Economi cs, Lond on Sch ool of Ec onomics & P olitical Sci ence, International Institu te of Management LINK, Nosov Magn itogorsk State Techni cal Uni versity ). Vari ous formats are used to t rai n and educate MMK employees – from hig her education insti tutions an d professional retraining to internshi ps with leading man ufacturers in Ru ssia and abroad . MMK INTEGRATED ANNUAL REPORT 74 The Compan y enc ourages employees to i ndependentl y i mprove their educati on and provides the opportunity to do so by paying average wages for the days off used to attend training sessions for employees studyi ng for thei r first degree. All employees who have sustai ned wo rk- related injuri es may retrai n for a new job i n line wi th their career p rofil es and new roles at their e nterpri ses at the expense of the MMK Group, re gard less o f their age. Employee career paths are charted by unit manage rs and the Talent Manag ement Department. The Company m oni tors and records employee performance on a regular b asis. Under the Corporate Culture of Opportuni ties strategic prog ramme, employees of MMK’s units are ev al uated twice a year again st th e corp orate competency m odel, and the eval uation results are transl ated i nto indi vidual salary growth pe rcentage for each empl oyee. In 2021, a s part of the In teractive Trai ning Platform Development project , an el ectronic pl atform was created wh ere each employee can choose their d evelopment goal in line with their professional skills, see the job requi rements that need to b e met, and select t rainin g courses to close skil l gaps. The MMK Group i ntends to main tain the continui ty of th e trainin g p rocess for employees at al l levels an d add n ew trainin g programmes aimed at developi ng empl oyees’ commun ication skills and behavioural competencies. Social policy The MMK Group is com mitt ed to creatin g com fortabl e worki ng conditi ons for its employees whi le ensuring social securi ty. MMK Group empl oyees of all categori es are enti tled t o a social package of benefits and guarant ees. MMK runs a numb er of int ernal social prog rammes f or empl oyees an d thei r famili es. In addition, all employees ar e covered by c orporate vol untary heal th insurance. The MMK Group’ s progress ag ainst its stated g oals in social sup port for emp loyees and their families Goal Progress in 2021 Ensuring that employees’ social package is increased by at least 5% annually The target for this goal was fully met. The targeted social package growth was 5% year- on -year, while the actual social package gre w by 23 % to $614.9 (2020: $499.2) per employee (net expenses, excluding maintenance of social infrastructure facilities). Reactivating all social programmes suspended due to the pandemic, and launching the Health Leaders programme In 2021, a new u nique programme , Health Leaders, was launched to develop and pro mote a healthy li festyle. The prog ramme i s aimed amon g ot her things at boosting employees’ mo tivation to pursue a healthy l ifestyle, as well as g rowing t he number of peopl e who regularly practice sports. Health Leaders help spread awareness about sports, healthy e ating, and healthy habi ts wit hout involving e xternal experts. The 20 activists are part o f the MMK Group workforce, and t hey co mpleted dedicated training in healthy lifestyle an d fitness. Th eir task i s to targe t specific employee focus groups, organise sporting events and workpl ace fit ness sche mes, develop their own programmes, and participate in competitions. Since 2021, the first aspect of the su pport programm e f or MM K employees with disabled children has been implemented – financial assistance of $41 f or the start of the school year. Going further, MMK intends to expand this programme, adding new support initiatives. Increasing the Company’s spending on social programmes, bringing the social package across Group entities to at least 80% of that provided at the parent company A major emphasis wit hin these efforts was placed on MMK Group subsidi aries. Social support at certain subsidiari es is still significantly below the MMK average, reflecting t he entities’ budgets and spe cific working c onditions. However, the ef forts taken in 2021 to boost th e co verage of employees from MMK Group subsid iaries by health improvement programmes and healthcare (prevention) services helped improve the subsidiaries’ average score to 78.8% of MMK’s level (2020: 67.5%). MMK INTEGRATED ANNUAL REPORT 75 Human rights an d non -discriminat ion The MMK Group recogni ses th e importance and val ue of fun damental human rights and freedoms, and buil ds rel ationshi ps wi th its employees and oth er stak ehold ers based on th e pri ncipl es of mutu al respect and responsi bility. The MMK Group does not tolerat e d iscrim i nation on the grounds of rac e, g ender, age, sexual o rientation, social status, reli gion, or soci al background i n line wi th appli cable l aws. Th ese commitments ar e refl ected in the Company ’s r egulati ons on hiri ng, trai ning, and buil ding a management talent pool , as well as in it s HR Poli cy, Working Conditions Pol icy, Human Rights Pol icy, Equal Opportuni ties Poli cy, Emp loyment and Occupation Ant i -discrimi nation Pol icy, Mini mum Age for Admi ssion to Empl oyment Pol icy, Poli cy on Sexual Harassment, Stalki ng and Violence, etc. The MMK Group guaran tees prot ection of labour rights to i ts empl oyees an d resp ect for th e rights of stakehol ders outlined in the Consti tution of the Russi an Federati on, the Ru ssian Labour Code, as well as in the UN Universal Declaration of Hu man Righ ts and the UN Guiding Principles on Business and Human Ri ghts approved by th e UN Human Ri ghts Council in 2011. In 2021, MMK devel oped and impl emented the Human Ri ghts Policy, posted on MMK’s websi te in the Human Ri ghts secti on. In 2019, th e Company l aunched its Ethics Hotl ine, whi ch serves as the pri ncip al h uman ri ghts whistl eblowing and response tool . In the repo rting period, n o cas es o f discri mination were record e d; however, nine cases of non-compli ance with employment standards were reported at MMK Group subsidiari es and four cases at MMK . In 2021 , MMK ’s Coll ective Ba rgaini ng Agreeme nt was renewed u ntil 2023 wi th a number of amendments to its s ocial secu rity provi sions. Th e agr eement prov ides for s ocial programmes benefitting empl oyees, an d i ts provisi ons are regu larl y reviewed to ensure compl iance wit h statutory requirements. In 2021 , the Coll ective Bargain ing Agreement cov ered 100% of MMK employees . MMK Group subsi diaries also h ave their own Coll ective Bargai ning Agreements. MMK supports the rights of its e mpl oyees to freedom of a ssembly and association and the right to enter into coll ective bargai ning agreements i n line wi th Russian l abour laws and the Consti tuti on of the Russi an F ederation. The MMK G roup’s primary trade union organi sation, th e Mi ners’ and Metallurgi cal Workers’ Uni on of Ru ssia (a n ationwide independent trad e un ion organi sation), i s the main body responsibl e for in teractions with empl oyees and repr esenting their interests. The Compan y recognises the Mi ners’ and Metall urgical Workers’ Un ion of Ru ssia a s the onl y r epresentati ve of its employees as it has been auth orised by a conference of MMK employee s to represent thei r interests. OCCUPATIONAL HEALTH AND SAFETY Preventing occup ational injur ies and dise ases Occupational safety is a clear priority for the company. For MMK, this is not just a performance metric, b ut a vital i ndicator. Every y ear, about $ 35 -40 mil lion are in vested i n ensuring safe producti on, based on an in tegrated approach i n a zero-i njury envi ronment. MMK Group employees and contract ors are i nvolved i n monit oring the i dentificati on and elimin ation of hazard ous condi tions and acti vities on the shop fl oor on a dail y basis, and may s top or suspend work that th ey beli eve may resul t in an injury or harm to employees’ heal th. OHS risk manag ement In l ine with th e offici al ri sk man agement standard – ISO/IEC 31010: 2011, the MMK Group identi fies, an alyses and assesses its OHS hazard s and risks twi ce a y ear across al l operating processes. The main acti vities in identifying and preventi ng OHS risks: - Ov ersight of repai rs by the Occupational Heal th Di rectorate and the OHS u nit at the Group’s subsidiari es - Inte rnal operati onal control across all units - Use of technology solutions to captur e breaches: Safety Navi gator to assess identi fied hazardous acti vities and condi ti ons MMK INTEGRATED ANNUAL REPORT 76 - Behavi oural safety audits. Since Jan uary 2021, MMK h as been usi ng t he Safety Navigat or m obil e assi stant. Th e app wa s designed to enable shop managers to capt ure i dentified haz ardous condi tions and activities, post photos, an d assign tasks to t he a rea supervisors to correct the si tuation. The app was rolled out across eight MMK Group subsidi aries, with further rol lout schedul ed in 2022. We i mplemented 115 te chnical ini tiatives duri ng the year to mi ti gate t he ri sk of acci dents. To prevent occupati onal i njuri es, plan s for 2022 incl ude visualisati on of trai nings i n hazardous process operations. The MMK Group is impl ementing a sy stem of producti on processes automation using employee tracking to reduc e the nu mber of accid ents. These sensors enabl e remot e monitori ng of employees i n high- risk areas and preventi ng p otential i njury by performi ng a fo rced shut down of the equi pment in question. In th e next reportin g period, we wil l conti nue developin g and scaling up this system. MMK ensures em ployee saf ety throug h advanced t echnology: Machine vision: em ployee trackin g in hazardou s areas - Dete cts when wor kers get dange rously close to machi nery - Warns th e operator an d work er of the dang er - Prevents/ stops th e movement of the coke pu sher car. Machine vision: monitoring OHS compliance - Au dio and visual al arms at hazardous areas - Vi sual records of breaches for the datab ase - R eduction in the workplace injuries and increased enfo rcement of personal pro tective equipment . MMK INTEGRATED ANNUAL REPORT 77 Injury rates 44 In 20 21, the Guidelin es for Cal culating Injury Rates at PJSC MMK Units and MMK Group Companies were appr oved. They all ow for expanding the reporting boun daries an d reco rding all accidents taki ng p lace at the MMK Group’s producti on si tes, i ncluding those invol ving contr actor employees. Th e Gui delines set out f ormulas f or calcul ating key i njury rates, as w ell as th e cal culati on method. During the r eporting period, the inju ry frequency rate (LTIFR) 45 at the MMK Group (includi ng injuries to c ontractor empl oyees) dec reased b y 6% to 0.62 with 97 acci dents ( 2020: LTIFR 0 .66 wi th 67 accidents). Th e main caus e of accidents i n 2021 was same -l evel falls. In 2021, the G roup rec orded one e mployee fa tality (caused by a cra ne bl ock fall) and four fataliti es involving contractors (two resul ted from falls from height, one from a pinch -poi nt injury, and one from a fire). All necessary i nvestigati ons have b een conducted an d corrective acti ons taken. To ensure safe workin g at heights, all contractor emp loyees who work at hei ghts (over 200 pe opl e) were re -trai ned. We r eiterate our strate gic goal t o decreas e LT IFR further to 0.45 wh ile fatalities should b e decreased to 0 by 2025. Steady decrea se in LTIFR Promoting safet y culture The Company organi ses OHS traini ng events f or its employees and c ontractors on an annual basis. The trai ning offered compli es with Russian laws an d the MMK Group’s i nternal standards and polici es. In 2021, the Gr oup employees to ok 24 , 554 person-cour ses of OHS trai ning. Starting in early 2021, we imp lemented the fi rst stag e of MMK empl oyee trainin g under the Safety Awareness p rogramme. Th e trainin g was provided b y Ivan Maura kh, a trai ner fr om the Busi ness Relations compan y, and targeted top managers and uni t heads. A tota l of over 26 thousand peopl e were train ed at MMK a nd its subsi diaries. Trai ning of i nternal coaches u nder the Safety A wareness program me wa s organi sed, where 20 trai ners from PJSC MMK and th e Group’s compani es were t rai ned. The second stage of the t rainin g will in volve OHS t raini ng for empl oyees run by u nit heads t ogether with th e trained trai ners. The pl an i s to train about 30 thousand p eopl e in 2022. Th e primary goal s of the second stage of the Safety Awareness trai ning are t o transform the attitud es of e mployees toward safety an d hel p them develop indi vidual safety pl ans covering each workplace for the du ration of a shift. To moni tor the p erformance of the OHS manag ement system, th e Comp rehensive Lab our Safet y Index (CLS I) i s measu red on a quarterl y basis . In 2020 , the C LSI sto od at 2.42, and i n 20 21 i t was 2.76. Th e incr ease was due t o th e actual reducti on in the numb er of b reaches, verifi ed through a monitori ng pro cedure run by sp eciali sts fr om the Health , Safety and Environment Department , as well as the introducti on of the Safety Navigator automa ted system . 44 This section dis closes injury r ates for MMK’s Russian assets excluding the Steel Turk ey segment. 45 Lost Time Injur y Frequency Rate (LTIFR) = (number of lost time injuries) x 1,000,0 00 / (total h ours worked). 0.89 0.66 0.62 0.45 2019 2020 2021 2025 TARGET Wo rld St eel Ass oc iat ion aver age , 2020 0 . 85 - 26% Key me ta ls a nd min ing co mp anie s in Ru ssia aver a ge, 20 21 0 . 91 - 6% - 27% MMK INTEGRATED ANNUAL REPORT 78 The Group has a d edicated trai ning centre, Safety Scho ol, where G roup empl oyees are tr ained in OHS matters u sing custom - made simul ators and VR trai ning soluti ons at 8 locati ons across MMK’s production shop s, as w ell as other ad vanced tr aining technologi es. In ad diti on, the safe pe rformance of 270 haz ardous proc ess operations we re vi suali sed, wi th relevant vi deo briefi ngs p roduced. A total of 2,648 Group employ ees were train ed at the Safety Sc hool i n 2021 (2020: 2,220 empl oyees). Pl ans for 2022 incl ude further devel opment of VR si mul ators. Consistent step to Zero in juries Advanced techn ology helps to train em ployees in safe wo rking pract ices Communication and feedback The MMK Group provi des communicati on channels for employees and other stakehol ders. OHS informati on i s availabl e i n the Occ upati onal Healt h and Safety secti on of the MMK websi te, on the intranet, on th e Trade Uni on’s website, i n the My MMK mobi l e app, on i nformation b oards, as well as in the corporate magaz ine. Since l ate 2020 , the C ompany h as been p ubli shing a weekly ‘Be i n the K now!’ col umn i n th e ‘I Work at MMK’ community on VK ont akte, whi ch tackles a wide range o f O HS matt ers: a ccid ents, behavioural saf ety audits, special ass essment of working co ndi tions, first aid guidelines, and other hot topics. In 2022, we p lan to conti nue posting occupati onal h ealth -themed stori es on t he VK ontakte social network. Prevention of occ upation al diseases Every y ear, each employee un dergoes a h ealth check at the cl ini cal heal thcare c entre of Magnit ogorsk, as required by Rus sian l aws. In add ition, two professi onal programm es a re in place: a cardiac programm e and a recovery p rogramme for those who had C OVID - 19. The MMK Group continues to roll out an automa ted health care system. There ar e plans to ful ly integrate employee s’ el ectronic medical reco rds with the corporate in formation system, whi ch wi ll st ore all necessary medi cal in formation r egarding employees. In addi tion, speci al terminals are being MMK INTEGRATED ANNUAL REPORT 79 install ed at medical aid posts to enable pre-s hift/p re-trip health checks, capture the results, and automati cally keep an electroni c log. In 2021, 11 occup ational diseases wer e di agnosed among MMK Grou p empl oyees. The most common occupational diseases we re: silicosis, sensorineural h earing l oss, chroni c non -obstructi ve dust-ind uced bronchit is, pneumoconi osis, and hand -arm vibration syndrome. T o reduce th e ri sk of occupational disease, t he C ompany k eeps empl oyees ful l y an d adequatel y informed about existing risks and the need to use speci fic types of perso nal protective equip ment. During the r eporting period, measures to protect employees from COVID -19 were continued. In 2021, w e began orga ni sed vaccinati ons, as well as revaccin ations (six mont hs after va ccination or six months after convalescence). The vaccinat ion of employees is organised in 15 h ealth posts located on the MMK and th e Group enti ties sites, as well as in t hree vac cinati on rooms of the Cent ral Cli nical Healthcare Unit (CCHU). Vaccines are suppli ed in suffici ent quantities and vaccinati on rooms are open daily . MMK Gr oup employees were provided with masks, hand saniti ser, and other personal protect ive equipment . Premise s w ere regul arly disinfected. A hotlin e where al l employees can seek help and advice has been set up and conti nues to operate . Emergency prep arednes s An emergency r esponse system i n p lace at th e MMK Group enables prompt responses to emergencies as t hey ari se. A feedbac k l oop h as also been estab lished, enabli ng any int erested party to report a p otential em ergency by cal ling t he telephone nu mbers l isted on M MK’s pu blic webs ite, by sending a message via the Feedback secti on, by cal ling t he h otline of MMK ’s OHS Department, or via the My MMK and Online Trad e Union apps. In 2021, we ran c omprehensi ve emergency p revention drill s, practi cal fire exti nguisher trai ning, and tabletop exerci ses. We engage wit h th e admini stration of Magni togorsk via Russi a’s nationwi de disaster manag ement system. 2022 PRIORIT IES Next year, the MMK Group pl ans to: - conti nue implementi ng the 4+ Programme ai med at attracting universit y students and providi ng targeted train ing for them along with schol arships on b ehalf of the Company; - conti nue evalu ating its empl oyees twice a yea r; - ma intain the c ontin uity of t he trai ning p rocess for employees at all l evels an d add new traini ng programmes ai med at d evelopi ng em ployees’ co mmunicati on skill s and behavi oural competenci es. The Group plan s to maintain i ts cooperation wi th leading educati on centres in Ru ssia and abroad; - p rovide a ccess for p rocess staff to interacti ve map s o f bl ast furnace shop s and VR- traini ng ‘Accident Management Plan: Burnout of ladle p ot’ as part of the Interactive Traini ng Platform Development; - develop the Empl oyee Devel opment Platform ; - continu e offerin g employees Engli sh lan guage trai ning at the Company's expense, provi ded they achieve thei r declared lev el of Engli sh proficiency ; - evolve the safety cul ture of MMK and contra ctors empl oyees through: trai ning events under the Safe ty Awareness programme, devel opment of VR simulators in the Safety School, visuali sation of traini ng of hazardous te chnologi cal operations, devel opment of th e Safety Na vig ator aut omated system, imp rovement of t he safety al arm syst em, postin g occupati onal heal th- themed stories on the VKontakte soci al network, organi sation of OHS supervi sing du ring in vestment project s and maint enance works; - automate O HS sy stems such as electroni c work order, roboti cs and vi deo anal ytics, employee tracking systems i n hazardous ar ea, key- bar system; - continu e i mplementi ng a programm e of techni cal measures ai med at reducing t he risk of accidents. MMK INTEGRATED ANNUAL REPORT 80 SOCIAL AND RELATI ONSHIP CAPITAL We recognise the i mportance of our contri bution to t he dev elopment of l ocal communities and buildin g l ong-l asting relationship s with our sup pliers and clients. We ar e committed to ensure the wel l - being of t he ci ty of Magni togorsk and Chel yabinsk Region - our c ore operatin g regi on. As part of ou r attentive and respectful engagement with suppliers and customers, we seek to p rovid e m utually beneficial partnership s and best qual ity products and s ervices. $16 .3m THE GROUP’S IN VESTME NTS I N LOCAL DEVEL OPMENT AN D PHILANTHROPY 94 . 2% OF RESPONDE NTS ARE SATISFIED WITH THE S COPE AND QUALITY OF SO CIAL SE RVICES PROVIDED BY THE METALL URG CHARITABLE F OUNDATIO N 50 OWN SALES DI STRIBUTI ON NETWORK UNIT S 72% OTIF 2,440 ACTIVE SUPPLIE R BASE $7.5m SAVINGS RES ULTING FROM SUPPLY AND PROCUREMENT STRATEGIES CORE SDG'S: MATERIAL ISSUES: 1, 2, 3, 4, 5, 6, 7, 8 , 12, 13, 14 LINK TO STRATEGY: TRADE- OFF: Investments in creating a comfortabl e environment i n the regions of p resence to strengthen an d mai ntain the Company's reputation MMK makes a sig nificant contri bution to the de velopment of i ts op erating regi ons an d acti vely engages wi th l ocal com munities, add ressin g resi dents’ real needs an d pr oviding social support. Th e Company seek s to i mprove the quali ty of l ife and promotes well -being of the p opulati on primaril y in its core operating region – the Chelyabinsk Region and Magni togorsk. MMK promote s social development by investin g in sports, h ealt hcare, education, an d other areas, in cluding urban infrastructure enh ancement. B eing a backbone ent erprise, MMK recogni ses its responsi bility and commits to ad dressin g the needs of l ocal communi ties. Cl ose cooperation with th e author ities in Magnit ogorsk and the Ch elyabi nsk Region enables proper pl anning and desig n of local social programmes. In particular, the Company gains insights into the needs of Magnitogorsk residents from regular soci al surveys of l ocal voters and thei r el ectoral behavi our, wh ich hi ghlight local social i ssues or areas for i mprovement i n l ocal publi c services. Fu rthermore , when selecti ng programmes for impl ementation, the Compan y uses the 'So cial and Economic Devel opment Strat egy for Magn i togorsk Until 2035’ as a r eference. MMK offers its custom ers a wi de range of metal product s whil e expanding it s offering to me et constantl y evolvi ng customer d emands. Many years of experience engagi ng wi th consumers i n t he market and our ad vantaged l ocation near major i ndustri al hubs hel p us drive th e Compan y’s growth and boost i ts profi le as a strategi c suppl ier for i ts custom ers. Custom er r elations at MMK are gui ded by the quali ty management system i n place an d our product suppl y agreements. Long-term pa rtnershi ps are a key perf ormance i ndicator for suppli er management. The MMK Group is committed to en sure th e transparency of p rocuremen t and suppl ier selection pr ocedur es. The Procurement p rocess at MMK i s managed by the C ommercial Directorate. In 2018 , two d epartments were formed wi thin the Commerci al Directorate to implement category -based procurement To be the best suppl i er To be a leader in operati onal excell ence To be a responsi ble and sustai nable busin ess (ESG) MMK INTEGRATED ANNUAL REPORT 81 management, with procurement functi ons realigned and divi ded into the category unit and operati ons unit. The core procurement acti viti es of the category unit are developi ng category strategies and impl ementing i nitiatives to del iver economi c i mpact, drivin g suppli er sele ction i ncludi ng thro ugh MMK’s electroni c tradin g platform, si gning contracts and specifi cations for al l procured categ ories, and buil ding and managing l ong-t erm an d mutually benefici al relationship s with suppliers. Procurement acti vities of the operati ons uni t include ensuri n g th e organisation of delivery an d supp ort for all procurement categories, p rovidin g procurement control for in vestment pr ojects and document workflow opti misation for acceptanc e, reti rement, and paym ent f or suppli es (in cluding by moving th e relevant p roce sses to a centralised servi ce group), and driving suppli er claim management. Al so, annual, quarterly and monthl y KPIs desi gned t o maximi se economi c effi ciency we re in troduced to i mprove the pe rformance of MMK’s Comme rcial Directorate. Building transparent, open and t rust-bas ed stakehol der rel ationshi ps i s in tegral to the MMK Group’s busin ess, as we remain commit ted to i mproving th e performa nce of our anti - corruption system and promoti ng business ethi cs poli cies and standards. The MMK Group strictly complies wi th Russian l egal requirements i nclu ding anti -trust legislati on and does not p revent market competi tion. Relevant units reporting to MMK’s Chief Legal Officer are responsibl e for ensuring compli ance wit h the Russian and in ternational laws. The MMK Group’s regul ations i n place set out the un derlyi ng values, pri nciples, standard s and norms of condu ct, and inclu de the followi ng core docum ents: The MMK Group ’s Code o f Ethics (th e Code of Ethics), An ti -corruption Poli cy, an d R egul ations on th e P r eventi on an d Management o f C onflicts of Inte rest. I nternal regul ations are availabl e on th e MMK website i n t he Corp orate G overnance – Documents of Compan y secti on. DEVELOPING THE O PERATING RE GIONS AND LOCAL C OMMUNITIES Social investments Improving pub lic health Improvin g public heal th is one of the Company’s pri oriti es and is mostly focus ed on raisi ng the bar on h eal thcare services. MMK cont ributes to the technologi cal upgrade of the Central Cli nic Healthcare Uni t (CCHU) on an annual basis, in 2021 $3 mi llion worth o f equipment was acqui red for its n eeds. The Compan y mai ntain s ongoing preventi ve and recov ery i nterventions to address the COVID-19 pan demic. Employees an d v eterans of i ts si te enjoy free recovery ca re and h ealth resort treatment at the m edical and social centre of the Metall urg foundati on. MMK’s producti on site has impl emented and actively runs a recovery programme for e mployees who have had COVID- associat ed pneumoni a, using state - of -the-art equipment . Support for soc ial infrastructure facilities MMK is activel y involved in the social l ife of Magnit ogorsk, supportin g various social infrastructure faci liti es, such as recreation centres, e ducati onal and healt hcare faci liti es, as well as child ren’s recreational centres and health resorts i n Bashkortostan and the Chelyabi nsk Region. The Company supports mass particip ation sports events hosted by th e Metal lurg-Magni togorsk Sports Club, whi ch has a diverse infrastructure, provid ing for child ren and youth , and adaptive sports. MMK d irectly organi ses or sup ports a wide range of sports e vents, th e most promi nent on es in 2021 being the R ussian Beach Volleyball Championship and the first stage of the FIS Snowboard World Cup. The Company has also completed the design of a major sports and recreation centre with a swimming pool in Bashkortostan. Philanthropy MMK i s strongly focused on charity programmes i mplemented by t he Metal lurg charitable foundati on and local non-p rofit organisations. In 2021, in particular, the Group provided assi stance to 6,000 people in hardship u nder t he 21st C entury -th e Ch ildren o f South Urals programme and provid ed MMK INTEGRATED ANNUAL REPORT 82 355 famil ies wi th support for th e treatment and rehabili ta ti on of chi ldren wi th speci al n eeds, while making regular purchases of m edicines for chil dren suf fering fr om cystic fibrosis. The Company’s other activiti es include suppor t for seni ors, mentorin g of talented youth, mate rnity protecti on, and tar geted grants to address socially signi ficant issues. In 2 022, MMK also plans to organise a resource classroom for the development and soci alisation of chil dren wit h Down’s syndrome. Employee volunte ering The C ompany’s volu nteer i nitiati ves are spearheaded by the Uni on of Young Metall urgists, whi ch brings together 385 young bl ue -coll ar emp loyees to facilitat e the onboardi ng and al l-round development of young emp loyees, and un lock thei r potenti al. The m ore sig nificant efforts i ncl ude major environmental initiati ves, org ani sing and holding sports events, and th e ‘Live Actively!’ project to promote a health y lifestyl e. Cooperation with local communities Education and support for young people The Company sees d evelopi ng the ski lls of y oung peopl e in Magnitogorsk as criti cal for i ts future success and provi des su pport for education and educational i nitiatives for young p eople i n the h ost region. Nosov Magn itogorsk Stat e Techni cal University i s M MK ’s principal source of top tal ent and a long- standing partner. MMK is the princi p al sponsor and an industri al partner of the Quantorium hig h - tech park for children, whi ch offers hi gh -i mpact career gui dance p rogrammes. The Un ion of Young Metallurgi sts h olds sports event s, qui zzes, creati ve, research and technical compe ti tions for young blue- collar employees whil e al so representi ng their i nterests i n drivin g fai r l abour rel ations wi thin the Company. Industrial touris m Since 2018, MMK h as been acti vely devel oping its industrial tourism pro gramme , aimed at boostin g Magnitogorsk’s appeal for tou rists, studyi ng the i ndustrial hi story of the region, and p utting a spotli ght on steel workers’ careers. Industri al tourism pr omotion i s a p erfect fi t fo r the MMK Gr oup’ s development strategy and mat ches t he sustainabi lity agenda. D espite COVID -19 restrictions, o ver 4,000 visitors took a tour of MMK’s production site in 2021 to get a glimpse in to steelmaking. A series of vi rtual tours was also hosted, in cluding dangerous and hard- to -access facilities off l i mits for visi tors. In Novemb er 2021, th e Company co -host ed the S econd Ru ssian Indu strial Tourism Forum to gether with the Ag ency for Strategi c Initi atives an d the authoriti es of the Che lyabin sk Regi on. To promote experience sharin g, the Group p lans t o open a n Indust rial Tourism Competence Centre based on th e Personnel corporate train ing centre in 2022. It will become a platform for vari ous enterprises to share experience and l earn indu stry best practi ce in thi s area. Urban amenities MMK h as team ed up with the Magnit ogorsk ci ty admini stration to create a comfortabl e urban environment, taki ng part i n capital upgrade projects, revamps of road n etwork, urban greenin g, and the creation of parks. Al l stages of infrastru cture project i mplementati on t ake i nto account stakehol der views, enabli ng us to make the best d ecisi ons. The Prityazheni e project MMK’s acti vities are not li mited to t he Compan y’s producti on si te. The Company 's b eneficial shareholder has ini tiated and invested in the Prityazheni e urban development project . In 2021, further progress was made on the multifun ctional park pr oject. The 400 -hectar e area will accommodate cultu ral, educati onal, business, and sports facili ties, as w ell as other si tes for l eisure a ctivi ties of l ocal residents. The diversity of its functional spaces and unique architectural and p lan ning design solutions make the Prityaz henie park one o f th e most advan ced comf ortable urban envi ronment projects in Russia. At th is point, the construction of ut ilit y systems and road network has be en completed. The MMK INTEGRATED ANNUAL REPORT 83 project’s fi rst stage, i ncludi ng the park and t he ent rance area wi th a fountai n, i s scheduled for commissioni ng by the Metallurgi st Day in 2022. The openin g of the park’s remaining zones for visi tors is expected in 2025. Supporting small and medium business in Mag nitogorsk For Magnitogorsk to thrive, it needs a large and diversified bu siness sector, which is why MMK’s efforts to foster an advanced, accessi ble, and innovative bu siness environm ent have becom e part of the Compan y’s l ong -term strategy. Further enhan cement of the Industri al Park, created in 2016, and offering favourabl e condi tions for growi ng various busi nesses also contri butes towards thi s goal. The Industrial Park i s a ready - to -use p roperty asset wi th functional utilit ies, si gnifican t energy and techn ical water suppl y capaci ty, and acc ess to the railway network. Its tenan ts enjoy the full package of ta x b enefits provided for ind ustrial parks, as w ell as project co -fi nanci ng opportuni ties. In 2021, the rati ng agency Expert RA praised the cust omer focus and i nvestment potenti al of MMK’s Industrial Park, whi ch ranked thi rd (out of 28) in the Si tes Located Up to 250 km f rom an E conomic Growth Centre cat egory. There are 38 l egal enti ties regi stered at the si te, 19 of wh ich ar e man ufacturer tenants th at quali fy for t he benefit s stipulated by Resolution of the Russi an Governm ent No. 794 O n Indust rial Parks and Management Comp anies of Industrial Parks, dat ed 4 Augu st 2015 . Four of them were brou ght i n during the reporting peri od. In 2021, the total average h eadcount of the park’s tenants reach ed 948 employees (in cluding 21 new job s). The occupancy at the Industrial Park increased by 21% , which i s 9% above target . Occupancy at MM K Industri al Park, t hs m 2 Product shi pments grew by 20% year - on - year to $50.3 mi llion. This metri c is g rowing every year, showin g a positi ve trend. Product sales, $ m + 1 6 048 23.3 41.8 50.3 2019 2020 2021 Product sales, $m 105.3 121.3 147.0 2019 2020 2021 Size of area , ths m 2 + 16 .0 + 25 .7 MMK INTEGRATED ANNUAL REPORT 84 QUALITY MANA GEMENT AND CUSTOME R RELATIONS Quality management system MMK’s objecti ve in p roduct qual ity assurance i s to ensure that w e manufacture consi stently high quality and competiti ve metal product s meeting the expectati ons of both Russian an d in ternational customers, which in turn is key to maintainin g t he Company’s stable financial position. MMK contin ues to supp ly a sig nificant share of products to key i ndustries, reinforcin g i ts market -leadi ng position and improvi ng customer satisfacti on. The Company ’s appr oach to product quali ty i s defin ed by i ts Quali ty Pol icy, which also enab les better management decisions, drives process optimi sation, and ensures quality c ontrol throughout the entire manufacturi ng process. MMK has i mplemented a qu ality management system to ensure c onsistentl y hi gh qual ity of i ts products and mai ntains document ed procedu res for each busi ness process, in cludi ng customer relations. More in for mati on is avai lable on MMK ’s web site in the Qual ity Management System secti on. At present, th e uniform q ualit y management system ( QMS) requi rements appl y to 10 Group subsidiari es and MMK. MMK Group empl oyees fami liari se themsel ves wi th regul atory document s i n li ne wi th the MMK Group’s Stan dard for Managin g Documents of the Managem ent Systems. General Pr ovisions. The Standard sets out a li st of documents empl oyees are required to fami li arise the mselves wi th, whether indi vidually b y si gning an acknowl edgment form or coll ectively – at a me eting or pr e-shi ft bri efing, through e-mai l, or otherwi se. QMS-related regulat ory documents were up dated du ring 2021 to r eflect t he new requirements of the intern ational standard IATF 16949 defi ning th e fundam ental quali ty system requiremen ts for organisati ons where automoti ve parts for producti on and/or service are manufactu red, as well as changing rol es of MMK’s un its. In the r eporting period, th e appl ication of th e IATF 16949 stan dard requirements was expanded to cover MMK’s long p roducts shop and thi ck p late producti on (Mill 5000), with successful certificati on to the standard. Product quality controls and c ertified stan dard compliance checks Integrated internal audits of management systems Quality management system (QMS) Environmental management system (EMS) Occupational health and safety (OHS) management system ISO 9001:2015 IATF 16949:2016, STO Gazprom 9001-2018 ISO 14001:2015 ISO 45001:2018 To c omply with th e requi rements of ISO 9001, the Group ap proved and impl emented standards that set requirements for QMS an d the Integrated Managem ent System at MMK Group subsi di aries. MMK’s existing contract wi th the ce rtifi cation body TÜV NOR D CERT Gmb H (Germany) covers the certifi cation of QMS, EMS, and OHS Managemen t System at MMK and 1 0 MMK Group compani es. Surveill ance audi ts co nducted in 2021 confirmed the certificates o f conformity to ISO 9001 and STO Gazp rom 9001 , an d a new IATF 16949 certi ficate of compli ance wi th an expand ed scope is now being issued foll owin g a recertification au dit. Quality assurance in production When shi pping fini shed products, MMK issues quality certificates and k eeps records of qu ali ty parameters usin g composite qual ity indi cators. MMK INTEGRATED ANNUAL REPORT 85 In addi tion, MMK hold s 58 vali d certificates of c onformity, whi ch are regu larly verifi ed through periodic i nspecti ons by certifi cation bodies. To elimi nate the risk of fraud b y unscrupul ous consumers, al l MMK’s metal p roducts are supported by acc ompanyi ng documents, inclu ding a qu ality certificate. A certifi cate’s au thenti city can be verified vi a a QR code on i t and by enterin g the certificate’s detail s on MMK’s web site. In 2021, MMK’s composite quality indicator improved to 1.82% from 2.43% in 2020 as a result of our strong focus on q uality. The Company also imp lemented the fol lowing : – Dynamic process sheets p roject to develop and deploy an i nformation system fo r dynami c management of technol ogy and technol ogical risks – Unified Informati on System for the Managemen t of Correcti ve M easures Based on In spection Results (Correcti ve Measures and 8D) – Information system to mon itor and improve compl iance with process procedures at steelmakin g and rollin g wo rkshops (the Button IS), boosti ng the accountabili ty of staff for foll owing process procedures and taki ng into account the rejection rate – RAMA project at Rolling Shop #1 0 to prevent ben t edges i n metal p roducts, r educe damage to i nternal coil wraps duri ng l oading, as wel l as i mprove customer feedback on p roducts shi pped on pin-less fram es. To i mprove quali ty control and process performance throughout the entire manufacturi ng process, MMK performs audits three times a week, recording the result s i n a special checklist. The key objective i s to check the c onformity of m etal products to c ertificati on standards and product order requirements whil e al so takin g i nto acc ount the avai la bili ty of up- to -date regulatory documents covering products, a cceptance, packagi ng, and l abellin g. In t he previ ous repo rting period, the Compan y i ntroduced mul tilevel comprehensive audi ts of production areas at MMK ’s steel making an d rolli ng mills. These q u alit y audits check the conformi ty of shipped metal products and inventori es t o regulatory document s, as we ll as the conformi ty of cri tical process para meters, qual ity of fi nished products, l abelling , and packagi ng to operati onal procedures, regulatory docum ents, and order r equirements. In 2021, MMK took th e foll owing preventi ve actions under the QMS procedure: – Eight int ernal product audit s were conducted i n l ine wit h the MMK Group’s Standard for Internal Audits of QMS , EMS , OHS Manag ement System, and Integr ated Man agement System at Production Uni ts. – 660 p roduct audi ts were conducted by th e au dit commission in li ne with th e Regul ations on the Procedur e for Interacti on of Busi ness Uni ts When Performi ng Product Audi ts, coveri ng Rolli ng Shops #4, 5, 8 and 11, coated metal production, an d the l ong products shop. MMK strives to ensu re hig h product quality th rough regular trai ning for empl oyees. In 2021, a total of 12,191 p erson-courses were taken i n technology and man agement system s and 2,250, 190 person-courses in trai ning and pre-shi ft briefi ngs. Customer relations The Company’s produ ct strategy i s aimed at in creasing the share of hi gh val ue - added (HVA) and n iche p roducts i n total sal es whil e mai ntaining a hi ghly d iversifi ed product p ortfoli o. The main market segment s in Russi a where MMK is present are th e automoti ve, fuel and energy, m achi ne buildin g, construction, an d buil ding materials ind ustries. In 2021, th e Company gr ew i ts supp lies of rolled steel to the Russian shi pbuildin g sector by more than 1.5 ti me s. To enhance i ts product offering for the ma chine buildin g industry, MMK contin uously d evelops the rolled product lineup composed of high -stren gth steel grades unde r our own MAGSTR ONG brand. In 2021 MMK passed the milestone of 12 milli on tonnes of comme rci al metal products shipped, up more t han 16% yea r- on - year. The increase i n production an d shipments of metal products was driven by the compl etion of our equi pment upgrade programme and the recoveri ng demand i n the Company’s key markets . MMK INTEGRATED ANNUAL REPORT 86 Due to MMK ’s ge ographi cal posi tion, Russi a is i ts priori ty sales ma rket, primari ly the Ural s, Volga, an d Western Si beria regions, as well as Kaz akhstan, as these desti nations offe r the s hortest routes for our d eli veries. In li ne with MMK’s strategy an d economic viabili ty considerati ons, the domestic market remai ns the p riori ty sal es d estinati on, wi th two - thirds of MMK ’s total rol led steel, or more than 8 mi lli on tonnes a re shi pped to Russ ian consumers, whil e shi pments to FSU and non -FSU countries amount ed to 1.17 mill ion and 2.83 mi llion tonn es, respectively. In Ap ril 2021, the Company laun ched a new d igital sal es chann el – its own ma rketplace market.mmk.ru , which h as been growin g successfull y. In the reporting period, over 3,300 us e rs were registered on MMK’s m arketplace, bri ngin g i ts mon thly ave rage sales to ab out 3,000 tonnes i n the fourth quarter. MMK ’s plans i nclude further promoti on and devel opment of the Corpor ate Marketpl ace through th e expansi on of i ts product assortment , i ncl uding b y engagi ng thi rd-party sup pliers, l aunchi ng new sales channel s and se rvices, and improvi ng all business process es from o rder placem ent to p roduct delivery. MMK’s sal es processe s are gea red t o the ne ed to suppl y our customer s with timel y shipment s of hi gh quality roll ed steel that full y meet s the ir demands. In 2021, we successfull y compl eted our Just- in -Time Delivery project. The existing real -time production scheduli ng system enabl es more accurate plan ning and timely product shi pments. The Company is con stantl y developi ng an d introduci ng n ew digi tal servi ces and sal es channel s whil e also i mprovin g the exi sting ones. T o c over vari ous c onsumer g roups, w e have a range of sal es channels i n place: – Direct wholesal e suppli es to consumers in Ru ssia and FSU c ountries – Small wholesale and retai l sales throug h own distri bution networ k and t he marketplace – Wholesale suppl ies to non -FSU countri es via tradi ng companies. Engagement tools MMK continues t o u se coordination councils, video c onferences, visits to custome r sites for meetings an d joint accep tance of shi pped metal products , and joi nt worki ng groups as i ts key cust omer engagement tools. We have rol led out onl ine questionnai res t o collect feedback, with low sco res triggerin g corrective acti on, and maintain a si ngle Customer Suppo rt Centre. In 2021 , we conducted a survey of the Group ’s custom ers to measur e sati sfaction wit h our products i n 2020. The q uestionnai re contain ed fi ve questions ab out pr oduct qu alit y, supply discipline (OTIF), orde ring journey, and customer servi ce. The sati sfaction targ ets f or 2020 were met in full . In additi on to th e ma in questi onnaire’s five questi ons, the online survey also invited customers to complete an addi tional qu estionnaire t o find out ab out thei r envi ronmenta l d emands. The result s are collected by MMK’s Envi ronmental Protection L aboratory for anal ysis and transl ation i nto correcti ve actions. The Company also keeps track of cust omer com plaints ab out product s. Here w e c ontinu e to rely on our proven mi x of commun i cation chan nels: a singl e e -mail , integrati on products, and a mobil e app. In 2021, the Comp any launched an electroni c system for applyi ng the 8D method, based on th e Technical Su pport. Cl aims and Compl aints informati on system. The m ethod i s u sed to p roces s all 8D requests f rom custom ers, and the dedi cated s ystem enables tracking progress as wel l as assessing remedial and corrective measure s, incl uding under the 8D method . Production un its develop acti on pl ans and introduce r espective chan ges in th e produc t manufacturi ng and delivery proce sses t o i mprove th e qual i ty of supplied products. These acti ons are based on survey findi ngs (triggered by low s cores from customers) and r esul ts of i nvestigati ng complai nts about the qual ity of metal product suppli es or matt ers raised i n customers’ requests. MMK has a p ermanent system to handl e cust omer requests, which h elps us to mak e deci sions on developing new product types and fulfil custom orders for tailored products. Pl ans for 2022 include the r oll out of a new cus tomer relati onship management syst em (CR M), a dedicated software sol ution providi ng a platform to commun icate wi th customers. MMK INTEGRATED ANNUAL REPORT 87 MMK holds regular joi nt co ordinati on councils with major indu stry cus tomers, with whom the Company ha s l ong-estab lished relatio ns. These meetin gs di scuss vario us organi sati onal and techni cal aspects of partn ership s, and develop plans to i mprove and operati onali se new techn ologi es and p roduct types . During the year, th e Company also hel d meeti ngs with more than 40 compani es and pa rti cipated in 10 conference s an d exhibitions, looking mostly to gen erate hi gh -potenti al development opportuni ties. MMK speci alists an d managers pa rtici pated in th e foll owing mai n industry conferenc es, also attended by consum ers of metal products: – Regional Metal an d St eel Tradin g conference (February 2021), report on the regi onal metals trading – Russian Coated Steel Mark et conference (Ma rch 2021), report on the 2021 trends in the Russian market of gal vani sed and coated rol led products and MMK p roducts – Steel P ipes conf erence (May 2021), report o n MMK’s p ositi on i n the market for flat -rolled products for pip e manufacturers and prospects for expand ing coope ration – Round tabl e wi th consumers of c oated st eel by MMK (Aug ust 2021), r eport on new s olutions and products by MMK for pr oducers of gal vanised and coated fl at -roll ed products – Russian Metals Market conferen ce (Metal - Expo, Novemb er 2021), report on the cu rrent state and future of metal product s markets and MMK ’s focus areas i n the Russian market. EXCELLENCE IN PROCUREMENT AND SUPP LY CHAIN M ANAGEMENT Procurement and supplier manage ment 2021 saw the conti nued i mplementati on of category st rategies. A s a result , over 10 category strategies were devel oped and impl emented d uring the year, d eli vering economi c benefi ts of more than $7.5 mi llion, whi ch exceeded the target b y al most a third. In accordance with the annual plan for category strategy impl ementation, category books have been devel oped wi thin the establi shed timeframes, fu rther pot ential savi ngs in procurement c ategories have been i dentifi ed, an d long - term contra cts have be en conclu ded wi th l oyal suppliers wi th volu me and loyal ty discounts. A procedure fo r central ised suppl y of goods used at di fferent enti ties and hi gh -value it ems has been i mplemented at the level of MMK Group su bsidiaries. This was ac hi eved by po oling the needs of MMK and the MMK Group, sel ecting a suppli er, and contracti ng for combi ned volumes. The Group uses a category-ba sed approach t o procure produ ction i nputs such as iron ore, coal concentrate, ferroal loys, scrap, non -f errous m etals, fuel s, and ene rgy. Procu red ite ms al so i nclude equipment and its comp onents, mate rials, and tools, as wel l as furnit ure, stat ionery, and food products to support operati ons. The procur ement proc ess of t he C ommercial Di rectorate i s governed by regulatory and l egal documents posted on MMK ’s i ntranet portal . The key documents a re: – Procedure for Keepi ng a Uni fied Procurement Cat alogue at MMK – Inventory Procurem ent Plannin g – Agreements/contracts A ward and Foll ow- up Procedure – Sourcing procedur e – Guidelin es for Reviewing Technical an d Commercial Proposals from Suppl iers – Instruction on th e Procedure for D evelopi ng and Managi ng Category Strategi es, etc. MMK al so ha s the Proc edure Rul es for Pr ocurement an d Sup plier R ating Procedur e in pl ace, formalis ing the mai n processes and r equirements for supply chai n management p rocedures. The documents regul atin g procurement and t he suppl ier in teraction process a re a vai lable at the Company’s website at the For Suppli ers section. The 2021 reporti ng year al so saw the devel opment of the Suppl ier Code, with requirements set out across fi ve key areas: – Environmental protection MMK INTEGRATED ANNUAL REPORT 88 – Respect for human rights and favourabl e working condi tions – Occupational health and safety – Social responsibili ty and stakeholder engagem ent – Confli ct of in terest, anti -corruption, confi dential information protection, phil anthropy, and busin ess ethics. The Supp lier Code i s currentl y p ending approval , wit h roll -out across th e Gr oup sch eduled for the second or thi rd quarter of 202 2. Supplier evaluati on within procurement procedures is regul ated by MMK’s Quali ty Management System Organi sation Standard. Quali fication, cost and non -cost eval uation cri teria are u sed to evalu ate suppli er bi ds against MMK’s i nternal standards. Other t hin gs being equal , p reference is given to the manufacturer / t rading house. Prior t o orde ring a test bat ch f rom a new supp lier, a deci sion is mad e on whether a technical on-si te inspecti on of the suppli er facilities is needed to v erify the avail ability of required producti on capaci ty, quali fied staff, inputs / raw mat erial s, and equipment. Suppliers need to be vett ed and a re required to co mply with t he C ompany’s ethi cal, environmental , and social responsib ility standards. There is no separate environment al or social performance checks of suppliers. However, suppli ers are selected with due c onsiderati on of the criteria defined in the customer specifi cations. If the customer specifi cations require procurement of environmental or ecologi cal design documentation, the supplier will b e eval uated against environmental criteria. The suppl i er selection process al so consi ders th e resul ts of techni cal eval uation. Other factor s taken int o a ccount i nclude suppli er v etting status determi ned by th e security team and, i n case o f existi ng suppliers, th eir rating, which is ca lcul ated quarterly using integrated i ndi cators for contractual performance. Integrated i ndicators for suppl ier rating calculation: – Composite quali ty i ndicator: l aboratory qual ity control; feedback from pr oduction (on suppli er- related issues) – Instances of l ate delivery – Conformity of ph ysical parameters: qu anti ty/mass and type; geometry – Certificati on of quali ty systems to ISO 9001 – Availabili ty of documents d uring the initi al inspecti on (contract, bill of material s, delivery note, technical specificati on, product quali ty certificate, etc.) . Supplier selection i nvolves asse ssing the risks of product non -conf ormity and fail ure to ensure uninterrupted sup ply of resour ces t o match the C ompany’s o rders. The mai n risks associat ed with procurement and suppl ier acti vi ties are late del ivery of equi pment, mat erials, and feedstocks as well as unappr oved cha nges i n techni cal and q uality cha racteri stics of procu red i tems. Th e supp ly s upport unit is resp onsible for managing the risks of late del ivery an d u napproved changes in technical characteristi cs. In 20 21, the C ompany worked with 2,440 supp liers, of whi ch 2,156 were Russian and 284 were foreign. Russi an content i n procurement was 71 %, inc lu ding 21% sourced in the Chelyabi nsk Region. Improvements to procurement processes The MMK Gr oup i s committed to driving the conti nuous improvement of its procurement syst em, along with th e au tomation and robotic process automati on of p rocesses suppo rting the needs of busin ess units and procurement management. The Comm ercial Directorate launched the Suppli er Relat ionship Manage ment (SR M) Syst em Implementati on project in February 20 21. The SR M is a p rocess that identifies key procurement categories and d esigns a strat egy for the sma rt management of th ose categories. As part of t he pr oject, s uppliers have b een sel ected by p rocurement catego ry and key saving s indi cators hav e be en establ ished. Fut ure pl ans in clude developi ng and approving a savin gs p l an and key metri cs for KP I achi evement wi th sel ected suppl iers and roll -out of the target processes to other procurement categori es. MMK INTEGRATED ANNUAL REPORT 89 The SRM process i ncludes three steps: – Segmentin g suppli ers – Developi ng a supplier rel ationship man agement strategy – Implementi ng the suppli er relationship management strategy The foll owing procurement categ ories and i nitiati ves have been selected so far: – Paints and coatings – an initiati ve aiming for a 30% warehouse in ventory reduction by 20 24 – Refractory materi als – a n initi ative to deli ver an economic benefi t of $5 .8 milli on by 2023 – PPE – an ini tiative to boost cust omer satisfacti on to 80% – Ferroall oys – an i niti ative t o d eliver an economic b enefit of at l east $20 0 thousand per year. The economic benefi ts t otalli ng over $2.5 mi llion per year a re expe cted to b e ach ieved through l ogisti cs cost reducti on. The reporting period al so saw the l aunch of a p roject t o depl oy Ui Path Proce ss Mi ning system to analyse and i mprove the performance of business proce sses across the Company: a w orki ng group was set up and the pr oject impl ementation programme was approved. ANTI-CORRUPTIO N, BUSINES S ETHICS, AND FEEDBAC K MECHANISMS Anti-corruption The MMK Group stri ves to c omply wi th i nternational b est practi ces i n anti -corrupti on and is guided b y the ISO 37001 Anti -bribery Managem ent Systems stand ard. MMK's ant i -corruption system was anal ysed an d an ant i- corruption working gr oup w as establi shed duri ng 2021 to impl ement the ISO 37001 standard. Rep resentati ves from a number of un its joined the wor kin g group, includin g members from the Security, Internal Audit, Control, HR, Legal , Economics and Social Policy teams. MMK’s Security Directo r is the head of t he worki ng group. In line wi th the risk manag ement standard , the MMK Group annuall y assesse s cor rupti on risks, p aying parti cular attention to procu rement, contr acting , capital construction, and repair ope rations. Th e MMK se curity team i s responsi ble for ant i -corrupti on efforts, i ncl uding the elements o f du e dili gence, confli cts of i nterest, and an ti -corrupti on checks of candidat es for key positi ons. In the reporting period, the An ti -corruption Policy was updated and is now pe ndi ng approval. I t reflects the commitment of MMK and i ts manag ement to hi gh eth ical stan dards, fai r business pr actices, corporate cul ture development, and mai ntenance of good busi ness r eputati on. The An ti -corruption Poli cy sets out key requi rements for co rrupti on prevention an d anti -corrupt ion compli ance. The Poli cy appli es to all empl oyees regardl ess of thei r posi tion and those a utho rised t o act for and on be hal f of MMK and MMK Group subsi diaries. In 2021, MMK mad e a deci sion to i mplement a u nified compliance system i n lin e with the ISO 37301 Compli ance Man agement S ystems stand ard. It wi ll cover al l comp liance frameworks i ncludin g ethics, corporate g overnance, risks, an d c ompli ance. MMK h as inherent co mpli ance r isks primarily related to p roducti on, workforce, procurement, sales, e thi cs, anti -corrupti on (including conflicts of interest), and heal th and safety. In 2021, The Russi an Uni on of Indu striali sts and Entrepr eneurs audi ted MMK and as signed it a Class A2 46 rati ng in the Anti -corruption Ran king of Russian Busi ness. MMK al so j oined the An ti - Corruption Ch arter of Russi an Business in th e reporting year. Partial automation of revi ew, identifi cation, and prevention of confli cts of interest w ere impl emented durin g the reportin g period. Th e MMK Group run s regul ar in ternal check s for confl icts of interest, wi th foll ow-u p recomm endations. As a resul t of i nspecti ons, t wo cases of corrup ti on rel ated to conflicts of i nterest were p revented duri ng the reporting year. 46 C ompanies with high level of anti-corruption c ompliance but more prone to c orruption r isks (as compared to Class A1 companies). This rating indicates a low level of as sociated threat to investors, credit ors, business partners, and other stakeholders. MMK INTEGRATED ANNUAL REPORT 90 Ethical conduct The Ri sk Manag ement and Internal Control Uni t is responsibl e for organi sing business ethi cs related activi ties. The u nit is also responsibl e for the Ethics Comm i ttee work and eth ics hotli ne operation. The Ethics Committee deals with a wi de range of m atters related to ethics and busin ess conduct viol ations. The Risk Management and Internal Control Unit annuall y approves an acti vity plan for the Internal Audit Departm ent. Th e depa rtment conduct s separat e audi ts to look int o compli ance with the principles and val ues reflect ed in our C ode of Ethi cs. In 2021, vi olati ons were mostly associated with unethical behaviour: interpersonal co nflicts occur due to the fac t that MMK has a large workforce. The Code of Ethics was up dated and app roved in 2020, with compl iance mandatory for all employees of the MMK Group. It se ts out corporate norms and principles which are the cornerstone of ethical bu siness conduc t. The Cod e of Ethi cs gov erns relati onships not onl y wit hin a team b ut al so between empl oyees and other stakeh olders. The MMK Group closely monitors al l related p arty transa ctions, with a system in place to contr ol and protect trade secrets an d insi der informati on use. It i s pr ohibi ted to use th is type o f da ta for personal p urposes or i n viol ation of app licable l egisl ation. Regular che cks are run to l ook into trade secret protecti on. MMK perform s annual tests of empl oyee knowl edge and compli ance wi th the Code of Ethi cs. Employee acknowl edgment forms fo r the C ode of Ethi cs and vi olati on reports are checked as well . In the reporting period, The MMK Group establi shed a Programme for Et hical Norms Dev elopment and Promotion and i s starting to roll out a relevant empl oyee trainin g p rogramme through i ts Personnel Department. The Group train s i ts employees i n ethics and has deve loped self -stu dy traini ng materials. MMK employees a re also tested on th eir knowl edge of the Anti - corruption Poli cy. Hotline MMK’s S ecuri ty Di rectorate op erates a 24/ 7 confi dential whistl eblowing hotlin e in lin e wi th our Anti-corrupti on Pol icy. Thi s is one of the mo st e ffective communicati on chan nels for al l stakeho lders. The hotl in e receives reports on vi olati ons and breaches of l abour safety, human righ ts, labour laws, and suspected corruption, a s well suggesti ons to improve an ti -corrupti on procedures and co ntrols. MMK empl oyees an d other i ndividu als can send messag es usi ng the mail b ox and email address indi cated on the offi cial we bsite. I n 2021 t otal of 151 re gister ed reports were received via the Security Directorate Hotli ne. A d edicated ethi cs h otline was also laun ched at MMK. All reports a re h andl ed an d i nvestigated with particul ar attenti on p aid to those presenti ng concrete evidenc e of wrongdoi ng. I n 2021, no busin ess ethics violati ons were reported via the hotlin e. 2022 PRIORIT IES Next year, the MMK Group pl ans to: - Lea se out at least 67 % of the Pa rk’s commerci al space - Up grade energy and tra nsport facil ities - Con tinu e i mplementation of join t i nitiatives wi th suppli ers to imp rove the procurement p rocess performance. - Impl ement I SO 37001 Anti -bribery Manage ment System s and pr epare for ISO 37001 certifi cation - Mai ntain l eading positi ons in supplying in th e Russian an d FSU markets by captu rin g the opportuni ties in import substi tuti on, parti cipating in major investment an d government -spon sored infrastructure projects, and strengtheni ng its c ompetiti ve edge th rough bette r cust omer s ervice, a MMK INTEGRATED ANNUAL REPORT 91 focus on sal es of pr emium niche products , furth er i mprovement of th e corporate marketpl ace, and increased warehou se sal es through own di stribu tion network - Con tinu e to use the 8Ds method in dealings wi th consumers an d suppliers, de velop visuali sation of operati ons at p roduction un its (Butt on in formation system, Sveto for, etc.), and boost personal ownershi p i n production staff - Enh anced awa reness raising fo r the Code of B usi ness Ethi cs, ethi cal pri nciples (pr omotion booklets, leafl ets, and better commu nicati on), and the hotli ne - St rong and c omprehens ive commun icati on of a nti-corrupti on i nformation and Anti -corrupti on Poli cy to employees and other stakeh olders using all avail able engagement channel s - Cl oser attenti on to th e busi ness conduct trai nings fo r empl oyees (host ed both i n person and remotely) - Man datory onli ne trainings stru ctured by functi on and empl oyee positi on. MMK INTEGRATED ANNUAL REPORT 92 RISK MANAGEME NT RISK MANAGEME NT SYST EM Risks are identi fied, anal ysed and managed at all levels of the MMK Gr oup’s busi ness proc esses. The risk-based approach has been embedded in the managerial , investment and o perati onal decision - making processes. Our risk managem ent system is i n li ne wi th internati onal standards an d best p ractice in risk management. Its effectiveness has been repeatedl y confi rmed by independent audit s, with auditors’ recommendati ons for further i mprovement ri gorously i mplemented. Ri sk prevention helps u s achieve our goals. The MMK Group’s risk management system is integrated with the Gro up’s strategy, aspirati ons and vision. We use a common l angu age to en sure consistent understandin g of al l aspects of r isk management. The G roup has a Risk Managemen t Policy in p lace that o utl ines its key risk management principl es and approaches. The Board of Di rectors is updated on, and involved i n, risk managem ent, i ncluding through: - ap proving the Ri sk Management P oli cy - revi ewin g and approving a risk -based st rategy - ap proving and reass essing ri sk appetite - mon itorin g and evaluating the perf ormance of the risk manag ement system. We ar e rigorous in discl osing – honestl y and o bjectivel y – i nformati on about ri sks that hav e materiali sed. We conti nuall y review and improve our app roaches to risk governance and risk management, keepi ng in mi nd relevant chan ges i n internal and external environments. The roles, du ties and responsibili ties of those wh o are account able for ri sk manag ement are governed by corporate regulations complyi ng with ISO 31000, the Code of Corporate Governance and COSO ERM 2017. RISK MANAGEME NT CULTURE MMK e stabli shed a Risk Management and Internal Control Uni t to enabl e an effective risk management system. Its risk managem ent responsi biliti es in clude desi gning and devel oping the risk management ap proach, or gani sing training f or empl oyees, coordi nating efforts within the risk management syst em between uni ts, and prepari ng consoli dated risk reports. The Uni t i s commi tted to the conti nuous i mprovement of i ts empl oyees’ ri sk managem ent knowledge an d s kill s. The Ri sk Man agement and Internal Control Unit orga nises regular training on th e basics of the ri sk management system for MMK busi ness process owners and Group enti ties, and al so provides advi ce and guidan ce and discusses ma tters relat ed to risk man agement. In 2021, the Group to ok the foll owing measures to enhance its risk man agement syst em: - Updated the ri sk appetite statement of t he MMK Group - Updated the Group’s risk managem ent standard - Trained unit heads and thei r deputies responsibl e for busi ness p rocess ri sks i n procedures for risk i denti fication and assessment as w ell as for the d evelopment a nd fol low -u p of risk-mi tigati on measures - Launched a ri sk management auto mation project . DIGITISATION OF THE RISK MANAGEMENT PROCESS AND INTERNAL CONTROL SYSTEM MMK’s cu rrent p riority in i mprovin g th e risk management process i s t he i mplementati on of its Digiti sation of the Risk Management P rocess and Internal Control System project. Th e project a ims to create an au tomated syst em that wi ll shap e a si ngle in formation environment for storing and ma naging structured data sourced from the risk manag ement and internal control syst ems. The imp lementati on of a singl e digi tal soluti on for p rocessin g u p - to -date data will help ensure th e di vision of responsibi lities and assign own ership for the ef fective operati on of co nt rol procedur es a nd monit oring of risk ev ents, fast reporting on the performance of the risk management and i nternal contr ol systems with a high MMK INTEGRATED ANNUAL REPORT 93 level of d ata compl eteness and reli ability al ong with flexible setti ngs, and automati on of key controls for bu siness processes i n line wi th best practices, wh ile at the sam e ti me provi di ng a tool for further development of risk cont rol procedures. RISK TOLERANCE The MMK Group’s risk appeti te statement is set out in a formal document that is periodicall y reviewed. The docum ent is desig ned to make s ure that day - to -day operati onal decisions at all l evels of management are made within establi shed limits and to provide reasonable assurance that busi ness objectives wi ll be achi eved. The MMK Group has ze ro risk app etite fo r the foll owing events: - Industrial accidents - Equipment d owntime as a resul t of the ban on the u se of aggregat es d ue to vi olations of environmental legisl ation - Accidents that r esult in severe o r fatal i njuries to employees - Loss of confidenti al informati on an d/or production shu tdowns due to c yber attacks - Strikes or other col lective acti ons to disrupt the Group’s acti viti es - Corruption. RISK MANAGEME NT PLAN AND STRATEG Y Our risk management strategy aims to dri ve the sustai nabl e development of t he MMK Group through risk-b ased deci sion maki ng. It is impl emented through: - Identificati on and assessment of ri sks in day - to - day operations - Identificati on and assessment of ri sks in project s and ini tiatives - Development of risk-mi tigati on measures - Risk moni toring - Communi cating to management ab out potenti al risks and th ose that have material ised. MMK INTEGRATED ANNUAL REPORT 94 MMK GROUP RISK GOV ERNANCE FRAMEWORK Board of Directors (decisions on risk management) Approval of Risk Management Policy Board of Directors Audit Committee CEO Internal audit department Risk owners Risk Management and Internal Control Unit (methodological support and sy stem coordination) Ensuring effective operation of the system. Approval of regulatory documents governing business processes Risk identification and analysis based on audit results Risk identification and analysis Preparation of risk registers that are business-process-specific Preparation of the risk map for the MMK Group; Preparation of a consolidated risk report for the MMK Group Review of the risk map for the MMK Group Approval of the risk map for the MMK Group Development of risk management activities Implementation of risk management activities Risk monitoring All necessary information on the system’s performance Review of the risk management system Review of the MMK Group’s consolidated risk report; preparation of recommendations on the system performance assessment Risk management review MMK INTEGRATED ANNUAL REPORT 95 RISK MANAGEME NT PROCESS Risk identificatio n and docume ntation Within the MMK Group’s risk managem ent framewo rk, ri sks are i denti fied based on busin ess process objecti ves. Identi fied risks are shown in risk registers that are business -process-sp ecifi c, with the most sign ificant ri sks identified wi thin the MMK Group’s risk map . Risk assessment We evaluate all i dentified risks for their potenti al quanti tative and qualitati ve i mpacts on busin ess and for their li kelihood of occurr ence. We also rank th em by sign ificance. Quanti tative ass essment is use d to supp lement qualitati ve assessment and to co mpare the r isk magnitud e to the cost of its mitigati on. I f the risk materi alises, the quanti tative assessment shows the damage from the in fluence of the risk to the Company’s EBITDA. We use approved methods to assess specific si gnificant ri sks to the Group. Business-process- specifi c ri sk dashboa rds and the MMK G roup’s ri sk m a p are us ed to record and track each ri sk throug hout the risk manage ment process. Risk impact ass essment Level of impact Quantitative assessment (RUB million) <10 10 – 100 100 – 1 000 1 000 – 10 , 000 >10, 000 Qualitative assessment Very low Low Medium High Very high Accident Dangerous situations Minor accidents to be investigated Accidents resulting in severe injuries Fatal accident Multiple-fatality accident Social tensions Isolated cases of discontent Strike by key specialists Strike by a business unit Large-scale strike Collective actions to disrupt MMK Group’s activities Likelihood of risk realisation Quantitative assessment (%) 0 – 9. 99 10 – 19 . 99 20 – 49 . 99 50 – 89 . 99 90 – 100 Qualitative assessment Very low Low Medium High Very high Risk managem ent decision making Based on risk asse ssment, the Group selects i ts response to ri sk: - acceptance - miti gation - transfer to a thi rd party - avoidan ce. The outcom es of risk ma nagement acti viti es are used to reassess th e ri sk and evalu ate the effectiveness of these acti vities. Monitoring and reporting Twice a yea r, the Group runs a ri sk reali sation monitoring proce dure for th e key risks shown on the MMK Group’s risk map. Risk moni toring resul ts covers: - Information about risk reali sation during th e reporting period - Causes of ri sk realisati on - Completed ri sk miti gation activi ties. MMK INTEGRATED ANNUAL REPORT 96 At the busin ess process level, ri sks are monitored by bu siness process o wners. The MMK Group’s consoli dated risk report incl udes: - The MMK Group’s risk map r eviewed by the Audit Co mmi ttee of MMK’s Board of Directors and approved by ord er of the CEO - Risk moni toring results for the MMK Group’s risks r eviewed by th e Audit Commi ttee of MMK ’s Board of Directors . The Board of Director s revi ews th e ri sk man agement system pe rforma nce r eport p repared by the internal audit department on an annual basis. THE MMK GROUP ’S RISK MAP Key for princip al risks table Our strategy Risk trends Change in risk level To be the best supplier High or very high Increase To be a leader in operational excellence Medium Decrease To be a responsible, sustainable business (ESG) Low - No change MMK INTEGRATED ANNUAL REPORT 97 PRINCIPAL RIS KS For each of the major risks, including those that are sustaina bility-related, we have identified the related causes, material topics, and types of capital, and deve loped a list of risk mitigation measures. Risks Drivers Impacts Material topics Capitals impacted Risk mitigation Production risks Industrial acci dents and other inciden ts - Failure to c omply with operati ng guidelines and e quipment operati on procedures - Use of sub standard mate rials, supplies and equipment - Failure to c omply with proced ures for repairs, mainten ance and indu strial safety examinations - Disruption o f the continuous ope ration of critical equipmen t - Injury or d eath of employees - Equipment rest oration costs - Reputational los ses Environmental: 5 Air emissions 6 Water mana gement Social: 7 Occupational h ealth and sa fety 9 Human rights Economic: 13 Supply chain 14 Economic pe rformance - Financial - Manu factured - Natural - Human - Social and rela tionship The Company ta kes measur es to preven t emergencies an d ensure saf e operating pr ocesses: - Monitoring the compliance of raw materials, supplies and equ ipment delivered to warehouses with stated requir ements and quality specifications - Conducting technical audits of suppliers - Improving the unified system for trainin g and asse ssing em ployees’ knowle dge - Regular ass essments to che ck employees’ knowledge of techn ical instructions - Training an d certification o f all newly hire d employees - Staff ups killing - Scheduled repairs, maintena nce, upgrades and modernisati on of fixed assets on a timely basis - Unscheduled inspections of bu ildings and struct ures, identify ing instances of non- compliance with r egulations, drawin g up a plan for repair wor k Defective prod ucts - Equipment failu res - Failure to c omply with operati ng guidelines and e quipment operati on procedures - Use of sub standard mate rials, supplies and equipment - Undermining trust in the Company as a reliable supplier of high-qual ity products - Loss of customers Economic: 13 Supply chain 14 Economic pe rformance - Financial - Social and relationshi p Our customer focus, enha nced quality ma nagement system, and c ontinuous improvements to processes and product quality guarante e high quali ty products for our custome rs. MMK carries out the following risk mitigation measu res: - Installing technolo gy compliance cont rols at production facilit ies - Continuous imp rovement of employee skills - Comprehensive inspections of technology compliance and multi-level audits across business units - Internal and e xternal audits of the quali ty management s ystem - Control of tech nological docu mentation - Preparing and reviewing specifications f or raw mate rials and requirements for suppliers - Monitoring the quality of incoming raw materials, fuel, refractory materials, semi- finished products and other su pplies - Testing new mat erials - Technical audit s of suppliers - Scheduled pre ventive and co rrective maint enance of produ ction equipment - Implementati on of quality con trol programm es at product ion units - Audits of pro duction units aga inst a single chec klist - Investigating indust rial incidents and ac cidents Market risks Decrease in t he price spread betw een the average price of rolled metal and th e cost of th e basic raw m aterial baske t - High volat ility in sales and ra w materials markets - Strong comp etition - Monopolisat ion of raw materia ls markets - Ineffective development of the sales network - Limited captive raw materials base Decline of the MMK Grou p’s financial performan ce Economic: 13 Supply chain 14 Economic pe rformance Financial We take nec essary and reaso nable steps to reduce this risk: - Monitoring the industry on a monthly basis and identifying it s key drivers - Reallocation of product flows bet ween markets and individu al market segments - Long-term ag reements with suppliers and customers - Diversification of key raw material suppliers and consu mers - Monitoring of o pportunities to expand its own raw materia l base - Using a strong marketing poli cy - Shifting product ion towards p roducts th at are more mar ketable - Offering alternat ive terms, usi ng a flexible pricing policy - Product qualit y improvement and fast resp onse to pro duct quality complaints MMK INTEGRATED ANNUAL REPORT 98 Financial risks Non-fulfillmen t of obligations b y customers - Shipments un der unsecured deferred payment contra cts - Financial and economic insec urity of customers Decline of The Company’s financial performan ce Economic: 14 Economic pe rformance Financial The Company implem ents the following measu res to minimi se the risk: – increases the share of ag reements secure d with bank gua rantees and sureties, uses factoring arrang ements for payments – evaluates cu stomer solvenc y for deferre d payment shipments of pr oducts, sets shipment limit s. Sustainability risks Occupational health and safety (OHS) ris k - Insufficient risk awareness an d unsafe occupational beha viour - Form-ove r-substance ap proach to OHS training - Inadequat e maintenance of facilit ies and equipment - Deterioration of the Group's reput ation - Deterioration of the employees ’ health Social: 7 Occupational h ealth and sa fety 9 Human rights 10 Employee en gagement Social and relat ionship The occupationa l health and s afety system is one of MM K ’ s sustainability drive rs. The Group maintai ns an ongoing focus on prevent ing accidents, with a particular emphasis on OHS awaren ess and trai ning as well as providing employ ees with a safe working environment an d the necessa ry personal pr otective equipme nt. Key risk mitigation activities: – Improving vi deo- and VR-ba sed training and drill program mes to deal with unsa fe actions – Rolling out vide o analytics to c over working a reas and rob otic automation solutions for hazardous ope rations – Developing and automating behavioural sa fety audits – Establishing saf ety areas, in stalling additional guar drails, and avoiding hu man presence in high ly hazardous areas Environmen tal risk - Obsolete te chnology and worn-out environmenta l facilities - Non-compli ance with the envi ronmental laws of the Russian Federatio n and ISO 14001:2015, the internationa l standard for environmen tal manageme nt systems - Failure to c omply with envir onmental regulations for production facil ities, maintenan ce and repairs - Environmental degradation - Penalti es Environmental: 1 Energy ef ficiency 2 Biodiversity 3 Waste manag ement 4 GHG emissions and climate change 5 Air emissions 6 Water mana gement Social: 7 Occupational h ealth and sa fety 9 Human rights Economic: 14 Economic pe rformance - Financial - Natural - Social and rela tionship Indispensable elem ents of MM K ’ s strategy that drive its long-term and sustainable development in clude the cont inuous reduction an d preventi on of harmful envi ronmental impacts as well as the deploy ment of the best available tech nologies: – Upgrading e xisting faciliti es and applying advanc ed environmen tal solutions when constructing n ew production facilities – Automating indu strial emissi on management systems - Implemen ting a comp rehensive plan of initiatives to reduce emissions Social tensio n - Changes in headcount - Insufficient wa ge indexation, leading to lower living stan dards - Perceived un fairness in the distribution of workload an d incentives among employees - Deterioration of the social well-being and o verall morale of our workforce - Negative impact on the Company ’ s acti vities Social: 7 Occupational h ealth and sa fety 8 Local commun ity developme nt 9 Human rights 10 Employee en gagement Economic: 14 Economic pe rformance - Financial - Intellectual - Human - Social and rela tionship MMK implement s a range of s ocial programmes to help im prove how people deal with life ’ s problems: – Health treatmen t and othe r medical services for employee s – Improving th e health of em ployees and their families – Social support for non-worki ng retirees, p eople with disabi lities, and other people in need – Supporting moth ers and la rge families The MMK Group also raises its employees ’ wage rates and salaries on an annual basis, while expanding serviced area s, promoting mult i-skilling and introducing pe rformance- based payments and bonu s programmes to provide additiona l financial incentives for employees and drive personal responsibility Climate risk - Introduction of a carbon border adjustment me chanism (CB AM), which is the application of economic le vers in the supply of produ cts to the - European market (carbon price) - Increased cost of fossil fuels as compa red to carbon-free fuels due to CB AM - Increased nu mber of clima te-related emergencies (h eavy precipitat ion, droughts, highe r temperat ure of water used to co ol the equipment) - Increase in ca pital expenditures f or the introduction of new technologies - Increase in th e cost of purchasing fuel resources - Disruption o f production processes - Damage to the environment - Accidents th at caused injuries to empl oyees - Reputational los ses - Additional dut ies, fines an d sanctions Environmental: 1 Energy ef ficiency 2 Biodiversity 3 Waste manag ement 4 GHG emissions and climate change 5 Air emissions 6 Water mana gement Social: 7 Occupational h ealth and sa fety 9 Human rights Economic: 11 Corporate governance 13 Supply chain 14 Economic pe rformance - Financial - Manu factured - Intellectual - Natural - Human - Social and rela tionship We implement t he following mea sures to reduc e this risk: – Assess the ca rbon intensit y of our producti on processe s and develop measures to reduce emissions using availa ble technology and planned investment projects – Develop a clima te strateg y to reduce GH G emissions We developed an assessm ent method ology and assess ed climate risks MMK INTEGRATED ANNUAL REPORT 99 Economic security risks Cyber risk - Software and hardware vu lnerabilities within aut omated process con trol systems and in formation sy stems - Failure to c omply with info rmation protection and software licens ing regulations - Abuse of office/human e rror - Failure of k ey IT infrastructu re components wit hin automated process control systems and informat ion systems - Poor emplo yee awarenes s of informa tion security - Disruption o f the continuous ope ration of critical equipmen t - Loss of confi dential information - Reputation losses Social: 7 Occupational h ealth and sa fety 9 Human rights 10 Employee en gagement Economic: 11 Corporate governance 12 Anti-corruption and ethics 13 Supply chain 14 Economic pe rformance - Financial - Manu factured - Intellectual - Human - Social and rela tionship We take the following measur es to reduce these risks: – Implementing te chnical mea sures to raise employee awa reness about info rmation security issues – Appointing individua ls respo nsible for information security in the Company ’ s unit s – Designing and implementing a security system to protect crit ical information infrastructure – Security as sessments of k ey information s ystems and resources – Anti-virus pr otection and sof tware security up date manage ment – Developing and implementin g a set of mea sures to pr otect informat ion and provide the necessar y licensed softwa re – Automated c ontrol of us er access ri ghts for special-purpos e information sy stems – Monitoring an d managing inf ormation secu rity events – Building resilien t IT and tele coms infrastructu re – Providing utilit y infrastructur e and power supply at data ce ntres In addition, a qu antitati ve assessment of c yber risk was carried out using a speciall y developed meth odology. Corporate fr aud - A lack of clear and appr opriate procedures and controls f or business processes in regul ations - Inadequacy of high-level infor mation security requirem ents to hand le emerging threat s - Failure by em ployees to c omply with their job descripti ons Financial losses Social: 10 Employee en gagement Economic: 11 Corporate governance 12 Anti-corruption and ethics 13 Supply chain 14 Economic pe rformance - F inancial - Manufactured - I ntellectual - Human - So cial and rela tionship The MMK Group maintains an ongoing focus on building a st rong corpo rate ethos to foster a cont rol culture an d we implement the following me asures: - Impr ovement of interna l control s ystems - Develop pment and up date of controls - Dra fting internal regulat ions (e.g. Cod e of Ethics), policies, procedu res, - an d reporting forms for monitoring its asset integrity activities - Sett ing up dedicated hotlines Compliance risks Sanctions for violation of laws on th e use of minera l resources - Subsoil use n ot covered by mining licenses - Ambiguity o f law enforcem ent practices relating to subs oil legislation Compensation for damage caused as a r esult of violation of the requirements o f subsoil legislation Economic: 11 Corporate governance 14 Economic pe rformance - F inancial - So cial and rela tionship The Company ha s taken t he following measur es: - The boundaries of mini ng areas have been brought into compliance with licence s by amending the relevant licence s - Official confirmations were obtain ed MMK INTEGRATED ANNUAL REPORT 100 ASSESSM ENT OF THE MM K GROUP’S PROSP ECTS The m odern world is changi ng fast, creating both new chall enges a nd n ew opp ortuniti es. Climat e change and th e green agenda dri vin g the innovative technology development and ad opti on, and sup ported by d igitali sation are the trends that are set to i mpact the d evelopme nt of the steel industry in a bi g way . M MK’s system for m onitori ng external changes, emerging technologi es, a nd n ew consumer demands enables agili ty an d spe ed i n responding and ad apting to the indu stry’s new operating conditions. The MMK Group enterpri ses use a uni form approach to drafting a long -term investm ent programme focused on enhanci ng production effi ciency an d drivi ng the adoption of green te chnologi es. Continu ous efforts to imp rove efficiency h elp MMK consistentl y sit at the lower end of th e global cost curve, among the wo rld’s eff ici ency leaders. To maintain its l eadership in the premium product market in Ru ssia, MMK is expandi ng its producti on capa cities and produ ct range. The MMK Group’ s strateg y leverages our prime geographi cal advantag es b y suppli ng products to the Russian regions with th e highest levels of metal con sumpti on. MMK suppli es more than 70% of its products to the Russi an market, so we bel ieve MMK is among the compan ies that stand to gain the most from nati onal in frastructure proje cts. Efforts to draft an d ap prove the MMK Group’s consoli dated bu dget imp ly an annual plan ning process, i ncluding drafting a short -term (y ear ahead) fin ancial forecast wh ich i s updat ed on a q uarterly basis. The budgeting process is driven by the inp uts provi ded by each Group co mpany and the results of potenti al risk assessment. The MMK Group’s draft consolidated budget is reviewed an d approved by the Board of Dir ectors. As part o f th e revi ew an d app roval proc edure fo r i ts l ong -term (t en-year) strategy, MMK ap pli es a l ong-term planni ng process compri sing the pr eparation of a l ong -term ( ten-year) finan cial forecast. The forecast is prepa red based on the informat ion received from each Group company an d on t he results of p otenti al risk assessment. The long-t erm strategy is reviewed and approved by the Bo ard of Directors. GOING CONCERN When ass essing the Group ’s abi lity to contin ue as a goi ng concern, w e c onsider pr eparin g its financi al statements on a going concern basi s. F ollowi ng the review of th e Gr oup’s c onsoli dated bu dget by the co ll ective executive body (Management Board), which al so co nsidered the risks of raw material and finished pr oduct p rice vol atilit y, un used credi t faciliti es, and debt m aturit y profil e, t he Management Board came to reasonab ly expect t hat the Group has ad equate resources to conti nue its production operations in the foreseeable future. In this context, the going concern basis continues to apply in th e preparation of the c onsolid ated fi nancial statements. MMK INTEGRATED ANNUAL REPORT 101 GOVERNANCE CHAIRMAN’S LET TER CHAIRMAN VICTOR RASHNIKOV « Dear shareholders! In 2021, w e delivered record result s a cross multipl e k ey performance metrics. We achi eved th is thanks largely to the w ell- coordinated, effective efforts of the Board of Directors, executive team and MMK employees in the face o f adversity br ought on by the ongoing pandemic and t he volatile external environment. The B oard o f Directors maintained i ts focus on increasing total share holder return, supporti ng ma rket capital isation growth and generating high divid ends whil e keeping borrowing l ow. Board meeti ngs th roughout the year f ocused on health and safety, th e i mpl ementation of th e 2025 St rategy, sustai nabl e devel opment, cli mate change and decarbo nisati on, operational resil ience, and digi talisati on and cybersecurit y projects. The B oard of Di rectors’ acti vity plan that h as been app roved for the 20 21/2022 corporate ye ar incl udes matters related to th e Compan y’s st rategic development and pri oriti es. Read more on p ages 1 14 -1 15 . Listening to stake holders In l ine wi th our recognised strategy, we operated the busin ess ta king the interests of al l stakeholders into acc ount. MMK pl aces a p articul ar empha sis on buildin g a constructi ve dialogu e with it s stakeholders, and th e Board o f Directors i s directly i nvolved i n this effort. Thi s allows us to tal k to sta keholders about, for example, our work and progress across ESG initiat i ves as well as on the transparency of our corporate governan ce. Our engagement wi th stakeholders also helps us to identi fy and und erstand the bi ggest concerns of each type of stakehol der, so we can improve performanc e and disclosures i n those highlig hted areas. MMK’s annual Investor Day held on 7 December 2021 as part of these efforts, provi ded an opportuni ty to discuss the mai n current and future t rends i n the gl obal an d Ru ssian steel markets, key drivers of m etal consum ption, as w ell as t he progress on M MK’s 2025 Strategy. Read more on pages 29 -33 . Committed to hig h standards of governance As our c orporate gove rnance conti nues to i mprove, we keep a close eye on external chang es and requi rements, r espond to chal lenges and i mplement Russian and i nternational best p ractices. Th roughout i ts op erations, MMK is stri ctly g uided by internati onal and Russian corporate governance standards. Thes e includ e t he provisions of the Corpo rate Governance Code recommend ed by the Bank of Russi a, the UK Corporate Governance Code, the listing rules of the London and Moscow stock exchanges, th e recom mendati ons of the Bank of Russi a on discl osing n on -fi nancial informati on, and the commi tment to UN Sustai nable Development Goal s. High standards o f gove rnance h elp us dri ve progress towards o ur sustainab ility goals. We welcome the decision made by t he IFRS Foundati on during COP -26 to form an International Sustainability Standards Board to develop a global baseline of sustainabil ity discl osure standards. Read more on page s 1 00 -1 26 . Changes to the Board In 2021 thr ee directors resigned from the M MK Board after man y years of valuabl e service and I t hank th em heartil y for th eir enormous c ontribu tion. In order MMK INTEGRATED ANNUAL REPORT 102 to fill thei r shoes, the c ompositi on of the B oard of Di rectors was refres hed in 2021 to inclu de three n ew indep endent di rectors. We w elcome new m embers of t he Board wh o bring expertise and experience from a wi de range of industri es, i ncludi ng retai l, finan cial services, data anal ytics and telecommu nicati ons. The r enewed compositi on allowed us to maintai n the diversity of th e Bo ard of Directors, with women accounti ng for 20% of its members, in contrast t o an average of 5% in Russian co mpan ies. When we ma ke s uch ap pointment s, we are min dful of t he need to support the Company’s IT and d igital transformati on an d consi der it s long - term requirements. The Board’s competencies are ful ly al igned wit h the Company’s current strat egy and need s. Focus on contin ual improve ment In 2021, based on the results of an external boa rd performanc e eval uation, th e Board of Di rectors dev eloped and approved a new C orporate Governance Improvement P rogramme t o run until 2024. You can read more ab out t hi s programme on page 106 . This pr ovi des, among othe r thi ngs, for deeper b oard i nvolvement i n strategy impl ementation and ri sk ma nagement, adoption of modern app roaches t o stakehold er engagemen t, expansi on of the Comp any’s ESG ag enda, d evelopment o f investor communi cati ons, and improvement of MMK’s i nvestment appe al. I have be en closely in volved wi th thi s program me, and I encourag e al l Boa rd members, manag ers, s peciali sts and employees i nvol ved in corporate governan ce to attend strategic and training sess ions, some of which are facili tated by external experts. This ini tiative has generated a good deal of enthusiasm and in terest, and we intend to conti nue wi th it next year. Once agai n, I w ould li ke t o thank t he B oard members, the whol e executi ve management team and MMK empl oyees, as w ell as o ur sharehol ders an d partners, f or the pr oductive coll aboration and achi evement of al l of the Company’s goals and objectives. I am confident th at the Board an d the Compa ny will remain committed to its chosen strategy while main taining t he h ighest standards of co rporate governance. In 2022, th e Board will continue to pay clo se attention to health and saf ety, sustainab le development and climate change, as well a s all the challeng es t hat the Company and society at large mi ght face. » MMK INTEGRATED ANNUAL REPORT 103 OUR CULTURE With 90 years of t radition behi nd u s, we at MM K are fiercely protective of the cul ture that our predecessors spent man y decades working to create. The company’s early pi oneers would not have called i t cultu re, but they we re all too aware tha t th ere was a way of d oing things that expressed an d defined what MMK st ood for. As th en, t oday w e stand for val ue and qual ity; we ai m to culti vate pa rtnershi ps wi th all our stakehold ers, we take c are of th e safety, heal th an d wellbei ng of our empl oyees and do all we can to make MMK a place wh ere people a re reward ed fai rly and can fulf il their ambi tions. MMK continues to be a company that is a lways looki ng to improve, be that i ts b usiness processes and m ethods, the opportuni ties it opens up for i ts people, or the q uality of it s products. Our history and identi ty an d those of Magni togor sk are i nextricabl y l inked; t he town was shaped by our arrival there i n the 1930s. MMK is the pri mary employer in the regi on and we recogni se th e signi ficance of our busi ness on the social, econo mic and envi ronmental healt h of our home t own. It is in our D NA to i mprove t he q uali ty of people’s lives in Magn itogorsk an d to cr eate opp ortuni ties i n the region. Our cul ture means that our busi ness pra ctices a re driven by i ntegrit y and t ransparency, s o we have well- established mechanisms in place to c ounter corru pti on and all forms of w rong doing and thi s robust governance means we build trusting relationshi ps with share hold ers, investors and employees. In recent d ecades, we have come to unde rstand the effect that our busi ness can hav e on th e environment more b road ly an d we recogni se the importance of valui ng and protecting the world around us. Our cultu re reflects thi s 21st century pri ority. The MMK cul ture, bu ilt over 90 years, i s one of our most p recious assets. We p rotect and nurture it so it can conti nue to s teer us for many years to com e. OUR APPROACH MMK’s strong approach to governance, combined with its r obust financial performance, reflects our posi tion as a l eading mod ern Rus sian company an d a reli able partn er for invest ors in Russia and around the world . The Group is guid ed by i nternational and Russian corpo rate governan ce sta ndards, inclu ding the provi sions of the UK Corpo rate Governanc e Code, the Corporat e Governanc e Code recommended b y the Bank of Russia, and the li sting rul es of t he Lond on and Moscow Stock Exchanges. MMK’s corporate gov ernance princi ples and rul es are set out in th e Company’s Co de of Corporate G overnance, wh ich was revised and approved by d ecisi on of the B oard of Di rectors on 20 December 2019 (avai l able on MMK’s w ebsite 47 ). The pri nciples and rules are as foll ows: – Protection of sha reholder and i nvestor rig hts – Complian ce with all applicable legisl ation and in ternal regulati ons – Equal treatment of all sharehol ders (incl uding foreig n and minori ty shareholders) – Mutual trust and respect for all stakeholders, open di alogue – Integrity of manag ement – Commitment to the continuous reducti on and preventi on of h armful envi ronmental i mpacts, an approach that will provide an envi ronmental perspective to n ew devel opment projects, and the deployment of the best avail able technologi es. MMK follows these p rincipl es stri ctly and moni tors new corporate governan ce requirements and best practices, cont inu ously imp roving its own approach. Thi s is achi eved by, among othe r things: – An annual performanc e evaluati on of the Board of Directo rs – The Board of Di rectors review of t he r eport on compli ance wi th th e Corporate Governance Code 47 All MMK’s internal documents are available on th e official website . MMK INTEGRATED ANNUAL REPORT 104 – The Co rporate S ecretary’s updates to t he B oard of Di rectors on changes i n regul ation and corporate governan ce practices – Communi cating with sharehol ders and investors and other stakehol ders. The Company engages proacti vely wi th stakeholders, inclu ding minori ty and foreign shareholders, on corporate go vernance ma tters. MMK adh eres to a cor porate -wi de pol icy th at appli es to all its subsidiaries and affi liates and oth er legal entities associated wi th the Group. The MMK Group’ s Code of Ethics: guid ing and ref lecting our cu lture and value s Over ti me, we ar e bui ldi ng a cult ure of success, i n which achievement is fairly rewarded. Reinforcing this cul ture is a range of poli cies and ini tiatives, suppo rted and endorsed by the Board of Directors, that h elp our peopl e to l ive by th e M MK valu es. We kn ow th at our pe ople a re what mak e MMK the suc cessful company it is. We expect our e mpl oyees t o meet high standards of b usiness conduct and p rofessional competence. Corp orate values, pri ncipl es an d requirements th at un derpin our business ethi cs are set out i n the MMK Grou p’s Code of Ethi cs . The Board o f Directors is confident that the corporate cult ure an d values defined in the MMK Group Code of Ethics and other internal documen ts ensure the confi dence of the i nvestm ent commu nity in the MMK Group and contribu te to the loyal att itude of sharehol ders to the Company . For more detail s on MMK’s key p ri nciples and val ues in th e field of ethics, see page 89 . Compliance with best practices The Company ad heres to mo st prin ciples of t he Corpo rate Governanc e Code appr oved by the Bank of Russia on 21 March 2014. To assess i ts compl iance wi th th e Code’s p rincip les, the C ompany u sed the R ecommendati ons on Preparati on of the Rep ort on C ompli ance wi th the Principles and Recomm endations of the Corporate Governance Code of th e Bank of Rus sia. In 20 21, MMK ful ly or parti ally compli ed with 77 princi ples (97.5%) a nd did not compl y with only two out of 77 (chart below). For more detail s, see the Appendi ces to thi s Integrated An nual Report. Compliance with the principle s and recom mendations of the Corporate Gov ernance Co de Followi ng the recomme ndations of M MK’s Cod e of Corporat e Govern ance as wel l as best corporate g overnance practices, the C ompany u ses t he fol lowin g mechani sms and tools (in accordance with i ts Charter and internal regulations): – Setting th e deadli ne for sha reholders t o submi t prop osals for th e ag enda of the An nual General Meeting at 60 days after the end of the finan cial year – Establi shing rules for respondi ng to sharehol ders’ questions du ring the meeti ng – Providin g e-mail as an additi onal mean s of shareholder communicati ons: shareholder@mm k.ru – Offering an electroni c voti ng system ( shareh older pag e ), t hus enabli ng every sha reholder to exercise their ri ght to vote fr eely and i n the simpl est and most conveni ent way – Expandin g the list of m atters to b e deci ded on by a maj ority vote of a ll elected m embers of the Boa rd of Di rectors a nd the li st of matters to be deci ded on by the B oard of Di rectors th rough in - person votin g 91% 6% 3% Full complience Partial complience Non-complience MMK INTEGRATED ANNUAL REPORT 105 – Putting in place a coll ective executi ve body , t he Man agement Board, whose main functions are to review th e MMK Group’s financi al an d economic p lan (budget), foreca st fin ancial and economi c indi cators f or the MMK Group , approve repres entati ves i n the MMK Group’s compan ies and a pprove directives for the representat ives to t ake decis ions at Annual General Me etings and meeti ngs of the Board of Directors – Establi shing representati ves wi thin the MMK Group c ompani es to imp rove t he quali ty of management d ecisi ons. The repr esentatives are guided by the Regu lations on R epresen tatives approved by MMK’s C EO and th e directives appr oved by MMK’s Manag ement Board – Requiring the Board of Directors to approv e resolu tions not only on the transactions provi ded for by Russi an laws b ut also on transacti ons wi th a valu e exce eding 10 % of the book value of the Company’s assets, as well as on t ransactions t o d ispose of real estate regardl ess of t he transacti on value – Complyi ng with the proc edures for successi on and sel e cti on of nomin ees to the Board of Directors set out i n MMK’s Regul ations on the Board of Directors – Ensuring MMK’s governin g bodies use el ectronic technol ogies in accordance with i ts Charter and internal regulations – Holdi ng regul ar, open strategy sessi ons i n volving i ndependent directors t o discuss the impl ementation of the Company’s po rtfoli o of strategic objecti ves and its KP I system – Paying parti cular attention to sustai nabili ty matters. The ESG appr oach is embedded in every aspect of M MK’s busi ness and inf orms our d ecision maki ng, with sustai nability focus area s i ntegrated into the Compan y’s stra tegy. MMK contributes t o the devel opment of i ts core operati ng regi on, helps promote th e soci al well-b eing of local resident s and conserve the envi ronment by deli ve ri ng on its economic commi tments and soci al and environmental agenda. Disclosure polic y (information p olicy) In 2008, the Board of Di rectors approved MMK ’s Information Poli cy. The CEO is responsi ble for announci ng the Company’s performanc e. The In formation Policy of MMK is al igned with ap plicable R ussian laws, the C orporate Governance Code recommended by the Bank of Russia, rul es and requirements of Russian and British securities market regulators and Russi an and i nternational best corporate gove rnance practi ces. The C ompany’s Informati on Poli cy i s focused on promoting the ri ghts of sharehol ders and investors to material information relevant to taking investment and management decisions, as well as on protectin g sensitive information, disclosure o f wh ich may resul t in da mages to the Company and its shareholders. The key princi ples of the Informati on Poli cy are: – Ensuring the right of sharehold ers, i nvestors a nd oth er stakeholders t o in formation in li ne with appli cable Russi an laws – Regular, consi stent and ti mely in formation disclosure – Complete, up- to -dat e and reli able informati on, comparabili ty of discl osed data avail ability – Equal and unhindered access to in formation an d documents for shar eholders up on request – Balance between t ransparency and confi dentiality. Board evaluation Every year sin ce 20 08, the Board of Di rectors h as evaluated i ts own performanc e and that of its members and commi ttees. Thi s helps to boost the Board of Di rectors’ efficiency, ident ify areas for improvement and improve MM K’s corporate governance practi ce. The results of the evaluati on are set out in MMK’s Integrated An nual Report. To conduct an i ndependent pe rformance eval uati on of the Boa rd of Di rectors, MMK regul arly (at l east once every t hree years) engages an external organi sation (a consul tant ) that must be approved by the Board of Di rectors upon a proposal fr om the Nomi nation an d Remun eration Committee. MMK INTEGRATED ANNUAL REPORT 106 Followi ng the evaluati on, the Board of Di rectors approves an a ction pl an to imp rove the Company’s practi ces. O n 2 5 October 20 21 the Corporat e Governance Imp rovement Programme for 2024 was approved. The Corporate Governance I mprovement Programme o utli nes the foll owing ar eas focus areas: st rategy; risk manag ement an d i nternal cont rol ; comp osition an d skil ls mi x of th e B oard of Directors; m eeting s of th e Board o f Direct ors and it s c ommittees ; remunerati on system for t he Board of Di rectors, e xecutive bodies, and other k ey exe cutives ; stakeholder engagem ent, ES G, informati on disclosure. On 28 Decemb er 2021 , the Boa rd of Di rectors d ecided to engage a competent e xternal consultant to conduct an evaluati on of the performance of MMK ’s Boar d of Directo rs, Boa rd m embers and Board commi ttees in 2021. Board effectivene ss review 2021 Followi ng the 2021 performance self -evalu ation, members of th e Board of Directors noted th at corporate governance at MMK compl ies wit h R ussian and i nternati onal best practi ces an d d emonstrates annual imp rovement. The Compan y’s st rengths and achi evements include a hi gh l evel of corporate social responsibili ty, an ongoing focus on ESG best p ractices, and i mproved ESG rati ngs. The more di versified compositi on of the Board of Directo rs, i ncreased openness of discussi ons during meeti ngs, and ac tive involvement of th e Board Chai rman and me mbers i n eng agement wi th th e investor communi ty recei ved a positi ve evaluation. Board commi ttees were commended for th eir excel lent o rgani sation, constructi ve approach, discipli ne, complian ce, and consistency. Board members gav e a posit ive evaluati on of each Director’ s i ndivi dual performance. Areas for imp rovement in the corp orate governan ce practice were id entified: – Further improvem ent of commu nicati on with the mark et: better i nsight i nto the audi ence and it s expectations, consi stent and prompt mark et announcements – Further development of the ESG ag enda – Improvement of communi cation channels between Board members and senior management – Launch of an onl ine platform to streaml i ne the organisati on of Board meetings – Boosting senior management’s moti vati on – Expandin g the role of Board memb ers in developing MMK ’s strategy and strength ening supervisi on over its impl ementati on – Continu ous monitorin g of new corporate gover nance practi ces. AWARDS AND ACH IEVEMENTS At th e 16th National Director of the Year A ward f or the 2021 corporate year, Victor Rashn ikov was named among the 25 Best Board Chairmen. MMK’s corporate governance has been independently assessed every year sin ce 2003. On 16 February 2022, the Russi an Insti tute of Directors confi rmed MMK’s rati ng at 7++ (d efined as havi ng a ‘developed c orporate governance pr actice’) on the National Corporate Governance Rati ng scale. Thi s mean s that the Compan y foll ows a signi ficant number of reco mmendat ions of t he Russi an Corporate Governance Code an d su stainabili ty stand ards. Company shareholders are expos ed to a ve ry l ow ri sk of l osses cau sed b y poor corporate governance and su stainabili ty management. MMK INTEGRATED ANNUAL REPORT 107 CORPORATE GOVER NANCE IMPROVEMENT PROGRAMME FOR 2 024 The Corporat e Governan ce Improvement Prog ramme outli nes the foll owing areas focus areas: Strategy Promote closer co operati on between management and i ndependent di rectors on strategi c matters, taki ng into account current chall enges an d changin g conditions; in troduce regul ar strategy sessions for the Board of Directors to r eview overall strategy; consid er the feasibili ty and appropriat eness of u pdati ng the HR poli cy and strategy, int ernal regulati ons on suc cession pl anning for key MMK executi ves, and upskil ling programmes for key MMK ex ecuti ves. Risk managem ent and internal c ontrol Keep members of the A udit Committee in formed about new i ndustry risks o r emerging risks in MMK’s activities; update m embers of th e Au dit Committee on best practices in r isk manag ement, internal control s, and internal audits i n public industri al compani es. Composition and skills mix of the B oard of Director s Consider how st rengtheni ng the Board diversi ty and equal opp ortuniti es can support the impl ementation of th e Compan y’s busi ness strategy, taking i nto acc ount p rinciples such as the ri ght mix of skill s, balanced composi tion, diversity, individual approach, in dependence, and i nformation transparency, i n l ine wi th th e rel evant provi sions of th e UK and Ru ssian corporate gover nance c odes, as well as best c orporate governan ce practi ce. Meetings of the Bo ard of Directo rs and its committees Promote progr ess repor ting t o the Board by th e commi ttee chai rpersons to provide an update on c ommittee acti vities; scale up the in volvement of exte rnal experts to discuss certai n matters at committee meetin gs (where appropriate); introduce an electroni c document management system covering MMK ’s governing bodi es and MMK Group companies. Remuneration sy stem for the Board of Directors, executive bodies, and other key executives Consider determi ning the cri teria for and the a mount of the remunerati on for MMK ’s Boa rd of Directors i n t he Regul ations on Remun erations a nd Compensati on of Expenses of Memb ers of the Board of Di rectors, t aking i nto acc ount best practices, the Company’s needs, an d th e n eed to have right - calibre di rectors on board . Stakeholder en gagement, ES G, information disclosure Development and approval by the Board of Di rectors of a map of MMK's key stakehol ders, their expectations, commu nicati on channel s and persons responsi ble for commu nicati on with them, as well as a st rategy for stakeh older rel ations (including the rol e of the Board of Di rectors and management) and plans for its implementati on (taking i nt o account internati onal ESG reportin g standards); Considerati on of th e possibil ity of changing informati on disclosure practi ces, taking in to account changes in th e law and best corpo rate conduct practices. MMK INTEGRATED ANNUAL REPORT 108 BOARD ENGAGEM ENT IN 2021 Building a constructive dialogue with all o ur stakeholders is of critical import ance to us. This enables us to communicate more effectively with stak eholders on o ur social, economic and governance pe rformance resul ts and also i dentify what matters are most important to each stake holder, where we can imp rove, and what we need to disclose. Event Description Purpose Result Capital markets day Building on our pioneering onl ine engagement in 2020, MMK hosted a successful CM D in Decembe r 2021 that gave stakeholde rs direct a ccess to the senior leadership team, in line with our c ommitment to o pen communication. This event, m oderated by an MMK Independent Director, combined a live, interact ive online broadcast with a face- to -face session featuring the Chairman of the Board of Directors, CEO, and Director of Strat egy and De velopment. We invited investment fun d analysts and represent atives to take part in the stu dio session an d other stakeh olders joined online The CMD gives us the opp ortunity talk to stakeholders ab out the results of the implementati on of the Compa ny’s strategy a s well as giving participant s the cha nce to air their views and ask questi ons directly to t he senior team. This exercise provide s us with use ful feedback an d helps the Board in it s decision maki ng This two-way c ommunication helps us understan d what our investors want to hear about from us and provides them with the information and in sights they a re looking for. As well as answering quest ions during th e session in real time, we also provided writ ten answers to o ther questions that were not covered during the event. We also posted a f eedback form on the event we bsite and all this in put will help us unde rstand how our invest ors see the C ompany’s strategy and will fee d into how we keep them info rmed in the futu re. Learn more: htt ps://mmk.ru/ en/investor/inve stor-day/ Site visits to subsidiaries In 2021, an ind ependent me mber of the Board of Directors and Cha irman of the Committee for Occupational Health , Industrial Safety and the Environment, ho sted visits to M MK’s mines in the Kemerovo Re gion and to th e iron ore de posit in Magnitogorsk Visits to produ ction sites are both motivatin g and valuable for emplo yees, helpin g them underst and the Company’ s strategy and objectives in the context of their own work. It is also extrem ely helpful for delegate s to see u p close the workings of a particular pro duction site and to hear directly from those w orking there Following the t wo-day visit, the delegat es from MMK min e convened a meet ing of the Co mmittee for O ccupational Health, Industrial Safety and t he Environmen t to discuss the outcomes of occu pational heal th and safety measures in 2020 and 2021 and OHS performan ce improvem ents at the coal asset Site visit to MMK In September 2021, MMK h osted a pro duction site visit for analysts and representati ves of investm ent funds, during which the guests met wit h CEO Pavel Shil yaev and a senior man ager. The participants visited the plant’s key facili ties: Hot -Rolling Mill 5000, Cold-Rollin g Mill 2000, Cold-Rollin g Mill 1700, Sint er Plant No. 5, as well as metalwar e production facilit ies We are guided by the principl es of openness and transparency in communicati ng with the investmen t community. The analyst and i nvestor site visit t o the plant offere d a deep di ve into the Company’s production proc ess and hel ped build relat ionships and facilita te communications Visitors could s ee for themsel ves the scal e of production an d the results of our in vestment programme, as well as get answers to their questions fro m both plant man agers and MMK’s CEO. Afte r the event, we received positi ve feedbac k from the pa rticipants and iden tified the most rele vant topics for further c ommunication Learn more: htt ps://mmk.ru/ en/investor/pro duction-visit/ Communication with retail investors MMK’s senior man agers and members o f the Board of Directors participat e in online webin ars and vi deo conferences f or retail investo rs, organised by brokers. In 2021, a mem ber of the B oard of Dire ctors, took pa rt in conferences organised by leading brokers, whe re he spoke about t he Company’s production pro cess and performance, and about trend s in the raw mat erial and steel markets The recent mas sive increase i n the number of retail investors drives innovative co mmunicati ons. We are working hard to give this audience ac cess to the senior leadership team, so we can understand where retail in vestors’ interest s lie and ans wer thei r questions direct ly Thanks to ou r open dialogue i n which we sh are our insights with retail invest ors, we have seen increased engagement rates among th is stakeholder group and growth in the number of vide o conference views. Learn more: htt ps://mmk.ru/ en/investor/ for-private- investors/ MMK INTEGRATED ANNUAL REPORT 109 Chief Power Engineer MMK GOVERNA NCE STRUCTURE CEOs of Group Comp anies CEO Management MMK Management Level Companies of the Group Auditor Annual Genera l Meeting Board of Di rectors Nomination and Remuneration C ommittee Sustainable De velopment working group Head of the Department of Affair s and Social Development Internal Audi t Department Audit Committee Health, Safety and the Environment Committee Strategic Plann ing Committee Director for Occupa tional Health, Indus trial Safety and the Environ ment Corporate Secretary Secretary to the Board of Directors Head of Financial Resources Human Resour ces Director Deputy CEO for External Communication s Head of Sustainable Development MMK Executive Bodies Head of Domestic Sales Security Direc tor Director of Strateg y and Developme nt Commercial Director Director for Economics Functional Area s and Divisio ns of Group Compa nies MMK Collegial Bodies Commission for Ethics Commission for Labor Disputes Commission for Labor Protection Commission for Accounts Payable and Accounts Receivable Commission for the Preservation of Property and Combating Corporate Fraud Commission for Anti-terrorism Commission for Overheads Chief Informatio n Technology Specialist Director of Cap ital Construction Deputy CEO for Production Organisationa l link Functional link Chief Legal Officer MMK INTEGRATED ANNUAL REPORT 110 Overview of MMK’s corporate g overnance model and pract ice MMK’s corporate go vernance structu re is ali gned with global best practice and comp rises the followin g bodies: – Annual General Meeting ; – Board of Directors ; – Management Board (c ollective executi ve body) ; – CEO (sole executi ve body) . ANNUAL GENERA L MEETI NG The Annual General Me eting is the Company’s supreme governi ng body. By voting at Annual General Meetings, the shareh olders exercise t heir right to parti cipate i n man aging the Compan y, inclu ding th e electi on of memb ers of the Boa rd of Di rectors, ap proval of the Audi tor, app roval of th e Annual Report and fi nancial statements of the Company, profit di stribution, including payment of dividend s, etc. The A GM competenc e, as w ell as the procedu re for conveni ng and holdi ng t he An nual General Meeting , are establi shed by Russian laws, the Charter and Regulati ons on the Annual General Meeting of MMK. The Company’s internal documents on the procedur e fo r h olding the Annu al General Meeti ng outlin e, among other thing s, the foll owing options: – Sendin g voting ball ots by e-mai l to respective sharehol ders provi ded in th e regi ster of MMK shareholders and/or pr ovidi ng an online voti ng form on the websi te as p art of the noti ce of an upcomi ng Annual General Meeting – Submitti ng filled voting ballots by persons enti tled to p artici pate in th e Ann ual General Meeting by e-mail ( shareholder@mmk. ru ) as provi ded in the notice of an upcomi ng Annual General Meeting and/or fil ling in the online voti ng form on th e website p rovi ded in the notice of an up coming Annual General Meeti ng – Filling i n the onli ne voting form on the w ebsite during an Annual General Meeting (at an i n - person me eting t o discu ss agenda items an d d ecide on voting matters) in cases whe re the righ t to participat e in the meetin g was not exercised otherwise earli er. These options have been avai lable free of charg e si nce 2017 through the onli ne service p rovi ded by MMK’s registrar STATUS . Each i nvestor has their own Shareholder Page, which is a secure multi functional i nformati on service. It i ncl udes a mobi le app and pr ovides services to sharehol ders onl in e and enables them to take part in the Company’s corporate activiti es such as e -voti ng at Annual General Meeti ngs. The Company al so uses the email address [email protected] to commu nicate wi th shareholders, i ncludi ng correspondence relat ing to the AGM . Once it is able to hold the Annual General Meeti ng in person agai n, the Company plans to start streaming the meetings. The notice of an upcom ing Annual General Meetin g and respective i nformati on (materials) to be provi ded to persons entitl ed to parti cipate i n the Annu al General M eetin g are discl osed i n Russi an and Engli sh on the Comp any’s website i n the time and th e manner speci fied by the Charter and Regulati ons on the Annual General Meeting of MMK, at least 30 days before th e date of the Annual General Meeti ng. The sha reholders that hold a total of at l east 2 % of voti ng shares h ave t he right to pr opose n ew agenda items t o b e d iscussed at th e An nual Gen eral M eeting and t heir nominees to the B oard of Directors (u p to the nu mber of Board me mbers) and t he sole executive bod y (CEO) (clauses 10.11 - 10.14 of the Charter, clause 3 of th e Regulati ons on the Annual General Meeti ng of MMK). MMK shareholders that are not on the sharehold er register also have the ri ght to propose agenda it ems and nomi nees by submi ttin g such proposals t o the p erson who regi sters thei r shareholdi ng ri ghts, i n accordanc e wi th Ru ssian securi ties l aws. In a ddi tion to mandato ry i nformation and material s specifi ed by Ru ssian l aws, the Comp any provi des ad diti onal i nformation and materials on agenda items to be di scussed at the Annual General Meeting in line with the Corp orate Governance MMK INTEGRATED ANNUAL REPORT 111 Code recommended by the Bank of R ussi a, i ncludi ng d irections on h ow to r each the venu e of the meeting. The Company’s independ ent registrar fun ctio ns as t he counting commi ssion of the An nual General Meeti ng. The voting results and de cisi ons taken by the An nual General Meeting are di sclosed in line with Russian law on th e Comp any’s website . In 2021, three Annual Gener al Meeting s were hel d: On 28 May 2021, th e Annu al General Meeting reviewed the fol lowing agenda i tems: 1. Approval o f the Annual Repo rt and annual accounting (financial) stat ements of PJSC MMK for 2020 2. Profit di stribution, i ncluding payment (d eclarati on) of FY 2020 divi dend 3. Election to PJS C MMK’s Board o f Directors 4. Approval of PJS C MMK’s audi tor 5. Approval of th e amount of remunerati on and compensati on pai d to members of PJSC MMK ’s Board of Directors 6. Payment of Q1 2021 d ivi dend on outstan din g shares. The qu orum at the m eeting was 86.98 % of the total nu mber of votes of MMK outstandi ng ordinary shares. On 10 September 2021, an Extraordi nary General Mee tin g was held with the foll owing agenda: 1. Payment of 1H 2021 di vidends on outstandi ng shares The quorum at th e m eeting was 87.06% of t he total n umber of votes of M MK outstandin g ordinary shares. On 24 December 2021 , an Extraordi nary General Meeting was held wi th the followi ng agenda: 1. Payment of 9M 202 1 di vidends on outstandi ng shares The quorum at th e m eeting was 85.13% of t he total n umber of votes of MMK outstan din g ordinary shares. Quorum of Annual Gener al Meetings of MMK, % MMK’S BOARD OF D IREC TORS The B oard of Dir ectors i s resp onsible for t he overall supervi sion of the Company’s operati ons, excludi ng matters reserved, by law, for th e Annual General Meeti ng. The Board of Di rectors is responsibl e fo r approving and updating the Company’s corporate goals, statement of pu rpose, st rategy, p oli cies, key pri nciples of, and approaches to, risk management 90.67 91.25 90.23 89.80 90.38 90.47 90.82 86.98 87.06 85.13 25-02-201 9 31-05-201 9 27-09-201 9 27-12-201 9 29-05-202 0 11-09-202 0 21-12-202 0 28-05-202 1 10-09-202 1 24-12-202 1 MMK INTEGRATED ANNUAL REPORT 112 and in ternal controls, sustai nability management, and overse eing the Company’ s executi ve bodi es, and performs other k ey functi ons. The Board of Di rectors i s accountable to the Company’s shareholders and is elected by resoluti on of the Annual General Meeting (b y cumulati ve votin g). The Board’s activiti es are regulat ed by the Chart er and internal documents of MMK availabl e on the Company’s w ebsite . Directors h ave sufficient ti me to perform their duti es, whi ch th ey ack nowledge i n a written statement of nomi nees accepti ng to stand for electi on to the Compan y’s Board of Directo rs. Board m eeti ngs are hel d on a regul ar basis, at least once every two months, in accordance wi th the approved pl an. The most im portant matters referred to the remit of the Board of Di rectors are addressed at in - person meetings (via videoconferencing under COVID-19 restri ctions) and are usually reviewed i n advance by th e Board commi ttees t o facilit ate compreh ensive d iscu ssion an d i nformed decisi on- making . Information about the composi tion of the Board of Directo rs and it s commi ttees, a s wel l as about the meetin gs held and r esoluti ons passed is discl osed on the Com pany’s websi te . The Board Chair o versees th e B oard’s acti vities, ensures effecti ve wo rk of th e Board and i ts committees. Hi s other functi ons include: – Convening meetin gs of t he Board of Di rectors, arrangin g for ti mely and prop er noti fication of Board members of conveni ng a Board meeting ; – Ensuring prepa ration of an ag enda of the Boa rd meeti ng and t aking all steps necessar y to ensure ti mely provi sion to di rectors of i nformation (material s) requi red to pass resoluti ons on agend a items; – Chairs Boa rd meeti ngs, e nsures co mpli ance wit h the pr ocedure for convenin g and holding Board meeti ngs; – Ensures that th e Board arrives at the mo st effici ent resolutions on agen da items ; – Enables directors to express thei r p oint of view on matters under review, ensures a constructi ve and friendly atmosph ere at Board meeti ngs, facili tates the search for a resol ution agreed by Board members i n the interests of shareholders ; – Arranges for the k eeping of minutes of me etings, signs them, and is responsi ble for th eir correctness and ti meliness; – Chairs sharehol der meetin gs; – Follows up on r esoluti ons of the Board of Direct ors and the Annual General Meeti ng ; – Interacts an d k eeps i n touch with other bodies and employees of the Company in orde r to obtain in a timely fashion the most complete and reliabl e information necessary for the Board of Directors t o pass resoluti ons and ensure effecti ve in teraction o f the said b odies and empl oyees of t he Company with each other and wi th third parti es. Composition of the Board of Direct ors The Board of Di rectors c onsists of 10 membe rs. The compo sition of the Board i s wel l balanced, in cluding in terms of d irectors’ qu ali fications, experience and di versity, as w ell as the numbe r of independent di rectors. Board m embers are elected based on r equired skills in line wi t h the C ompany’s strategic prioriti es, in cluding its focus on sustai nability. Requirements for nomi nees a re consi dered and determined when i mplementi ng succe ssion p rocedures stipul ated by th e R egul ations on the B oard of Directors of MMK . In 2021 , fi ve Board m embers were recognised as independent, which compli es wi th the requirements of MMK’s Charte r, the provi sions of th e UK Co rporate Governa nce Code, the Corp orate Governance Code recommended by th e Ban k of Russia, and the Li sti ng Rul es of t he Moscow Exchange. MMK INTEGRATED ANNUAL REPORT 113 Members of th e Board of Di rectors are consi dered t o be independent i f th ey are suffici ently professional , exper ienc ed and capable of ma king fair and unbiased judgements, free of influence from the Company’s exe cutive bodies, i ndividual groups of shareholders or ot her stakehol ders. Generall y, a no minee or elected director wh o i s relat ed to th e Com pany, to its signi ficant shareholder, signifi cant counterpa rty or c ompeti tor, or to the g overnment, may not b e consi dered independent. The i ndependence criteria, including criteria on being rel ated to the Compa ny, i ts signi ficant shareholders, signi ficant counterparty , competit ors or gov ernment or muni cipal enti ties, are determined in accordance wi th the Cod e of Corporat e Gove rnance recommended by t he Bank of Russia’s Letter N o. 06 -52/ 2463 dated 10 April 2014, and the Listi ng Rules of th e Moscow Excha nge. Independent directo rs play an important role in ensuring effici ent performance by the Board of Di rectors, i ncl uding p rotection of sha reholder in terests. The presenc e of independent direct ors on the Board contri butes to passing objective resol utions on matters under revi ew, enh ancing governance effectiveness an d shareh olders’ and investors’ t rust in the Compan y. Th eir qual ifications, e xperience and constructi ve cri ticism enabl e the B oard of Directors to make more informed d ecisi ons on agenda items. Independent directors pl ayed a maj or role in updating the p ortfolio of strategi c objectives up to 2025, developin g KPIs and evaluatin g the performance of executive bodies, the external evaluation of the performance of the Board of Di rectors (including for 2020), a ssessing risk management and internal controls as wel l as the Company’s efforts to ensure i ndustrial and environmental safety. Independent di rectors also pl ay an imp ortant role in the Board c ommittees. The Board of Directors , bas ed on recomm endati ons of the N omin ation and R emuneration Committee, assesses compli ance of nominees to the Board of Directors with the independence criteria and regularl y reviews compli ance of independe nt di rectors with these cri teria. In certai n excepti onal cases, t he B oard of Dir ectors ma y rec ogni se a di rector (nomi nee to the Board of Di rectors) as in dependent (compliant with the independence criteria) despite any formal criteria of being r elated to the C ompany, its sig nificant shareholder, coun terparty o r c ompeti tor, t he government, or a mun ic i pal enti ty, i f this relati onship does not aff ect the person’s abi lit y t o mak e independent, fai r and unbi ased judgements. 8 2 Gender balance of the Board Male Female 8 2 Foreign Board members Russian citizens Foreign citizens 4 6 Age < 50 > 50 1 0 4 5 Tenure on the Board of Directors > 20 years 10-20 years 5-9 years < 5 years 3 2 5 Composition of Board of Directors Executive Non-executive Independent MMK INTEGRATED ANNUAL REPORT 114 Information on Bo ard members’ compl ian ce w ith the independence criteria i s di sclosed in the Company’s Annual Report, as wel l as by pos ting the information on the Compan y’s w ebsit e at https://mm k.ru/en/ Board skills Board member s Industry knowl edge (metall urgy) 5 Strategy 6 Finance and i nvestment 7 Risk management 7 Accountin g and audit 7 HR management 6 Corporate governanc e 7 Information techn ologies 4 Labour protecti on, industri al safety 6 Sustain ability 6 Activities of the Board The Board of Directo rs’ procedur es are set out in th e Regul ations on the B oard of Di rectors o f MMK . Meetings of the Board of Directors are convened by the Board Chair and held both in perso n (by video conference wh en appropri ate) and in absentia. Meetings of the Bo ard of Directo rs (in person and in absenti a) From 1 January 2021 to 31 December 2021, 16 mee tin gs of the Board of Directors were held – seven in person (by video confe rence) and nin e i n absenti a. Matters reviewed by the Bo ard of Directors in 2021 From 1 January 2021 to 31 Decembe r 2021 88 matters w ere reviewed. MMK INTEGRATED ANNUAL REPORT 115 BOARD FOCUS I N 2021 In 2021, the Boa rd of Directors d iscussed the followin g matt ers relate d to our strategy and t he requi rements of the Federal L aw On Joi nt Stock Compani es, PJSC MMK’s Charte r, the Corporate Gove rnance Code of the Ban k of Russi a, and the UK Corporat e Governan ce Cod e: Overall sup ervision of the Board’s activiti es Period under review Link to strat egic priority foc us areas Board leaders hip and Company purpose - P rogress on MMK’s strategic pi llar – To Be the Best Su pplier: – Implementat ion of the Cu stomer Focus st rategic objectiv e. Consideration o f the key d evelopment scenarios for the industry and sales markets in 2022 – Implementat ion of the Su perior Product Portfolio strate gic objective Last year’s report - A p rogress report on MMK’s E nvironmental Pr ogramme in 2021. The MMK Group’ s Environmen tal Policy in 2021 - P rogress on MMK’s strategic pi llar – To Be a Responsible, Sustainable Busin ess (ESG): – Implementat ion of the Cont inuous Improvem ent of En vironmental Performance an d Reduction in CO2 Emissions strategic objec tive – Implementa tion of the Ze ro Injuries strategic objective – Implementat ion of the Co rporate Culture of Opportu nities strategic objective - P rogress on implemen ting MM K’s Digitalisat ion Project s - T he MMK Group’s key HR initia tives Last year’s report - Rep orts by MMK ’s CEO on the strategic act ivities of MMK in the respective periods of 20 20 - App roval of the 2020 Report of the Boa rd of Directors on the Result s of MMK’s Pri ority Activities - App roval of MMK’s organisationa l structure - Revie wing a claim of a memb er of MMK’s Mana gement Boa rd in line with Pa ragraph 1 of Article 83 of the Federal Law on Joint Sto ck Compan ies Last year’s report - P rogress on MMK’s strategic priorities – approval of fun damental elements of the MMK G roup’s Strategy 202 5 - App roval of MMK ’s Programme o f Series 001Р Exchang e- Traded B ond and MMK’s Prospec tus - Ado ption of a decisi on on tran sactions in line with Clause 11. 18 .31 of MMK ’s Charter - Consen t to, and subsequent approval of, inter ested-party transact ions Future plans Division of responsibilitie s - P reliminary approval of MMK’s Annu al Report 202 0 Last year’s report - Revie wing matters related to t he convening o f, and prepa ration for, MMK’s Annual G eneral Meetin g and MMK’s E xtraordinary Gen eral Meeting - E stablishment of th e Manage ment Board, t he Company’s collective execu tive body Future plans MMK INTEGRATED ANNUAL REPORT 116 Composition, succession and evaluation - Revie wing the resul ts of an indepen dent performanc e evaluat ion of MMK’s Boa rd of Directors, Board members and Board commit tees Last year’s report - Or ganising the activiti es of MMK ’s Board of Direct ors, includin g matters related to the es tablishment of the Board’s committees an d approval of the Activity Pl an of MMK’s Board of Directo rs for 2021 – 2022 - App roval of MMK ’s Corporate Governance Improvement P rogramme to 2024 - Decision to conduct performa nce self- evaluation of M MK’s Boar d of Directors, Boar d members an d Board committees - Rec ognition of a Board memb er as independ ent - Revie wing requirement s for n ominees to MMK’s Board of Di rectors and assessment criteri a Future plans Audit, risk and internal contr ol - Im plementation of MMK’s dividend p olicy - Revie wing the effe ctiveness of M MK’s integrated risk managemen t system an d internal con trol system in 2020 - Revie wing the int ernal audit repo rt on the reliabili ty and effecti veness of MMK ’s risk man agement and internal contr ol system in 2020 - A report on MM K’s focus area – Cy bersecurity Last year’s report - App roval of the MMK Gr oup’s risk appet ite statement - Fin ancial and busine ss results of MMK and the MMK Group for the relevan t reporting periods, and approval of MMK ’s and the MMK Group’s financial an d business pla n (budget) fo r FY 2022 - Au dit- related matt ers: determ ining the amount of the audit or’s remuneration and prepa ring recommendations to MMK’s Annual General Meeting on the proposed au ditor Future plans Remuneratio n - A report on ach ievement of Company-wide KPIs in 2020 Last year’s report - Discu ssion of a forecast for KPI a chievement in 2021 Approv al of Compan y -wide KPIs fo r 2022 - P reparing recommen dation fo r the Annual G eneral Meetin g regarding the remuneration an d reimbursement payable to m embers of PJ SC MMK’s Boa rd of Direct ors Future plans MMK INTEGRATED ANNUAL REPORT 117 MMK EXECUTIVE BODIES MMK has two executi ve bodi es: the Manag ement Board i s the coll ective executi ve body, and the CEO is the sol e executive body. They are governed by t he Regul ati ons on the Collecti ve Executive Body : t he Management Board, and the R egulations on th e Sole Executi ve Body : th e CEO of M MK. The executive bodi es regul arly report at meeti ngs of the Board of Di rectors on th eir activiti es as per the pl an approved by the B oard of Direct ors. The remit of the C ompany’s governi ng bodi es is set out in the Charter of MMK . MMK Managem ent Board MMK’s M anagement Board ma nages the Comp any’s day - to -day operat ions within i ts remit as speci fi ed in MMK’s Charter an d the Regul ations approved by th e Annual General Meeting. The Management Board reports t o th e B oard of Directors and An nual Gen eral M eeting and is responsibl e for: – Reviewin g the financial an d economi c pl ans (budgets) of the M MK Group, the MMK Gr oup companies and non -profi t organisations (pri vate i nsti tutions) for the next fi nancial year; fo recasti ng the MMK Group’s econ omi c indicators ; – Analysin g the implementati on of the finan cial and economic pl ans (budgets) of th e MMK Group, the MMK Grou p co mpani es an d non-profit organisati ons ( private institutions) and the achievement of th e MMK Group’s econ omic targets ; – Reviewin g interim (mo nthly, quarterl y, bi -annual) and annual reporting o n operational , economic, financial and business perfo rmance of the MMK Group and no n- profit or gani sations (private insti tutions) by the CEOs of the G roup companies and organi sations ; – Passing resolutions on MMK changi ng shareholdi ng, acqui ring or di sposin g of shares i n other organisati ons ( except f or th ose sp ecifi ed i n Arti cle 48, Parag raph 1.18 of the Russi an Federal Law On Joint Stock Compani es) ; – Approving MMK represen tatives at the Group compani es and the c ompani es beyond the MMK Group in whi ch MMK hol ds shares, based on th e recommendati on of the CEO ; – Approving directives to MMK r epresentati ves at the Group companies, the compani es beyond the MMK Group i n which MMK h olds shares and MMK ’s p rivate insti tutions i n relation to passi ng resoluti ons by re spective gene ral shareholders’ meetings and b oards of di rectors on appr oving charters (amendments and adden da to charters), setting up and el imin ating governing bodies, reorgani sation, liquidati on, changin g shareholdi ng or di sposing of shares i n other organi sati ons, approving transactions i n line wi th Arti cle 79 of the Law a nd Article 45 of Federal Law of the Russi an Federation On Limi ted Liability Co mpani es, except for transacti ons with MMK ; – Approving acti vity pl ans of MMK’s Management Board. In 2021, the Manag ement Board h eld 34 meeti ngs and review ed the fol lowi ng matters: – Analysis of the MMK Group’s fin ancial and business performance ; – Key targets of the MMK Group’s fi nanci al and economic pl an (budget) ; – Reporting by th e MMK Group compan ies on their operati onal, economi c, fi nanci al and business performance; – Bu siness processes ac ross the MMK Group by busi ness area ; – Implementati on of strategic i nitiatives ; – Changing the shareholding and di sposin g of shares in other organi sations ; – Approving di rectives to MMK representati ves at the Group compani es ; – Approving MMK rep resentati ves at the Gr oup compan ies and directives t o MMK representatives at the Group compani es; – Approving th e activit y plan of MMK’s Manageme nt Board. MMK INTEGRATED ANNUAL REPORT 118 CEO The Compan y’s C EO acts on behalf of MMK an d rep resents i ts i nterests i n accordance wi th the relevant Charter and Re gul ations. The CEO ma nages MMK’s day - to -day operations and regularly reports to the Board of Di rectors in accordance wi th the approved schedul e o f meeting s. The CEO is elected ( appoi nted) by th e An nual General Meeting for fou r yea rs an d may b e re - elected (reappoi nted) an unli mited numb er of times. MMK Corporate S ecretary The Corpo rate Sec retary ensur es effi cient ongoing interaction wi th sha reholders, coordinat es MMK’s efforts t o protec t sharehol der rig hts and i nterests, and supports the effici ent perform ance of the Annual General Meetin g, Board of Directors and it s committees. The Corp orate Se cretary is ap pointed on an annual basis and ca n b e removed by the CEO bas ed on the decisi on of the Board of Di rectors. The Corporate Secreta ry’s functi ons, right s an d duti es are out lined i n the R egul ations on the Corporate Secretary of MMK appr oved by the Board of Di rectors. The Corporate Secreta ry is guided by Russian laws, MMK’s Ch arter, in ternal do cuments, Resoluti ons of the Annual General Meeting and the Board of Dir ectors. Victor Sedov has been the Corp orate Secretary of MMK since 2021. Name Victor Sedov Experience Mr Sedov joined th e MMK Legal Depa rtment in 1997 Qualificati ons Degree in Electrical engineeri ng from Mag nitogorsk Institute of Mi ni ng and Metallurgy. Degree in Law from Ural Academy o f Publi c Administrati on. MSc in Privat e Laws from Russian School of Private Law. THE BOARD COMM ITTEES The Board of Di rectors has four commi ttees: – Strategic Pl anning Committ ee - reviews matte rs of strategic planni ng, corporate g overnance, finance and economi cs, as well as MMK’s credit an d dividend policies. – Health, Safety and Environment Commi tt ee - reviews HS E matters. – Audit Commi ttee - reviews the Board of Di rectors’ abi li ty to manage t he Compan y’s fin ancial and economic acti vi ties, i ncludin g assessin g t he i ndependence of th e au ditor and th e ab sence of confli cts of in terest, as well as assessin g the au dit of financial reporting and the reliabilit y and effectiveness of th e risk management and i nternal control systems. – Nominati on and Remune ration Committ ee - reviews matters related to MMK’s priorit ies for its HR policy, successi on planning , the professional competence of nomin ees to the B oard of Dir ectors, executive bodi es an d other key executi ves, as well as remune ration of membe rs of t he Compan y’s governing bodies and other key e xecutives. The Board committees were set up to improve the Board’s performance, review critical matters within its competence and prepare respecti ve recommendati ons. The commit tees are governed by the Regulati ons on Commi ttees of the B oard of Directors of MMK (wer e approved by t he MMK Board of Directors on 24 De cember 2020 ). The commi ttees submit performance reports t o th e Board o f Directors no l ater than 30 busin ess days prior to th e date of the Ann ual General M eeting . The current composi tion of t he commi ttees i s alig ned with the Russian and UK Corporate Governance Codes, Li sting Rul es of the Moscow Exchang e and MMK’s i nternal docum ents. MMK INTEGRATED ANNUAL REPORT 119 COMMITTEE FOR S TRATEGIC PLANNI NG The Strategi c Plan ning Commi ttee is i deall y placed to tak e a hol isti c view of the b usiness. It ha s the p erspective t o e nsure th at the leadershi p team keeps each o f ou r strategi c objecti ves i n vi ew and contin ues to pursue them consi stently and diligentl y . Committee funct ions The C ommittee for St rategic Pl anning of MMK’s Board of Di rectors conducts an i niti al review and prepares recommendations on matters wi thin the Board’s remit related to strategic planning, sustainabl e development , corporate governanc e, i nnovation, economi cs, fin ance, and MMK’s cred it and dividend policies. The C EO, bu siness line di rectors, unit heads, and the Corpo rate Se cretary take part in th e Committee meeti ngs. Key activities in 2021 Budgeting and f inancing The C EO r eported t o the Commi ttee each quar ter on the performance of PJSC MMK an d th e Group. The Committee revi ewed t he fi nancial and bu siness p erformance of PJSC MMK and the MMK Group i n 2020, takin g into account the i mpact of the pandemic on the Group’s results, and t he forecast and anal ysis of the Group’s fi nancial and business performan ce for the repo rting peri ods of 20 21. The Commi ttee c onducted an i nitial review of th e finan cial and busi ness pl an (bu dget) of PJSC MMK and the MMK Group for FY 2022, outli ning the Company’s develop ment objectives and prioriti es for 2022, and consi dering potenti ally chall enging scenarios. Strategic man agement In li ne wi th PJSC MMK’s pri orities f or 2021, the C ommit tee revi ewed the progress on its strategic initiati ves as foll ows: Best suppl i er for th e Most Demandin g Customers in the Automotive Indu stry in the Dom estic Ma rket, L ean Man ufactu ring, Procurement, Customer Focus, Value Creation, Customer Focus, an d Superior Product P ortfoli o. The Commi ttee pr epared recommendati ons to the B oard of Directors on the key areas of investor relat ions, sales, procurement, cyb ersecurit y, and di gital pro j ects. Throughout the year, the Committee main tained its focus on sustai nabili ty, which is its highest priority area. In Ju ly 2021, the C ommit tee hel d a strategy sessi on on su stain able development (ESG) attended by members of other commi ttees of MMK’s Board of Directors, reviewing PJSC MMK’s priority goals, areas of f ocus, and prog ress on sustai nability. Corporate gove rnance In line with the Committee’s functions, it conducted an initi al review of mat ters relat ed to convenin g and holding the Annual General Meeting and made recommendati ons to the Board of Directors on the fol lowing : – Prelimi nary approval of the Annu al Report and ann ual accounting (financi al) statements of MMK for 2020 – Approval of the R eport of the Boa rd of Di rectors on the Resul ts of P JS C MMK’s Priori ty Act ivi ties in 2020 an d the pillars of the MMK Group’s Devel opment Strategy 2025 – Approval of the di stributi on of profit for FY 2020 The Commi ttee recomm ended i ncludi ng the dra ft Repo rt on PJSC MMK’ s Compl iance wi th th e Princi ples and Recommen dations of the Co rporate Governan ce Code for 2020 i n the Annual R eport. In l ine wi th best c orporate governanc e p ractice, the C ommittee hol ds meetings to di scuss key changes in regul ation and developm ent of corporat e governance practi ce in Ru ssia and gl obally. MMK INTEGRATED ANNUAL REPORT 120 HEALTH, SAFETY AND ENVIRONME NT COMMITTEE The heal th and safety of our pe ople and the p lanet r equires u s t o be bol d an d am bitious, and the work of the HSE Commi ttee takes its responsi bilit y to sup port MMK t o d o so with th e u tmost seriousness. Committee funct ions The Heal th, Safety and the Envi ronment Commi ttee of MMK’s B oard of Di rectors revi ews and prepares recommendati ons on ma tters within the Board’s remit related to health, safety and environmental (HSE) matters. The Commi ttee meeti ngs are attended b y busi ness l ine di rectors and directors of th e MMK Group companies, uni t heads, and MMK’s Corporate S ecretary. Key activities in 2021 Occupational hea lth and safety In th e reporti ng year, t he Commi ttee reviewed PJSC MMK ’s 2020 pe rformance in occup ational health an d safety, in cludi ng wor k-r elated i njury rates, mea sures to i dentify and pr event haz ardous activiti es, preventi ve m easures t o redu ce the COVID -19 in cidence rate, an d prog ress on occup ational health an d safety initia tives again st the schedule. In December 2021, the Committee reviewed progress on t he strategic initiative to achieve z ero injuries b y 2025 , comp rising measures to promote a safety cul ture among Group and c ontractor employees, develop automated safety systems, and impl ement a p rogramme of techn ical initiatives to reduce the risk of i ncidents and accidents. In April 2021, t he Chairman of th e Committee, held o n -sit e meetings, followed by a Committ ee meeting at Kem erovo R egion about i mpl ementing occup ational h ealth and saf ety measur es in 2020 – 2021 and i mproving occupati onal heal th and safety at MMK mi ne. Environment The key focus of the C ompany’s environmental agenda is to reduce emi ssions from i ts in dustrial faciliti es. In 2021, the Company approved the strategic initiati ve of Continuous Improvement of Environmental Perform ance an d Reducti on in CO 2 Emissions as part of its priority goal To Be a Responsibl e, Sustainable Busi ness (ESG). PJSC MMK sets ambiti ous goal s to reduce CO 2 emissions, requiring the C ommi ttee to explore the potential of the best avai l able steelmaking technol ogies that enabl e emission reducti on, decarbonisati on of metallu rgical operations, and transiti on to carbon neut rality. In Decemb er, the Com mit tee reviewed green fi nance i nitiatives and prospects for at tracti ng such finan cing. The Commi ttee conducts a q uarterly moni toring assessment of MMK’s key environmental performance metrics. In the reporti ng period, it reviewed progress on PJSC MMK ’s environmental safety ac tivi ties agai nst the 2 021 – 2022 schedule, i nclu ding i mplementation of m easures to reduce emissions fr om production facilities, t o p reserve and enhance biodiversity in the Chelyabinsk Region, and to automate carbon emission calculati on, as well as activities under MMK’s Environme ntal Programme for 2022. MMK INTEGRATED ANNUAL REPORT 121 AUDIT COMMI TTEE MMK's Audi t Comm ittee i s responsibl e for en suring that th e Company h as the right team in place to manage i ts fin ancial and economic acti viti es in the best way p ossible. Committee funct ions The Audi t Commi ttee of MMK’s Boa rd of Di rectors revi ews and prepares recommendat ions on financi al and e conomi c matters within the Board’s r emit, inclu ding assessing the i ndependen ce of MMK’s auditor and t he absence of confli cts o f interest, as well as as sessing the audi t of fi nancial reporting and the reliabili ty and effectiveness of the risk manag ement and i nternal control syste ms. The external auditor, He ad of the Inte rnal Audit Departm ent, bu siness l ine directors, an d MMK ’s Corporate Secretary take an acti ve part i n the Commi ttee meeting s. Key activities in 2021 External audit and financ ial reporting Throughout th e year, th e Commit tee worked closely wi th the ext ernal au ditor, JSC PricewaterhouseC oopers Audi t, to review the audi t plan for the Company’s fi nancial (accou nting) statements (RAS and IF RS) for 2021, and the auditor’s reports and draft reports on the audit of MMK’s IFRS consoli dated financi al statements for the reporting periods . Key audi t matters were di scussed, specificall y, asset impai rment and the pot ential impact of COVID -19 on t he Group, i ncluding the current and future impact on its fina nci al p erformance. In l ine with corporate governance best practice, the statements are submi tted for revi ew by the Audi t Commi ttee before they are si gned and publi shed. At the me eting of the Audi t Committee held in March 2021, the a uditor’s report by JSC PricewaterhouseC oopers Audi t on t he audi t of M MK’s account ing (financial) statements ( RAS an d IFRS) for 2020 wa s revi ewed, an d the Commi ttee prep ared a qual ity ass essment of th e accounti ng ( financial) statements audi t. Internal audit The Commi ttee revi ewe d performance re ports of MMK’s I nternal Audit Department o n a quarterly basi s. Risk managem ent and internal c ontrol Recommendati ons were prepared for the Boar d of Directors foll owing the 2020 p erformance review of MMK’s in tegrated risk manag ement system and i nternal control system, wi th proposals approved to i mprove the effectiveness of th e risk management system and the i nternal co ntrol sy stem based on thei r matu rity l evel an d ass essment of compli ance with the Bank of Russi a’s recommendati ons (Informati on Letter No. IN- 06 -28/ 143 dated 1 Octobe r 2020). As part of reviewing risk ma teriali sation monitorin g and MMK Group’s r isk ma p for 2021, a recommendati on was m ade to revi se an d appro ve th e MMK G roup’s risk appetit e statement. The Group uses risk appeti te to dr ive the achi evement of its strat egic and operati onal goal s b y k eeping ri sks within acceptabl e limi ts. The C ommit tee reviewed the Internal Audit Depa rtment’s report on the reli ability and performance of MMK’s risk ma nagement an d i nternal control system in 20 20 and prepare d a recommendati on to i nclude it in the i nformation (material s) to be provi ded to p ersons entitl ed to participat e i n MMK’s An nual General Meetin g i n l ine with Paragraph 3 of Articl e 52 of the F ederal Law on Joint Stock Compan ies. The 2021 – 2022 roadma p for int egrating the new Code of Eth ics in the MMK Group’s corporate cultu re was approved. The Code of Ethi cs, devel oped and app roved in 2020, defi nes the Group’s core values and ethical principles governi ng empl oyee r elations b oth wit hin the team and with customers, busin ess partners, investors, and gov ernment agenci es. MMK INTEGRATED ANNUAL REPORT 1 22 Internal Audit Depa rtment MMK has estab lished an Internal Au dit Department t o provide i nformed, in dependent and objective a ssurances an d advi ce de signed to a dd value and imp rove performanc e. The Head of th e Internal Audi t Department rep orts t o th e Au dit Commi ttee of MMK’s Board of Directors an d has an admini strative r eporting line to the CEO, whi ch ensur es suffi cient in dependence to perform internal audit functions. Internal audit helps MMK achi eve i ts goal s b y bringi ng a systematic, disciplin ed approach that evaluat es and i mproves the effecti veness of risk mana gement, control and corporate governance process es. The Internal Audit Department’s main functions are to: – Perform i ndependent an d obj ective assessment s of th e rel iabilit y and effectiveness of M MK’s internal control system in li ne with th e risk-base d approach – Develop recommend ations to eli minate gaps identi fied during audits and overs ee their impl ementation – Advise MMK’s management on the establi shment and functioning of the internal control system. The effectiveness of the i nternal control system is assessed bas ed on conti nuous monitori ng of efficient and r easonabl e use o f resources, asset integrity and compliance with laws and MMK’s internal regulati ons, as well as the results of measures take n to e li minate violations and gaps and imp rove the internal control system. Audits of the risk mana gement system’ s effectiveness co ver: – The compl eteness an d correctn ess of risk id entification an d as sessment by MMK’s management (acr oss all management l evels) – Effectiveness of c ontrol procedur es and other ri sk management m easures – Analysis of in formation about materiali sed risks. The Head of the Int ernal Au dit Department takes part i n Audi t Committee meeti ngs on a q uarterly basi s to inform th e Committee on: – the proposed an nual acti vity plan of the Internal Au dit Department, whi ch takes int o account prioriti sed ri sk-focused key busin ess proces ses and controls, as well as the macroeconomic environment and avai labl e resources – the prog ress on the plan (includi ng informati on on sig nificant risks, vi olations/gap s, resul ts and the stat us of i mplementati on of the Inter n al Audit Department’s recommendations and pr oposals) and chall enges faced by the D epartment – the assessment of the adequacy an d maturi ty of el ements of MMK ’s i nternal control and ri sk management syst ems for effecti ve risk manage ment. The Internal Au dit Department i s guid ed by: – International Standards for the Professi onal Practice of Internal Auditing – the Code of Ethi cs for internal auditors – MMK’s internal documents on i nternal audi t. Auditor At p resent, t he audi tor of MMK' s indi vidual and consoli dated st atement s i s PricewaterhouseC oopers Audi t. Pri cewaterhouseCoop ers Audi t was sel ected on a competi tive basi s and meets the requirements of Russian law set for auditing companies in terms of independence and absence confl ict of interest. The comp any has devel oped a list of pr ocedures to comply with the MMK INTEGRATED ANNUAL REPORT 123 requirements for in dependence and absence of conflict of i nterest. Membershi p in a self -regul ating organisati on of audit ors additi onally guarantees compli ance wit h the independence requi rements. The audi t b y th is company is conducted b eginni ng wi th t he 2015 accounts. I n 20 20, PricewaterhouseC oopers Audit rotated the audit partner, which is i n lin e wi th p rofessional standards and best corporate gov ernance practi ces. The amount of the audit or's remunerati on you can fi nd in th e material s for the Annual General Meeting of Shareholders by cli cking on the foll owin g links: https://mm k.ru/en/about/corporat e-governanc e/shareholders -meeti ng/documents/ https://mm k.ru/upload/i block/20b/9yl 89u2faqu92q3wahb4p9se31l 13cxx/EXPLANAT ORY%20N OTE%204.pdf NOMINATIONS AND REMUNERATIO N COMMITTEE The role of the Nomi nati ons and Remun eration Comm ittee i s to mak e sure we have th e righ t people in th e right roles and ensure they are fai rly rewarded f or their con tributi on Committee funct ions The Commi ttee fo r No minati ons and Remunerati on of MMK’s Board of Directors revi ews and prepares recommendati ons on matters wi thin the Bo ard’s remit rel ated to MMK ’s pri oriti es for its HR policy, suc cession pl anning, t he professional competenc e of nomi nees to th e Board of Di rectors, executive b odies and ot her k ey executi ves, as wel l as remunerati on of me mbers o f MMK’s governi ng bodies and other ke y executives. The Director for Human Resources, Corporate Secretary, business line directors and unit heads take an acti ve part in the Commi ttee meetin gs. Key activities in 2021 HR policy, succes sion planni ng, the profess ional skills of nom inees to key po sitions In 2021, th e Commi ttee selected a competent ext ernal consul tant an d approved th e methodology and approach es t o conduct an independent p erformance evalu ation of MMK ’s Board of Directors, Board m embers, and Boa rd committees. Foll owing this eval uation, the Co mm ittee discussed in detail the report on the r esults of the p erformance e valuati on of MMK’s Board of Di rectors, Board members, and Board committees. As part of t he evaluati on, the Committ ee p artici pated in a n interactive trai ni ng session d evoted to cur ren t R ussian and internati onal corporate gove rnance practices. The Committee reviewed the report on the implementati on of the Corporat e Culture of Opportuni ties strategi c i niti ative and th e key fo cus a reas of the MMK G roup’s HR p oli cy i n 20 20, and made a recommendat ion to approv e the key focus area s of th e MMK G roup’s HR poli cy for 2021. The Commi ttee c onducted an i niti al review of sha reholder proposals rega rding nominees to MMK’s Board of Di rectors and, u pon the B oard’s i nstruction, made recommend ations on a ddi tional nominees to be i ncluded i n the li st of nominees to MMK’s Boa rd of Directors. The Commi ttee al so p repared r ecommendati ons to the B oard of Directors to suppo rt deci sion making relati ng to t he app roval of MMK ’s organisati onal structure. Gi ven th e n eed to chang e th e si ze and composi tion of MMK’s Manag ement B oard, as w ell as the d istri bution of functi onal roles between the Manag ement Board members, the C ommitt ee consid ered the staffi ng procedure f or th e C ompan y’s collecti ve executive body MMK’ s Manage ment Board. The Commi ttee proposed that a self -evaluati on p rocess be us ed t o p erform th e 2021 performance eval uation of MMK’s Boa rd of Direct ors, Board members, and Board c ommittees. To st rengthen the Company’s Board of Di rectors and b oost its performa nce , the Commi ttee reviewed matters rel ated to suc cession pl anning and professional skills of nomi nees to the Board of MMK INTEGRATED ANNUAL REPORT 124 Directors, and defined the requirements for nomin ees to MMK’s Board of Di rectors and their evaluati on criteria. Building an effect ive remun eration system for all key exec utive s The C ommittee presented written proposals to th e An nual General Me eting regarding the remuneration and compensation payab le to memb ers of MMK’s Board of Directors. The Committee al so conducted an initi al review and e val uated th e achievement of key performance in dicators in 2020 and it discussed potenti al corporate KPIs t o be incl uded in 2022, inclu ding those relati ng to the Compan y’s Su stainabili ty metrics. T he Committ ee reviewed the projected progress ag ainst corpora te KPIs i n 2021, maki ng a recomm endati on to approve corporate KPIs for 2022. Remuneration of MM K's Board Me mbers and the Man agement Board Remuneration of Board memb ers The l evel of remun eration payabl e to Board members i s app roved b y the Compan y's Annual General Meeti ng b ased on rec ommendati ons of the Board of Dir ectors. In th is respect the Co mpany is guided by the n eed to mai ntain a sufficient motivati on to retain hi gh -skil led experts, a s w ell as by the interests of sha rehol ders and other stakehol ders. All remunerations are pai d in accordance with t he Regulati ons on Remun eration an d Compensati on of Expen ses of Me mbers of t he B oard of Di rectors of MMK. The Regul ations g overn th e amount, condi tions an d procedur e for ma king payments. In the r eporting pe riod, the Company's Board was comprised of t hree categori es of directo rs: e xecuti ve d irectors, non -execut ive directors and independent di rectors. Onl y i ndependent and non - ex ecutive directors a re remu nerated for thei r servi ce on the Board o f Di rectors. The amount of the ann ual remunerati on is fixed and d etermined by the contracts with the i ndependent and non- executive members of the Board of Directors, and reflects the expected ti me and requ ired efforts of th e director for p reparation for and parti cipation in the Board meetings. The annual remuneration i s paid to the member s of the Board of Di rectors on a m onthly basi s, in non -cash form, for the pe riod duri ng whi ch they perform th eir du ties. Document ed expens es are compensated addi tionally. R eimbursabl e expenses of the membe rs of the Board of Di rectors inclu de: - Travellin g expenses to meetin g venues and back; - Accommodati on for the du ration of meetin gs; - Communi cation and postal services. The Company’s Annual General Meeti ng, held on May 28, 2021, ap proved the amount of remuneration and compensation to members of the Board of Directors in the total amount of RUB 120 milli on ($1.6 milli on). The actual amount of r emunerati on and compen sati on to m embers of the Board of Directors of MMK for 2021 was $910,200 . Types of payme nts to the Bo ard of Director s in 2021, $’00 0 Type of payment 2019 2020 2021 Annual remunerati on for servi ce on governi ng bodies 945 .5 872 .7 906 .4 Reimbursement of expenses 24 .9 15 .4 3.8 Remuneration of Management Board Mem bers No separat e remune ration is paid to th e members of MMK 's Man agement Board du ring th eir term o f office, nor d oes the Company provide reimbu rsement o f expenses for p erforming the duties of members of th e Manag ement B oard. Membe rs of the Man agement Board a re paid salaries for the performance of offi cial duti es at MMK , whi ch consists of fi xed and v ariabl e parts. Th e vari abl e part i s based on th e Compan y’s p erformance and pers onal contri bution to th is pe rformance by members of MMK INTEGRATED ANNUAL REPORT 125 the Management Board. Members of th e Management Board own shares in MMK, whi ch contributes to the convergence of i nterests and i ncreases the i nvolvement of t op management i n achi eving results. In 20 21, the fi xed salar y of Manag ement Board members fo r t he performance of thei r official duties at MMK t otaled $3,173,400. Payments to the Management Board mem bers in 2021, $'00 0 Type of payment 2019 2020 2021 Salary (fi xed) 3, 705 .6 3, 079 .6 3, 173 .4 Annual bonu s 33 . 1% 28 . 9% 52 . 4% The remuneration of MMK's CEO incl udes a monthly sal ary an d an annual bonus. Its amount reflects th e CEO's quali fications an d takes int o account th e contri buti on he made to th e Com pany's financi al results. The CEO is enti tled to a b onus, whi ch is paid at t he end of the year in accordance with the decisi on of t he Nomi nation and Remunerati on Commi ttee of the Boa rd of Di rectors and the Board of Di rectors. Accordin g to the current KPI system, the C EO's bonus depends on th e a chi evement of performance resul ts. Actu al performanc e is assess ed based on c omparison wi th the pr evious financi al year. The KP I st ructure for members of th e Mana gement Board is d esign ed wi th due regard to indi vidual responsi bility and performan ce. Th e CEO 's KPIs incl ude financial and producti on results of the Compan y, op erating efficiency, social responsi bility, occupational safety and achi evin g zero fatal injuries. For these i ndicators a system o f calcul ating the annu al bonu s for the Company's CE O and other members of th e Management Board was developed. The level of remune ration pai d to top management by th e Company i s deemed suffi cient to attract, moti vate and r etai n competent and skilled p rofessional s and ensures that they exe rcise thei r rights and du ties in good fai th in the best in terests of MMK. REPORT OF MMK’S BOAR D OF DIRECTO RS Corporate Govern ance For a descri ption of t he Group’s c orporate gove rnance structure and standards, se e page s 100 - 126 of this Integrat ed Annual Report. Financial and accounting st atements The Board beli eves that the in formation discl osed on page 3, 7 -8, 10, 21- 22 , 140- 19 9 of t his Integrated A nnu al Report i s suffici ent for sharehol ders to evaluat e the Company’s p erformance, busin ess model and strategy. Board election an d succession policy In acc ordance with the F ederal Law On Joi nt Stock C ompani es, me mbers of the Board of Directors are elected a nnuall y by th e Ann ual General Meeti ng and may be r e -el ected an unli mited number of times. Onl y indi viduals may be members of th e Company’s Board of Di rectors. In accordanc e with applicabl e Russian laws an d the Company ’s int ernal documents, PJSC MMK takes m easures to ensure the successi on of Board membe rs, to propose nomi nees t o the Board of Directors whose personal and professional q ualities and repu tati on sho ul d not rai se doubts tha t th ey will act i n the i nterests of the Company and i ts shareh olders, and ensure t hat proposed n omi nees to the Company’s Boa rd of Directors me et the independenc e criteria. MMK INTEGRATED ANNUAL REPORT 126 Based on rec ommendati ons of the Nominati on and Remun eration Commi ttee, the Company’s Board of Directors conducts an ann ual: – analysis of the cu rrent composi tion of PJSC MMK ’s Board of Di rectors and the skill sets required t o successfully implement PJS C MMK’ s st rategy, address i nternal and ext ernal chal l enges faced by PJSC MMK, and ensure smooth suc cessi on of PJSC MMK’s Boa rd members – assessment of compl i ance of n ominees to t he Board of Di rectors and review of compli ance of i ndependent directors with the i ndependence criteria. Information on the Board mem bers’ compli ance with th e independence c riteria is di sclosed i n the An nual Report (see pag e s 111 - 112 ), as well as by posting the rel evant informati on on the Company’s w ebsite . In li ne with the Corpora te Governan ce Code, t o i mprove the val idi ty and effici ency of deci sion making regardi ng t he el ection of t he Compan y’s B oard m embers, the Board of Directors prepares recommendati ons (based on recommendat ions of th e Commi ttee for No m i nations and Remun eration) regarding voting on this agenda item at the Ann ual General Meeting and ensures that this information is communi cated to the Company sha reholders. Disclosure of information that may affect the performance of th e duties o f a memb er of a governing body Board members (as well as Manag ement Board memb ers) shall notify the Company i n accordance wit h appli cable Russian laws: – of the oc currence of ci rcumstan ces that may cause a Board m ember t o be r ecognised as an interested party i n the Company’ s transacti on by completi ng a Noti fication as per the te mplate approved by the Ban k of Russia – of any other ci rcumstan ces that may i nflu ence th e perform ance o f t hei r duti es as Board members (as wel l as Man agement Board mem bers) by compl eting the Qu estionnai re for m embers of PJSC MMK’s governi ng bodi es – of the occurrence of ci rcumstances th at cause a Board m ember to cease to be i ndependent. Information on a Board member c easing t o be independent is di sclosed by posti ng t he relevant informati on on the Company’s websi te at htt p://mmk.ru/en . Directors’ indem nity guarantee s The Company, at i ts own expense, insure s Boar d members’ li abili ty under obli gations resulting from l osses incurred by the C ompany through acti ons ( omissions) of Board members during the exercise of their rights and perfo rmance of their dut ies. Matters within th e remit of the Board of Director s and roles of the Board committee s Matters withi n the remit of the B oard of Directors are set forth in the Charter of PJSC MMK . The roles of the Board commi ttees a re set forth i n the Regul ations on t he PJSC MMK B oard of Directors’ Commi ttees . Matters wi thin the remit of the Board of Di rectors and commi ttees’ roles are up dated fol lowin g changes in l egislati on and as necessary. Share capital str ucture Information on PJS C MMK’s shar e capi tal struc ture is avai lable on page 127 of the Integrated Annual Report, as well as on the Company’s websi te . No speci al restrictions a re pl aced on th e si ze of a shar eholding or the t ransfer of shares other than those sti pulated by Russi an l aws. The Board of Direct ors is not aware o f any agre ements b etween shar ehol ders that may resul t in restricti ons on the tran sfer of shares or voti ng rights. As at 31 Decemb er 2021, MMK Group companies di d not hold any tr easury shares. MMK INTEGRATED ANNUAL REPORT 127 Dividends In 2021 , PJSC M MK posted a net pr ofit of RU B 220 .95 bi llion. Taki ng i nto account r etained earnings of RUB 208.5 8 bi llion as of 31 December 2020 an d M MK’s 2021 financial result, and considering Q1 2021 d ivi dend payout of R UB 20,05 7.9 mi lli on (RUB 1.795 (in cluding tax) per share), 1H 2021 dividend payout of RUB 39,445.4 milli on (RUB 3.530 (includ i ng tax) per share), and 9M 2021 dividend payout of RUB 29,757.2 milli on (RUB 2.663 (including tax) per share ), the Bo ard of Directors recommended to th e Ann ual General M eeting a FY2021 di vidend of RUB 3.550 (in cluding tax) p er share. The distribu tion of PJSC MMK’s 2021 profi t recommended by the Board of Directors is i n li ne with th e Company’s dividend pol icy Annual Genera l Meeting The Annu al General Meetin g will take pl ace on 30 June 20 22. Havi ng taken i nto accoun t all aspects considered by the Board of Di rectors durin g th e yea r, t he Board of Di rectors tentat ively approved PJSC MMK’ s 2021 Integrated Ann ual Report. MMK Board of Di rectors 25 April 2022 MMK INTEGRATED ANNUAL REPORT 128 INFORMATION FOR I NVESTORS HEAD OF IR VERONIKA KRYACHKO « We are committed t o main taining a p roactive and open dialogue with all investors. We will contin ue to imp rove o ur w ork with investors and market analysts, develop relationships and ensure the high quality of our reportin g. » Changes in eq uity during the yea r MMK’s auth orised capi tal compri ses 11,174,330,00 0 ordi nary registered shares wit h a par value of RUB 1 each. Al l shares are out standin g. As at 29 November 2021 (record date for the 24 December 2021 Extraordinary Annual General Me eting ), the Company had 386,349 sharehold ers. Geographical di stribution of MM K shareholders in 2021 48 Public offerings MMK made two shar e offerin gs in 2021: – In April , Mintha Holding Li mited, with the ulti mate beneficial owner Vi ctor Rashni kov, sol d 335 mill ion ordinary shares i n MMK, or 3% of MMK ’s authori sed capi tal, through an accel erated bookbuil d offering; – In September, Mi ntha Holding Limited sol d 168 milli on ordinary shares i n MMK , or 1 .5 % of MMK’s authori sed capital , through another a ccelerated bo okbuil d. Share capital structu re 49 Name Stake in the auth orised cap ital, % Mintha Hold ing Limi ted 50 79.76 Citib ank, N.A. 51 2. 04 Others 18.20 MMK’s manag ement i s not awar e of any sharehol ders holdi ng over 5 % of th e Company sha res other than th ose disclosed above. 48 As a % of f ree float, exclu ding retail investors as of 31. 12.2021 . 49 A s of 29 November 2021. 50 Victor Rashnik ov, Chairman of MMK’s Boa rd of Directo rs, is the bene ficiary of Mint ha Holding Limi ted. 51 Beneficiaries ar e holders of gl obal depositar y receipts trade d on the Lond on Stock Exch ange. 26% 26% 20% 11% 4% 7% 8% USA Russia UK Sweden Netherlands Other Europe Rest of World MMK INTEGRATED ANNUAL REPORT 129 Report on the d ividend po licy on MMK sha res MMK’s Board of Di rectors approved th e cur rent Regulati ons on the Di vidend Pol icy of MMK on 13 November 2019 (Mi nutes No.8). MMK’s di vidend policy is based on the bal ance between sharehold er interests and t he Company’s requirements for fu rther growth and technologi cal up grades. In ma king recommend ati ons on the di vidend amount , the B oard of Directors i s gu ided by the followin g principl es: - Di vidend payment will be not less th an 100% of free cash fl ow i f the Net Debt to EBITDA ratio < 1; - Di vidend payment will be not l ess than 50 % of fre e cash fl ow if the Net Debt t o EBITDA ratio > 1. MMK declares divi dends on an annual basis, and the Company ai ms to pay out di vidends on a quarterly basi s (for Q1, 1H and 9M of the reportin g year) provided that its current fin ancial positi on is stable. In maki ng recommendat ions on th e divi dend amount , t he Board of Direct ors may al so use other metrics i n add ition to f ree cash flow cal culat ed based on MMK’s IFRS consoli dated fin ancial statements. Such in dicators may i nclu de net profit as r eported in MMK’s IFRS consoli dated finan cial statements or net profi t as reported i n MMK ’s fi nancial statements prepar ed i n accord ance wi th Russian Accounti ng Standards. In 2021, by resolutions of the MMK Annual General Meeting, d ividends we re d eclared for FY2020, 1Q, 1H and 9M 2021: Reporting period FY2020 1Q 2021 1H 2021 9M 2021 Recommendations of MMK’s Board of Directors to MMK’s Annual General Meeting on the amount of dividend payments On 29 January 202 1 , MMK’s Board of Directors recommended to approve a dividend of RUB 0. 945 per share On 20 April 202 1 , MMK’s Board of Directors recommended to approve a dividend of RUB 1. 795 per share On 21 July 2021 , MMK’s Board of Directors recommended to approve a dividend of RUB 3. 530 per share On 25 October 202 1 , MMK’s Board of Directors recommended to approve a dividend of RUB 2.663 per share Result of the vote to approve the dividend On 28 May 2021, the Annual General Meeting approved the dividend recommended by MMK’s Board of Directors On 28 May 2021 , the Annual General Meeting approved the dividend recommended by MMK’s Board of Directors On 10 September 202 1, the Extraordinary General Meeting approved the dividend recommended by MMK’s Board of Directors On 24 December 202 1, the Extraordinary General Meeting approved the dividend recommended by MMK’s Board of Directors Date of payment of dividends to nominee holders and trustees 1 July 2021 1 July 2021 11 October 2021 27 January 2022 Date of payment of dividends to other shareholders of record 22 July 2021 22 July 2021 1 November 202 1 17 February 2022 MMK INTEGRATED ANNUAL REPORT 130 MMK’s five -ye ar dividend h istory Year for which d ividend was declared Dividend amount per share, RUB Dividends acc rued, millions 2017 (for 1H, 9M and FY) 2.786 31 , 132 RUB 52 0 USD 2018 (for Q1, 1H, 9M an d FY) 5.902 65 , 951 RUB 1, 007 USD 2019 (for Q1, 1H, 9M an d FY) 5.335 59 , 615 RUB 911 USD 2020 (for 1H, 9M and FY) 3.943 44 , 060 RUB 591 USD 2021 (for Q1, 1H, 9M) 7.988 89 , 261 RUB 1, 218 USD MMK’s shares and global depos itary receipt s (GDRs) As of 31 Decemb er 20 20, MMK’s ordin ary shares and GDR s were traded on the Moscow Exchange (MOEX) and the London Sto ck Exchan ge (LSE), respecti vely. Global Deposi tary R eceipts (GDRs) are issued i n respect of o rdinary shares at a ratio of 13 registered ordin ary shares per on e GDR. The GDRs are t raded on the Lond on Stock Exchang e. Securiti es traded on th e stock exchang es (LSE, Moscow Excha nge) a re f ungible, s o th at ordi nary shares may be conve rted i nto GDRs and vice versa. The Company’s d epositary bank is Ci tibank N.A. As of 31 December 202 1, GDRs represented ap proximately 2. 04 % of MMK ’s share capital . Stock exchange where MMK sh ares and GDRs are traded Stock exchange Issuer code MOEX MAGN LSE MMK Identification n umbers for MMK securities CUSIP 52 MICEX Regulati on S GDR Rule 144A GDR X5171A103 559189204 559189105 ISIN 53 MICEX Regulati on S GDR Rule 144A GDR RU0009084396 US5591892048 US5591891057 52 CUSIP (Commi ttee on Unifor m Security Identificat ion Procedures) is an ident ification number assigned to shares and used to facilitate clearing an d settlement of trades. 53 ISIN (Internat ional Securities Ident ification Numbe r) is an in ternational share identificat ion code. MMK INTEGRATED ANNUAL REPORT 131 Share prices and trading volume s on the London Stock Exchange in 2 021 Source: LSE, Bl oomberg Share prices a nd trading volumes on the Mosco w Excha nge in 2 021 SourceMOEX , Bl oomber g MMK ordinary sh ares and GDRs : Summary Indicator Moscow Exchang e (RUB/share) London Stock Ex change ($/GDR) 2020 2021 2020 2021 Yearly hi gh 59.09 79.78 10.40 14.16 Yearly l ow 31.225 49.14 5.07 8.58 Year-end price 55.815 69.65 9.75 12.10 Trading vol ume (milli on shares) 5 501 11 238 26 20 0 1 2 3 4 5 6 $ $ mil li on Jan Apr May Sep Dec Feb Mar Jun Jul Aug Oct Nov Trading volume, $ million GDR price, $/GDR 13.00 7.00 5.00 11.00 9.00 0 2,000 4,000 6,000 8,000 10,000 12,000 RUB RUB mil l ion 80.00 50.00 40.00 70.00 60.00 30.00 Jan Apr May Sep Dec Feb Mar Jun Jul Aug Oct Nov Trading volume, RUB million Share price, RUB/share 12,000 6,000 4,000 10,000 8,000 2,000 MMK INTEGRATED ANNUAL REPORT 132 MMK’s credit rati ngs 54 The Company has c redit ratin gs from each of the thr ee major rati ngs agencies: Fi tch Ratin gs, Moody’s, S&P Global Ratings. MMK main tained investment -grade credit ratings in 202 0, with S&P Global Ratings upg rading its outlook on the Company . In April 2021, Fitch Rati ngs affirmed MMK’s l ong -term credit rati ng at BBB with a stab le outl ook. Rating agency Fitch Moody's S&P Credit ratin g BBB Baa2 BBB – Outlook Stable Stable Stable Last ratin g action 03.04.2020 12 .02.2019 20.11.2020 MMK’s index mem bership Index names Index codes Weight, % Moscow Exchang e indices 55 Moscow Exchange Index and RTS Ind ex IMOEX, RTS I 0.69 Metals and Mi ning Index MOEXMM, RTSmm 5.33 Broad Market Index MICEXBMI, RUBM I 0.62 MOEX 10 Index MOEX10 10.51 Responsibili ty and Transp arency Index Consti tuents MRRT 1.04 Sustain ability Vector Index Consti tuents MRSV 4.44 FTSE indices 56 FTSE Russi a IOB Index 57 RIOB 0.17 FTSE Emergin g Index AWALLENR 0.03 FTSE Russia RIC Cap ped Index FTRUSPR1 1.34 Analytical covera ge Analysts from l eading Russian and internati onal banks, incl uding Bank of Ameri ca, Citi bank, Goldman Sachs, J PMorgan Chase & Co., Sb erbank CIB and VT B Capital , provide regul ar coverage of MMK. For more detai l s, see MMK’s websi te http s://mmk.ru/en/i nvestor/anal itics/ Information on th e Company’ s Registrar Registrar Company ST ATUS (in definite licence No.10 - 000 -1-00 304 issued by the Russi an Federal Financial Markets Service on 12 March 2004) is responsible for mai ntaining MMK’s sha rehold er register. The Regi strar’s regi stered offi ce is l ocated at Ring Par k Busin ess Centre, 23 Novokhokhl ovskaya St., Bld. 1, Moscow , 109052, Russi an Federati on. Tel.: +7 495 280 0487 E-mail: [email protected] Magnit ogorsk Branch of STATUS: 212 Karla Marksa Av enue, 455008, Magn itogorsk, Ru ssian Federati on Tel.: +7 3519 25 6022/ 25 6023 54 As of 31.1 2.2021. 55 As of 31.1 2.2021. 56 As of Q3 20 21. 57 MMK’s GDR in th e index. MMK INTEGRATED ANNUAL REPORT 133 Investor relations One of MMK’ s top p rioriti es is t o ensure there i s an open li ne of commun ication to its i nvestors and shareholders, wi th the Compan y’s ma nagement maintai ning a di alogue wi th the in vestment communit y by: - attending and parti cipating in internati onal conferences and forums online and offl ine - holding presentations, conf erence call s, and webcasts to r eview the market situation and discuss the Compan y’s resul ts for the peri od - holding regular face- to -f ace and onli ne meetin gs with investors and anal ysts - arr angi ng for site vi sits to producti on faciliti es - holding the Investor Day. In 20 21, MMK particip ated in a t otal of 17 conferences and five non -deal road shows (NDRs). We held 236 meetings and call s with investors, with 59% of th e events attended by top manag ement. Communication with retail investor s In 2021, MMK conti nued i ts efforts to ramp up communicati on with retail investors to imp rove the investor perception of the Company and foster a dial ogue with potenti al and existing retai l investors. Outcomes of MMK’s social medi a activiti es: - Livestream on social media wi th a stock market expert bl ogger: over 50 ,000 views - Live audio stream on Tel egram with our top management: over 4 ,000 listens - Livestream with top management on Smart Lab , a dedi cated por tal for pr ivate investors: over 6,000 views - Launch of MMK’s blog on Tinkoff’s Pul se In 2021, we conti nued hostin g meeti ngs wi th the t op manag ement and IR t eams an d hel d livestreams wi th major brokerages f or private in vestors: over 9,000 vi ews. Investor Day On 7 D ecember 2021, the Company held its Investo r Day i n a hybri d format, at tended by the Chairman of the Board of Directo rs, the C EO and th e Di rector of Strategy and Devel opment. It was broadcast on the d edicated MMK Onl ine websit e and on MMK’ s social medi a accounts both i n R ussian and Engli sh. The int ernational in vestment communi ty gave a highl y positi ve response to the event. The stream recordi ng is avail able at the event websi te. A production sit e visit MMK was one of three i ssuers organ ising a producti on si te vi sit in 2021. Host ed for 15 peopl e (10 analysts and five investors), most of t hem visiting MMK for the first time, the two -d ay programme inclu ded visits to: - Sinter Plant #5, Bl ast Furnace #2, and the coke and by -product pl ant - MMK’s di gi tised facilities ( a data centre, central control room, and hazardous areas, where we hosted an employ ee tracking system demonstrati on) - Hot -Rolli ng Mill s 25 00 an d 5000 , Cold - Rollin g Mill s 1700 and 2000, and Conti nuous Hot- Dip Galvani sing Line #3 (Ro lling Shop #11) - metalware production fa ciliti es The visit al so included a round tabl e with the heads of al l our busi ness units. Board Oversight The Board r eceives i nvestor relati ons in formation covering key investor mee tin gs and acti viti es, shareholder and investor feedbac k. Analyst reports and the current consensus forecast are also circul ated on a contin uing basis by IR team. In 2020 the Compan y cond ucted a perc eption study among the investm ent communi ty regarding sati sfaction with th e l ong -term development st rategy of the Company, c orporate gove rnance quality, i nformation discl osure in the area of sustai nable development and other key i ssues. B a sed on MMK INTEGRATED ANNUAL REPORT 134 the resul ts of thi s survey, in Jan uary 2021 th e Company's B oard of Di rectors revi ewed the i nvestor relations prioriti es for 2 021. In Jan uary 2022 , t he Board of Directors a nal ysed the resul ts of i nvestor relations in the priority areas and f ound the m sat isfactory. Information Disc losure MMK ensu res that any material i nformation is commu nicated to al l interested pa rties at the same time. Information i s disclosed prima rily through th e followi ng channels: London Stock Ex change web site: th e Company pu blishes i nformation that could potentiall y affect the price of i ts GDRs/shares. NSM (Nati onal Sto rage Mech anism) is the nati onal storage mechani sm i n th e UK. The Company publi shes i nformati on in acc ordance with the UK legislation in connecti on w i th t he circulati on of depositary recei pts issued for the Company's ordinary shares on th e London St ock Exchange. Interfax i s an i nformation disclosure s erver. The C ompany publ ishes i nformation i n accordance with th e legislation (Law on th e Securit ies Mark et and Law on Joi nt Stock Compan ies). The M agnitogor sk M etal new spaper. In accordanc e wi th i ts Ch arter, th e C ompany i nforms about its acti vities through the mass medi a - the Magni togorsk Metal newspaper and the TV - IN television chan nel. MMK’s web site: M MK regularl y publi shes up dates on its activi ties and press releases about important corporate events as wel l as financial and operating results. I n 2021, the website design was refreshed, and the Investors secti on was improved. The Company al so publishes its Ann ual Report on its websit e every year. For more detai ls, see Invest ors’ page on MMK ’s website. E-mail : the Company keeps in vestors up to date on i ts acti vities by sendi ng out: - press releases on important corporate events and financial and operating resul ts - metals and raw materials mar ket overvi ews by the Compan y’s strategy an d IR teams You can contact our Investor Rel ations team by e -mai l at ir @mmk.ru . Telegram chann el: MMK’s offici al channel on Tel egram pr ovides timel y and accurate informati on on its IR and PR activi ties (reviews of fi nancial and operating result s, summaries of conference call s wi th top manag ement, anno uncements of upcoming eve nts an d conf erences for investors, vid eos, offici al comments, etc.) https: //tlgg .ru/MMK_Offici al Blogs on dedicated platforms: the Company has blogs on the Smart-Lab website and on the Tinkoff’s Pul se po rtal to pr ovide retail i nvestors wi th timely and accurate i nformation on t he Company’s IR and PR efforts. We also publish educational content about metall urgy on these websites to improve knowledge among pr ofessional market parti cipants and educat e new pl ayers. So cial media MMK al so uses social media as an addi tional chann el of i nformation disclosure. C ompany and industry news and publicati ons in the Russi an and forei gn media can be fo und on o ur offici al pages on: - LinkedIn - Tinkoff Pulse MMK INTEGRATED ANNUAL REPORT 135 Awards and ac hievements Communi cate magazine, a UK publi cation coverin g corporate financi al communicati on practi ces, held i ts annual Corporat e & Fi nancial Aw ards ceremony in 2021. MMK won the Best Management of Investor & Analyst Relations cat egory, rec ognising the hi gh quali ty o f i ts Integrated Annu al Report 2020 , and the B est Management of Investor & An alyst Relati ons during the COVID Pandemi c category. MMK was s econd in the best retai l investor relati ons pro gramme category at t he 11th International IR/ESG Cas es Contest hel d by th e Fi nanci al Communi cations & Investor Rel ati ons Alliance (ARFI) non -profi t partnershi p. MMK ranked thi rd i n the Best Discl osure of Informati on on Su stain ability category of t he Moscow Exc hang e’s 24t h Annual Report C ontest. In 202 0, MMK i ncluded i ts sustai nability report i nto t he Integrated An nual Report for the fi rst time and used SASB stan dards i n prepa ring non -financial discl osures: another first fo r the Company. MMK’s IR t eam rank ed fourth in the Emerging EMEA Execut ive Team 20 21 list, havin g received high scores from the respondent s of the E xecutive Team 2021 survey condu cted by Institu tional Investor, wh ere s ome 2,000 investors and securi ties market an alysts evalu ated c ompani es’ openness and reli abilit y i n sharehol der relati ons, as wel l as thei r finan cial p olicies, capital management, and the overal l performance of IR departments. MMK’s Investor Day – MMK Onli ne i n 2020 topped th e Best Investor Even t category among smal l and mi d -cap companies at the i nternati onal IR Magazi ne Awards. MMK INTEGRATED ANNUAL REPORT 136 RESPONSIBILITY STATEMENT MMK’s management confirms that , to the best o f its knowledge: The fi nancial stateme nts prepared in accordance wi th Internati onal Financial Reporting Standards give a true and fair view of the assets, li abilities, financial position and pr ofit or loss of M MK and the undertaki ngs incl uded in the consoli dation taken as a whol e. The manag ement report in cludes a fair r eview of the d evelopment an d performan ce o f th e busin ess and the position of MMK and the undertaki ngs included in the consolidati on taken as a whole, together with a descripti on of the princi pal risks and un certai nties that th ey face. In p reparin g this R eport, MMK was gui ded by Internati onal Integrated Reporti ng Framework (< IR > , 2021) , GRI and SASB standards, as well as by recommendati ons for busi nesses on integrati ng SDGs in to their reporting . _____ Pavel Shil yaev CEO of MMK MMK INTEGRATED ANNUAL REPORT 137 COMPLIANCE OF THE REPORT WITH THE INTERNATIONAL INTEGRATED R EPORTING FRAMEWORK Fundament al Concepts reflection in the R eport Fundamental Conc epts Used / Not used Value creati on for the organi zation and for others Used The capit als Used Process through whi ch val ue is created, preserved or eroded Used Fundament al Principles reflection in the R eport Fundamental Pri nciples Compliant / Not com pliant Strategic focus and future ori entati on Complian t Connectivi ty of informati on Complian t Stakeholder rel ationshi ps Complian t Materiali ty Complian t Conciseness Complian t Reliabili ty and completeness Complian t Consistency and comparabili ty Complian t Content Elements reflectio n in the Report Content Elements Section of the R eport Page Organizati onal overview and external envi ronment At a glan ce Market trends 7-8 27-28 Governance Governance 1 00 -1 26 Business mod el Business model 10 Risks and oppo rtuniti es Market trends Risk management 27-28 91 - 99 Strategy and resource allocati on Strategy Financi al capital: Capi tal allocati on 21 -22 35-37 Performance Strategy Key performance i ndicators Financi al capital Manufactured capi tal 21 -22 23-26 34-41 42-55 Outlook Strategy Market trends 21 -22 27-28 Basis of preparati on and presentation About thi s Report 3-6 MMK INTEGRATED ANNUAL REPORT 138 BSI VERIFICATION OPINION MMK INTEGRATED ANNUAL REPORT 139 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBE R 2021 STATEMENT OF MA NAGEMENT’S R ESPONSIBILI TIES FOR THE PR EPARATION AND APPROVAL OF THE CONSOLIDA TED FINAN CIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 INDEPENDENT AUD ITORS’ REPORT CONSOLIDATED F INANCIAL STA TEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021: CONSOLIDATED STA TEMENT OF C OMPREHENSIV E INCOME .................................................... 148 CONSOLIDATED STA TEMENT OF F INANCIAL POSITION ........................................................... 149 CONSOLIDATED STA TEMENT OF C HANGES IN EQU ITY ............................................................ 150 CONSOLIDATED STA TEMENT OF CASH FLOWS ...................................................................... 151 NOTES TO THE CO NSOLIDATE D FINANC IAL STATEMENTS 1. GENERAL INFORMAT ION .......................................................................................... 153 2. ADOPTION OF N EW OR REVISED STA NDARDS AND INTERPRETAT IONS ......................... 153 3. BASIS OF PREPARA TION .......................................................................................... 154 4. SIGNIFICANT ACCOU NTING PO LICIES ....................................................................... 1 55 5. CRITICAL ACCOU NTING JUDGEM ENTS AND KEY SOURCES OF EST IMATION U NCERTAINTY 171 6. REVENUE ............................................................................................................... 174 7. SEGMENT INFORMA TION .......................................................................................... 174 8. COST OF SALES ...................................................................................................... 176 9. GENERAL AND ADM INISTRAT IVE EXPENSES ............................................................... 176 10. SELLING AND DISTR IBUTION EXPENSES .................................................................... 176 11. OTHER OPERATING INCOME/(EXPENS E), NET ............................................................ 177 12. OTHER EXPENSES ................................................................................................... 177 13. FINANCE COSTS ..................................................................................................... 177 14. FOREIGN EXCHANG E GAIN/(LOSS), NET .................................................................... 177 15. INCOME TAXES ....................................................................................................... 177 16. PROPERTY, PLANT AND EQUIPMENT .......................................................................... 180 17. INVENTORIES ......................................................................................................... 183 18. TRADE AND OTHER RE CEIVABLES ............................................................................. 183 19. INVESTMENTS IN S ECURITIES AND OTHER F INANCIAL ASSETS .................................... 185 20. CASH AND CASH EQU IVALENTS ................................................................................ 185 21. SHARE CAPITAL ...................................................................................................... 186 22. LONG-TERM BORR OWINGS ...................................................................................... 186 23. SITE RESTORATION PROVISION ............................................................................... 188 24. DEFINED CONTR IBUTION PLANS ............................................................................... 189 25. TRADE AND OTHER PAY ABLES .................................................................................. 189 26. SHORT-TERM BORR OWINGS A ND CURRENT P ORTION OF LONG - TERM BORRO WINGS ..... 190 27. RELATED PARTIES ................................................................................................... 190 28. RISK MANAGEMEN T ACTIVITIES ............................................................................... 191 29. CAPITAL MANAGEME NT ............................................................................................ 195 30. COMMITMENTS AND CONTINGENC IES ................................................................ ....... 195 31. FAIR VALUE OF FINANC IAL INSTRUMENTS ................................................................ . 198 32. EVENTS AFTER THE DA TE OF CONS OLIDATED STATE MENT OF FINANC IAL POS ITION ...... 199 33. APPROVAL OF THE CO NSOLIDATED F INANCIAL STATEME NTS ....................................... 199 MMK INTEGRATED ANNUAL REPORT 140 STATEMENT OF MANAGEM ENT’S RESPONSIBILITI ES FOR THE PREPARATI ON AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 Management is responsi ble for the preparati on of consolid ated financial statements that pr esent fai rly the fi nancial positi on of Public Joint Stock Company Magnitogorsk Iron & Steel Works and its subsidiari es (the "Group") at 31 D ecember 2021, an d th e results of i ts operations, cash flows and chang es in equity for the year then ended, in compli ance with International Finan cial Reporting Stand ards ("IFRS"). In preparin g the consolidat ed financi al statements, management i s responsi ble for: properly sel ecting and appl ying accountin g policies; presenting information, including accountin g poli cies, in a ma nner that provides relevant, reliabl e, comparable and und erstandable i nformation; providi ng additional disclosures when compliance wit h the speci fic requi rements in IFRS are insuffici ent to enabl e users to understand the impact of particul ar transactions, other events and conditions on the Group's finan cial posi tion and finan cial performance; and making an assessment of the Group's abi li ty to continue as a goi ng concern. Management is al so responsi ble for: designin g, implementi ng and maintaining an effecti ve and sound system of internal controls throughout the Group ; maint aining adequat e accounting r ecords that are sufficient to show an d explai n the Group's transactions an d di sclose wi th reasonabl e accuracy at an y ti me the financi al positi on of the Group, and which enable them to ensure that the consolid ated financial statements o f the Group comply with IFRS; maint aining statutory accountin g records in compliance with statutory l egislati on and accounting standards; taking such steps as are reasonably availabl e to them to s afeguard the assets of the Group; and preventing and detecting fraud and oth er irregul arities. The consoli dated financial statements for the year end ed 31 December 2021 we re approved for issuance on 28 Feb ruary 2022 by: ____ ____ P. V. Shilyaev O. Y. Samoylova General Director Di rector of OOO MMK-ACCOUNTING CENTER, a special ized organization, wh ich performs the accounting function for Publi c Joint Stock Company Magnitogorsk Iron & Steel Works 28 February 2022 Magnitogorsk, Russia MMK INTEGRATED ANNUAL REPORT 141 MMK INTEGRATED ANNUAL REPORT 142 MMK INTEGRATED ANNUAL REPORT 143 MMK INTEGRATED ANNUAL REPORT 144 MMK INTEGRATED ANNUAL REPORT 145 MMK INTEGRATED ANNUAL REPORT 146 MMK INTEGRATED ANNUAL REPORT 147 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) Year ended 31 December Notes 2021 2020 REVENUE 6 11,869 6,395 COST OF SALES 8 (7,028) (4,691) GROSS PROFIT 4,841 1,704 General and administrative expenses 9 (223) (205) Selling and distribution expenses 10 (877) (492) Change in expected credit loss, net 18 - (2) Other operating income/(expense), net 11 12 (63) OPERATING PROFIT 3,753 942 Finance income 28 23 Finance costs 13 (37) (44) Foreign exchange gain/(loss), net 14 31 (129) Impairment and provision for site restoration 16, 23 265 66 Other expense (55) (68) PROFIT BEFORE INCOME TAX 3,985 790 INCOME TAX 15 (864) (186) PROFIT FOR THE YEAR 3,121 604 OTHER COMPREHENSIVE LOSS Items, that may be reclassi fied subse quently to pro fit or loss Translation of foreign operations (17) 261 Items, that will not be recla ssified subsequent ly to profit or loss Remeasurements of post-employment benefit obligations 2 - Effect of translation to presentation curren cy (16) (1,101) OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX (31) (840) TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 3,090 (236) Profit attributable to: Shareholders of the Parent Company 3,118 603 Non-controlling interest 3 1 3,121 604 Total comprehensive income/(loss) attributable to: Shareholders of the Parent Company 3,087 (234) Non-controlling interests 3 (2) 3,090 (236) BASIC AND DILUTED EARNINGS PE R SHARE (U.S. Dol lars) 0.279 0.054 Weighted average number of ordinary sh ares outstanding (in thousands) 11,174,330 11,174,330 The notes on pages 153 to 199 are an in tegral part of these consolida ted financial stat ements. MMK INTEGRATED ANNUAL REPORT 148 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2021 (In milli ons of U.S. Dollars) 31 December Notes 2021 2020 ASSETS NON -CURRENT ASSETS: Property, plant and equipment 16 5,358 4,541 Right- of -use assets 10 8 Intangible assets 38 40 Investments in securities and other finan cial assets 19 6 2 Investments in associates 1 1 Deferred tax assets 15 65 49 Total non-current assets 5,478 4,641 CURRENT ASSETS: Inventories 17 1,606 1,128 Trade and other receivables 18 1,191 606 Investments in securities and other finan cial assets 19 528 207 Income tax receivable 20 5 Value added tax recoverable 49 47 Cash and cash equivalents 20 843 858 Total current assets 4,237 2,851 TOTAL ASSETS 9,715 7,492 EQUITY AND LIABILITIES EQUITY: Share capital 21 386 386 Share premium 969 969 Translation reserve (6,328) (6,295) Retained earnings 11,281 9,522 Equity attributable to shareholders of the Parent Company 6,308 4,582 Non-controlling interest 22 19 Total equity 6,330 4,601 NON -CURRENT LIABILITIES: Long-term borrowings 22 528 548 Obligations under leases 7 8 Retirement benefit obligations 16 18 Long-term other payables - 2 Site restoration provision 23 96 125 Deferred tax liabilities 15 455 365 Total non-current liabilities 1,102 1,066 CURRENT LIABILITIES: Short-term borrowings and current portion of long-term borrowings 26 433 411 Current portion of obligations under leases 3 3 Current portion of retirement benefit obligations 1 2 Trade and other payables 25 1,770 1,380 Current portion of site restoration provision 23 12 11 Income tax payables 64 18 Total current liabilities 2,283 1,825 TOTAL EQUITY AND LIABILITIES 9,715 7,492 ____ ________ P. V. Shilyaev O. Y. Samoylova General Director Director of OOO MMK-ACCOUNTING CENTER, a specialized organization, which performs the accounting function for Public Joint Stock Company Magnitogorsk Iron & Steel Works 28 February 2022 Magnitogorsk, Russia The notes on pages 153 to 1 99 are an integral part of th ese consolidated financial statem ents. MMK INTEGRATED ANNUAL REPORT 149 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars) Attributable to shareholders of the Parent Company Notes Share capital Share premium Translation reserve Retained earnings Total Non-contr olling interest Total equity BALANCE AT 1 JANUARY 2020 386 969 (5,458) 9,600 5,497 22 5,519 Profit for the year - - - 603 603 1 604 Other comprehensive loss for the year, net of tax - - (837) - (837) (3) (840) Total comprehensive loss for the year - - (837) 603 (234) (2) (236) Decrease in non-controlling interests due to changes of the Group’s share in subsidiaries - - - 1 1 (1) - Dividends 21 - - - (682) (682) - (682) BALANCE AT 31 DECEMBER 2020 386 969 (6,295) 9,522 4,582 19 4,601 Profit for the year - - - 3,118 3,118 3 3,121 Other comprehensive loss for the year, net of tax - - (33) 2 (31) - (31) Total comprehensive income for the year - - (33) 3,120 3,087 3 3,090 Dividends 21 - - - (1,361) (1,361) - (1,361) BALANCE AT 31 DECEMBER 2021 386 969 (6,328) 11,281 6,308 22 6,330 The notes on pages 153 to 19 9 are an integral part of th ese consolidated financial statem ents. MMK INTEGRATED ANNUAL REPORT 150 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars) Year ended 31 December Notes 2021 2020 OPERATING ACTIVITIES: Profit for the year 3,121 604 Adjustments to profit for the period: Income tax 864 186 Depreciation and amortization 10, 8, 9 509 484 Impairment and provision for site restoration 16, 23 (265) (66) Finance costs 13 37 44 Loss on disposal of property, plant and equipment 11 28 66 Change in expected credit loss 18 - 2 Change in allowance for advances issued 11 2 - Change in provision for legal claims 11 2 17 Change in allowance for obsolete and slow-moving inventory 17 (1) (4) Finance income (28) (23) Foreign exchange (gain)/loss, net 14 (31) 129 (Gain)/loss on disposal of subsidiaries 11 (3) 3 Operating cashflow before working capital changes 4,235 1,442 Movements in working capital Increase in trade and other receivables (597) (113) Increase in value added tax recoverable (14) (1) Increase in inventories (468) (52) Increase in trade and other payables 322 132 Cash generated from operations 3,478 1,408 Interest paid (25) (26) Income tax paid (738) (156) Net cash from operating activities 2,715 1,226 INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,119) (683) Purchase of intangible assets (13) (11) Proceeds from sale of property, plant and equipment 2 2 Interest received 28 23 Proceeds from sale of subsidiaries, net of disposed cash - 1 Proceeds from sale of securities and other financial assets 3 3 Purchase of securities and other financial assets (4) (3) Placement of short-term bank deposits (1,040) (620) Withdrawal of short-term bank deposits 720 420 Net cash used in investing activities (1,423) (868) The notes on pages 153 to 1 99 are an integral part of th ese consolidated financial statem ents. MMK INTEGRATED ANNUAL REPORT 151 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED) (In milli ons of U.S. Dollars) Year ended 31 December Notes 2021 2020 FINANCING ACTIVITIES: Proceeds from borrowings 505 705 Repayments of borrowings (475) (636) Repayment of the principal amount of the lease obligation (5) (4) Dividends paid to equity holders of the Parent Company (1,321) (623) Net cash used in financing activities (1,296) (558) NET DECREASE IN CASH AND CASH EQUIVALENTS (4) (200) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20 858 1,105 Effect of translation to presentation curren cy and exchange rate changes on the balance of cash held in foreign currencies (11) (47) CASH AND CASH EQUIVALENTS, END OF PERIOD 20 843 858 The notes on pages 153 to 1 99 are an integral part of th ese consolidated financial statem ents. MMK INTEGRATED ANNUAL REPORT 152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 1. General informat ion PJSC Magn itogorsk Iron & Steel Works ("the Parent Company") is a p ubli c joint stock c ompany as defined by t he Ci vil Code of the Russian Federa tion. The Parent Company was establi shed as a state owned enterprise in 1932. It was incorporated as an open joint stock company on 17 Oct ob er 1992 as part of and in accordance wit h the Russian Federation pri vatisati on program. The Parent Company, together wi th its subsidiari es (the "Group"), is a producer of ferrous metal products. The G roup’s products are sold in the R ussian Federation and i nternationall y. Th e sub sidi aries of th e Parent Company are mainly i nvolved i n the vari ous sub -p rocesses with in the producti on cycl e of ferrous metal pr oducts or i n th e d istri bution of tho se products . The Group is al so engag ed in coal mining an d sale thereof. The Par ent Company’s registered office is 93, Kirova street , Magnitogorsk, Chelyabi nsk region, Russia, 455000. As at 31 Decemb er 2021 the Parent Compa ny's major shar eholder was Min tha Holdin g Limited wit h a 79.8% ownershi p interest (31 Decemb er 2020: 84.3%). The ul timate beneficiary of the Parent Company is Mr . Vi ktor F. Rashni kov, the Chairman of i ts Board of Directors. At 31 December 2021 and 2020, the Group's princi pal subsi diaries were as foll ows: Effective % held at 31 December Subsidiary by country of incorporation Nature of business 2021 2020 Russian Federati on OJSC Metizno-Kalibrovochny Zavod “MMK - Metiz” Production of metal hardware products 95.78 95.78 LLC MMK LMZ Production of ferrous metal products 100.00 100.00 LLC IK MMK Finance Investing activities 100.00 100.00 LLC Ogneupor Production of refractory materials 100.00 100.00 LLC Mekhanoremontny Komplex Maintenance of metallurgical equipment 100.00 100.00 LLC OSK Production of machinery and equipment for metallurgy 100.00 100.00 LLC MTSOZ Production of cement and refractory materials 100.00 100.00 LLC MMK Vtormet Collection and processing of metal scrap 100.00 100.00 LLC Torgovy Dom MMK Trading activities 100.00 100.00 OJSC Belon Holding company, trading activities 98.32 98.19 LLC MMK Ugol Coal mining 99.46 99.42 Turkey MMK Metalurji Production of ferrous metal products 100.00 100.00 Switzerland MMK Steel Trade AG Trading activities 100.00 100.00 Luxemburg ММК -Mining Assets Management S.A. Holding company 100.00 100.00 2. Adopt ion of New or R evised Stand ards and Interp retations The foll owing amended stan dards becam e effecti ve from 1 January 2021 , b ut di d not have any materi al impact on th e Group: Covid- 19 - Related Rent Concessions - Amendments to IFRS 16 ( issued on 28 May 2020 and effective for annual periods b eginni ng on or aft er 1 June 2020); MMK INTEGRATED ANNUAL REPORT 153 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 2. Adoption of New or Revised Standards and Interpret ations (continued) Inter est rate benchmark (IBOR) r eform - phas e 2 amendments to IFRS 9, IAS 39 , IFRS 7, IFRS 4 and IFRS 16 (i ssued on 27 Aug ust 20 20 an d effecti ve fo r annu al periods begin ning on or afte r 1 January 2021). The Group has no financi al in struments wit h interest rate s li nked to LIBOR an d other IBOR rates, for those amendments were al ready announced. New Accounting P ronouncement s Certain new standards a nd interpretations have been i ssued that ar e ma ndatory for the annual periods beginning on or after 1 Janu ary 2022 or l ater, and wh ich the Group has not early adopted . The foll owing other new pronounc ements ar e not exp ected to h ave any material imp act on th e Group when adopted: Sale or Contri bution of A ssets between an Investor and i ts As sociate or Joi nt Venture - Am endments to IFRS 10 and IAS 28 (issued on 11 Sept ember 2014 and effecti ve for annual peri ods beginning on or a fter a date to b e determin ed by the IASB); IFRS 17 "Insurance Cont racts" (i ssued on 18 May 2017 and effective for an nual periods begi nning on or after 1 January 202 1 - the effecti ve date subsequentl y modi fied to 1 January 2023 by the Amendments to IFRS 1 7 as discussed b elow); Amendments to I FRS 17 and an amendment to IFRS 4 (issued o n 25 June 2020 and effective for annual peri ods beginning on or a fter 1 Janu ary 2023); Classi fication of li abilities a s cur rent or n on -curr ent – Amendm ents t o IA S 1 ( issued on 23 Jan uary 2020 and effecti ve for annual periods beginni ng on or after 1 January 2 022); Classi fication of l iabiliti es as cur rent or n on -current, de ferral of effective date – Amendments t o IAS 1 (issued on 15 July 2020 and effecti ve for annu al p eriods begi nning on or afte r 1 Januar y 2023); Proceeds b efore i ntended use, On erous contracts – cost of ful filli ng a contract, Referen ce to the Conceptual F ramework – nar row scope amend ments t o IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 20 18- 2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 (issued on 14 Ma y 2020 and effecti ve for annua l periods begi nning on or after 1 January 2022); Amendments to IAS 1 an d IFRS Practi ce Statement 2: Di sclosure of Accounti ng poli cies (issued on 12 February 2021 an d effecti ve for annual periods beginni ng on or after 1 Janu ary 2023); Amendments to IAS 8: Definition of Accounti ng Esti mates (issued on 12 F eb ruary 2021 and effective for annual periods b eginni ng on or after 1 January 2023); Covid- 19 -R elated Rent Conc essions - Amendm ents to IFRS 16 ( issued on 31 Mar ch 20 21 an d effective or annu al periods b eginni ng on or after 1 Ap ril 20 21). An amendment issued on 3 1 March 2021 extended the date of the p ractical expedient from 30 June 2021 to 30 June 2022; Deferred tax rel ated to assets and liabili ties arisi ng from a si ngle transacti on - Amendments to IAS 12 (i ssued on 7 May 2021 and effecti ve for annual period s begi nning on or aft er 1 January 2023). 3. Basi s of preparation Basis of preparati on International Financi al R eporting Standards ("IFRS") include Stan dards and Interpr etations i ssued by the International Accounti ng Standards Board ( "IASB"). These consoli dated financi al statements of the Group have been prepa red in accordan ce with IFRS. MMK INTEGRATED ANNUAL REPORT 154 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 3. Basis of preparation (conti nued) The Group addit ionally prepares IFRS cons olidated fin ancial statements p resented i n Ru ssian roubl es and in Russi an l anguage i n accordan ce wi th the Federal Law N o. 208 - FZ "On consoli dated fin ancial reporting". The consoli dated fin ancial stat ements of the Group are p repared un der the h istorical cost conventi on, as modi fied by the i nitial recogniti on of finan cial instrument s based on fair val ue, derivati ve fin ancial instrument s, which are accounted f or at fair val ue, and other fin ancial asse ts at FVT PL. 4. Sign ificant Accounti ng Polic ies The pri ncipal accounting p oli cies appli ed in the preparati on of th ese consoli dated fi nancial statements are set out b elow. Th ese poli cies have be en consi stently appl ied to al l the peri ods presented, unless otherwise state d. Basis of consolid ation Subsidiaries These consol idat ed financi al stat ements i ncorporate the financi al statements o f the Parent Co mpany and i ts subsi diaries. Subsi diaries are th ose i nvestees, i nclu ding structured e nti ties, that the Group controls because the Group (i) has power to di rect the relevant activities of the investees that signi ficantly affect th eir return s, (i i) h as exposure, or right s, to vari able retu rns from i ts i nvolvement with the i nvestees, and (iii) has the abilit y to use its powe r over the i nvestees to affect th e amount of the in vestor's returns. The existence and effect of substanti ve ri ghts, i ncluding substanti ve potential voting ri ghts, are considered when assessi ng whether the Group has po wer over another enti ty. For a right to be substanti ve, the hol der must have a p ractical abilit y to exerci se that ri ght wh en deci sions about t he di rection of t he relevant activiti es of the i nvestee need to b e mad e. Th e Group ma y h ave power o ver an i nvestee ev en when i t holds l ess th an the ma jo ri ty of the voting power i n an i nvestee. In such a cas e, t he Grou p assesses the si ze of i ts voti ng rights relati ve to the si ze and di spersion of holdin gs of the oth er vote h olders to determi ne i f it has de - facto power over th e i nvestee. Prot ective rights of oth er in vestors, such as th ose that relate to fundamental changes of th e invest ee's acti vities or app ly only in excepti onal circumstan ces, d o not prevent the Group from control ling an in vestee. Subsidi aries are consolidated fr om the date on which control is t ransferred t o the Group (acq ui sition date) and are deconsol idated from th e date on whi ch control ceases. Where necessary, adjustments are made to the financi al statements of subsi diari es t o bring their accounting policies in to line with those used by the Group. Non-controll ing interest s in subsi diaries are id entifi ed separately from th e Group's equi ty therein. The interests of non-contr ollin g shareholders may be initi ally measured either at fair value or at the non-controlli ng interests' prop ortionate share of the acqui ree's identi fiable net assets. The choice of measurement basis i s made on an acquisiti on- by -acqui sition basis. Subsequent to acquisiti on, th e carrying amount of non-contr ollin g interests is the amount of those interests at initial recogni tion plus the non-c ontrolli ng int erests' sha re of sub sequent cha nges i n equi ty. Total comp rehensive i ncome i s attribu ted to non-controlli ng i nterests even if this resul ts in the non- controllin g i nterests ha ving a deficit balance. Changes in the G roup's interests in subsidiari es that do n ot result in a loss of control are accounted for as equity transactions. Any difference between the purchase co nsi deration and the carrying amount of non-controlli ng interest acqui red i s recorded as a capital t ransaction directly in equi ty. The Group recognises the di fference between sales consi deration and the carryin g amount of non - controllin g interest sold as a capital transacti on in the consolidated statem ent of changes i n equity. MMK INTEGRATED ANNUAL REPORT 155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) When th e Group l oses control of a subsidi ary, the pr ofit or loss on disposal i s calculated as th e difference b etween (i ) the aggregate of the fair value of th e consi deration received and the fai r val ue of any retai ned i nterest and (ii) the previous carryi ng amount of the assets (in cluding goodwill ), and liabiliti es of the subsid iary a nd an y non -controll ing i nterests. Amoun ts previ ously recognised i n other comprehensi ve income in relati on to the subsid iary are accounted for (i.e. recl assified to profi t or loss or t ransferred di rectly to retai ned earning s) i n the same mann er as wo uld be required i f the rel evant assets or li abiliti es were disposed of. The fair value of any investment ret ain ed in the forme r sub sidi ary at the dat e when control i s lost i s regarded a s the fair value on initial r ecogniti on for sub sequent accounting under IFRS 9 "Finan cial Instruments" or, when applicable, as the cost on initial recognition of an investment i n an associ ate or jointl y controll ed entity. Functional and presentation currency Different entities wi thi n th e Gr oup hav e di fferent functional currencies, ba sed on the un derlying economic condi tions of thei r operations. The functi onal currency of the Group's entities except for M MK Metalurji and MMK Steel Trade AG i s the Russi an Roubl e ("RUB"). Th e functional currency of MMK M etalurji and MMK Ste el Trade A G i s the United States Dol lar ("USD"). These consoli dated financial statements a re presented in millions of US D. Using USD as a p resentati on currency i s consid ered by man agement to b e more relevant for users of the consoli dated financial statements of the G roup. The translati on into presentati on currency is made as f ollows: all assets and liabili ties, both monetary and non -mon etary, are t ranslat ed at closing exchange rates at the dates of each consol idated statemen t of financi al position presented; all income and expenses in each consolid ated statement o f comprehensive in come a re tran slated at exchange r ates in effect wh en the transacti ons o ccur. For those transacti ons that occur evenl y over the year a mont hly average exchang e rate i s applied; all items in cluded in the con soli dated sha reholders' equity, oth er than total compre hensi ve income, are transl ated at hi storical exchange rates; and in the consolidated statement of cash fl ows, cash bal ances at the begi nning a nd end of ea ch year presented are t ranslat ed at exchange rates at t he respecti ve dates of th e beginni ng and end of each year. All cash fl ows are translat ed at exchange rate s in effect when t he cash flows occur. For those cash fl ows th at occur evenly over the year an average ex change rate for the year i s appli ed. On c onsolidati on, exchan ge di fferences arising from the translati on of any n et i nvestment in foreign entiti es are recognised in other compreh ensive income a s " Effect of fo reign operations". When a foreign operation i s sold , the as sociated exch ange di fferences a re reclassi fied to p rofit o r loss, as part of th e gain or loss on sale. Exchange rates u sed for transl ation into present ati on currency of the consolidated fi nancial statements were as foll ows: 31 December 2021 2020 Russian Rouble/US Dollar Year-end rates 74.29 73.88 Average for the period 73.62 72.40 MMK INTEGRATED ANNUAL REPORT 156 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accou nting Polic ies (conti nued) Foreign currency transaction s Transacti ons in curr encies other than the functi onal currencies of the Group's entities (foreign currencies) a re recorde d at t he exchange rates at the d ates of the tran sactions. At each state ment of financi al po siti on date monetary assets and liabili ties denominat ed in foreign currencies are transl ated at the e xchange rates at the date of statement of financi al position. Exchange differences arisi ng fro m changes i n exchan ge r ates ar e rec ogn ised i n the cons olidated statement of comprehensi ve i ncome within "Foreign exchang e gai n/(l oss), net". Non -monetar y i tems ca rried at hi storical cost ar e tra nslat ed at the exchange rate on th e date of transa ction. Non -m onetary i tems measured at fair value i n a foreign currency, i ncludi ng equity in vestments, are t ransl ated at the exchange rate on the date on which the most recent f air value was determi ned. Eff ects of exchange r ate changes on n on -mo netary items measured at fair val ue in a foreign curre ncy ar e recorded as par t of the fair val ue gain or loss. Goodwill Goodwill ar isin g in a business combi nati on is recognised as an asset at the date that control is acquired (the acquisi tion date). Goodwil l is measured as t he e xcess of the sum of the considerati on transferred, the amount of an y non -controlli ng interests in the acqui ree, and th e fair value of the acqui rer's previously held equi ty interest in the acquiree (i f any) over the fair val ue of the net identi fiable assets acquired and th e liabili ties assumed . If, afte r r eassessment, the Group's interest in the fai r value of the a cqui ree's i dentifiabl e net assets exceeds the sum of the considerati on transf erred, th e am ount of any non -controll ing interests i n the acquiree and the fair val ue of the acquirer's previ ously held equit y i nterest in the acqui ree (i f any), the excess is recogni sed immedi ately in profi t or loss as a bargai n purchas e gain. Goodwill is not amo rtised but i s reviewed for impai rment at l east annu ally. For t he purpose of impai rment t esting, goodwil l is all ocated t o each of the Group's ca sh - generating uni ts exp ected to benefit from the synerg ies of the combin ation. Cash -generati ng units to which goodwi ll has been allocated are t ested for imp airment annuall y, or more frequentl y when there i s an i ndication that the unit ma y be i mpaired. I f the recoverable am oun t of th e cash - generatin g unit is l ess than i ts carryi ng amount, the imp airment loss is allocated fi rst to reduce the carrying amoun t of any goodwill allocated to the u nit and then to th e othe r assets of the unit pro-rata on th e b asis of the carryin g amount of each asset in t he unit. An i mpairment loss recogni sed for goodwi ll is not reversed i n a subsequent period. On disposal of a subsidiary, the att ributabl e amount o f goodwill is included in t he deter min ation of the profit or loss on di sposal . Revenue recogn ition Revenue is income arisin g in the course of the Group 's ordinary activi ties. R evenue is recogni sed in the am ount of transacti on pri ce. Tran saction pri ce i s the amount of con siderati on to whi ch t he Group expects t o be enti tled i n exchange for transferri ng control over p romi sed goods or s ervices to a customer, exclu ding the amounts c oll ected on behalf of thi rd parties. Revenue i s recognised net of di scounts, returns and val ue added taxes, other si mil ar mandatory payments. Group's contracts with customers are fixed-p rice contracts and generall y include both advance payment and d eferred payment for the same contracts. Generall y t he sales are mad e wi th a cr edit term of 30 -60 da ys, wh ich i s con sistent wi th the market p ractice and c onsequentl y trade rec eivabl es are classifi ed as current assets. A receivable is recognised when the goods are delivered or dispat ched based on deli very terms as this is the point in time that the consi deration is unco ndi tional because onl y the p assage o f time is required before t he payment i s due (N ote 18). Contrac t assets are imm aterial and the refore not presented separately i n the consolidat ed financi al statements. MMK INTEGRATED ANNUAL REPORT 157 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) A contra ct li abilit y is an enti ty's obli gation to transfer goods or servi ces to a custom er for which the entity has recei ved cons iderati on from t he cust omer. Cont ract liabili ties are i ncl uded in trade and other payables li ne item as advances from customers ( Note 25). Sales of goods Sales are recognised when control of the good has transferred, b ein g when the goods are delivered to the customer, th e customer has full discretion over the g oods, and there is n o unfulfill ed obligati on that could affect th e customer's acceptanc e of the goods. Del ivery occu rs wh en th e goods hav e b een shipped to th e speci fic location, the risks of obs olescence an d l oss have been transferred to th e customer, and either t he cu stomer has accepted the goods i n accordance with the contract, t he acceptance provisions have lapsed, or the Group has o bjecti ve evidence that all cr i teria for acceptance have been sati sfied. Sales of transport ation services If th e Group provides transportati on services t o the customer after control o ver goods has transferred, revenue from such servi ces is c onsidered to be a s eparate pe rformance obli ga tion and is recog nised over the time of the service rende ring b ecause th e custome r recei ves and u ses the benefi ts simult aneously. The Group provides servi ces under fixed -price contracts. Revenue f rom provid ing services i s recogn ised in the accounti ng p eriod in which the services are rendered. Revenue is recognised based on the actual service provided to the end of the re portin g per iod as a proporti on of the to tal services to be provided. This i s determined based on proporti on the actu al distan ce relative to the total expected di stance. Where the c ontracts i nclude mul tiple performanc e obli gations, the transa ction price is all ocated to each separate performance obli gation based on the stand -alone selling prices. Where these are not directl y observable, they ar e esti mated based on expe cted cost plus margi n. Estimates of revenues, cost s o r extent o f p rogress toward compl etion are revi sed i f circumstances change. An y resulti ng increases or decreas es in esti mated revenues are r eflected in profit or loss i n the period i n which t he circumstances that gi ve rise to the revi sion become known by management . In case of fixed price con tracts, the customer p ays the fixed amount based on a payment sched ule. If the servi ces rende red by the G roup exce ed the payment, a contract a sset arise. If the payments exceed the s ervices rendered, a contract li ability is recogni sed. C ontract assets from sal es of transportati on services are i mmaterial and th erefore n ot presented s eparately in the consoli dated fi nancial statements. Financing comp onent s The Group does not expect to h ave an y c ontracts wher e the period b etween th e tran sfer of t he promised g oods or serv ices to the customer and p ayment by the customer exceeds one yea r. As a consequence, the Gr oup does not adjust an y of the transact ion pri ces for the time valu e of money. Borrowing costs General and spe cifi c borrowing costs directly attrib utable to the acqui sition, constructi on or producti on of assets that nec essaril y take a sub stanti al time t o get ready f or i ntended use or sal e (qu al i fying assets) ar e capi tali sed as p art of the c osts of those ass ets, i f the commencement date for capital isation is on or after 1 Janu ary 2009. The commen cement date for capi tali sation i s when (a) th e Group incurs expenditu res for the quali fying asset; (b) i t incurs borrowi ng costs; and (c) it undertakes acti viti es that are n ecessary to prepare th e asset for its i ntended use or sal e. Capitali sation of borr owing costs conti nues u p to th e date wh en th e assets a re substan tiall y ready for their use or sal e. MMK INTEGRATED ANNUAL REPORT 158 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) The Group capit alises borrowing costs that coul d have b een avoided if i t had not made capital expendit ure on qual ifying assets. Borrowing costs capi tali sed are cal culated at the G roup's average funding cost (th e weighted av erage in terest cost is appli ed to the expendi tures on the qua li fying assets), except to the extent that funds are borrowed spe cifi cally for th e purp ose of obtainin g a quali fying asset. Wh ere this occurs, actual borrowi ng costs incurred on the speci fic borrowings l ess any investment i ncome on the temporary investment of these borrowin gs are capitali sed. Income tax Income taxes have been provided for in the consolidated financi al statements in accordance with legisl ation enacted or substantively e nacted by the end of the reporti ng period. The in come tax charge comprises cu rrent tax and deferred tax and is r ecogni sed in profit or l oss for the year, except i f it i s recognised i n other c omprehensi ve income or directl y in equi ty because i t rel ates to transacti ons th at are al so recognised, in the same or a different period, in other comp rehensive income or direct ly in equity. Current tax Current tax is th e amou nt expected t o b e p aid t o, or recovered from, th e taxati on autho rities i n respect of taxabl e pr ofits or los ses for the current and p rior pe riods. Ta xable profit di ffers from profit for th e year as reported in the consolidated statement of comprehensi ve income because it excludes items of income or expense that are ta xable or deducti ble i n other p eriods and it further excludes i tems that are n ever t axabl e or de ducti ble. The G roup's l iabil ity for current tax is cal culated usi ng tax rates t hat have been enacted or su bstanti vely enacted by the date of consol idat ed statem ent of fin ancial position. Deferred incom e tax Deferred tax is recognised on differences between the carrying amounts of assets and li abilities in the consolidat ed statement of finan cial position and th e correspondi ng tax bases u sed i n the computati on of taxable profit, and i s accounted for usi ng th e bal ance sheet l iabili ty method. Deferred tax l i abilities are g enerall y recogn ised for all taxable te mpor ary di fferences, and de ferred tax ass ets ar e g enerally recognised for al l deducti ble temporary differences to the extent that it is probable that taxable profits will be avail able agai nst which th ose deducti bl e temporary differ ences can be ut ilised. Su ch deferr ed tax as sets an d l iabili ties are n ot recognised if t he temp orary d ifferenc e ari ses f rom g oodwill or from the ini tial recogniti on (other t han i n a business combination) of ass ets and l iabiliti es i n a transacti on that affects neith er the taxabl e profit nor the accounti ng profi t when initi ally recorded. Deferred tax assets for deductible te mporary differences and tax loss carry forward s are recorded only to the extent that it i s probabl e that the t emporary di fference wi ll reverse i n the future and th ere i s suffici ent future taxable profi t availabl e against whi ch the deducti ons can be utili sed. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which th e l iability i s settl ed or th e as set reali sed , based on tax rates an d tax laws th at h ave b een enacted or substanti vely enacted by the date of consol idated statement of fi nancial position. The measurement of d eferred tax liabiliti es and assets refl ects the tax c onsequences that would follow from the man ner i n which the G roup expects, at the reporti ng date, to recover o r s ettle the carrying amount of its assets and li abili ties. Deferred tax assets and li abiliti es are offset when there is a legall y enforceable right to set off cur rent tax assets ag ainst cur rent tax liabil ities and when they rel ate to i ncome taxes levi ed by t he same taxation authority and the Group i ntends to sett le its current t ax assets an d li abilities on a n et basis. Deferred tax assets and liabil ities are netted only wi thin th e individual companies of the Group. MMK INTEGRATED ANNUAL REPORT 159 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) Deferred incom e tax on po st-acqu isition retained earni ngs of subs idiaries Deferred income tax is provided on post -acqu isiti on retained earnings and other p ost acqu isition movements in r eserves of subsi diaries, except where the G roup co ntrol s th e subsidiary's di vidend policy and i t i s probable that the di fference wil l not reverse through dividends or oth erwise i n the foreseeable future. Uncertain tax po sitions The Group's u ncertain tax posi tions are reassessed by manag ement at the end of each reporting period. Liabili ties are r ecorded for income tax positi ons th at are det ermined by management as more likely than not t o result in additi onal taxes being levied if the posi tions wer e to be cha ll enged by the tax authoriti es. The assessment i s b ased on the in terpretation of tax l aws that have been enacted or substanti vely enacted by the end of the rep orting period, an d any known court or othe r rul ings on such issues. Liabili ties for penalti es, interest and taxes other than on income are recognised based on management's b est esti mate of the expendi ture requi red to settle th e obli gati ons at the end of th e reporting per iod. Ad justments for uncertain income t ax posi tions other than i nterest and fi nes a re recorded wi thin th e income tax charge. Adjustments for income tax related interes t and fi nes are recorded wi thin finan ce costs and other operatin g expenses respecti vely. Property, plant and equipment Manufacturing assets Items of prope rty, plan t and equipment are measured at cost less accumulated depreci ation and impai rment losses. Th e cost of replaci ng part of an item of pr operty, p lant and equipment is recognised i n the c arrying amount of the i tem i f it is probable that the future economi c benefits embodi ed wi thin the part will flow to the G roup an d it s cost can be measured reli ably. The carryi ng amoun t of th e repl aced p art is derecognised. Repair and maintenance e xpenses are charged to the co nsoli dated statement of comprehensi ve income as in curred. Construction i n progress compri ses costs di rectl y related to the constructi on of p rope rty, pl ant and equipment i ncludin g an appropri ate allocati on of di rectly attribu table variabl e over heads th at are incurred in construction. Depreciati on of these assets is recorded on the same basi s as for o ther property assets, and b egi ns wh en i t i s avai l able for us e, i .e. when it is i n th e l ocation and c onditi on necessary for it to b e capabl e of operating in the manner intended by management. At each repo rting d ate management ass esses whethe r there i s any i ndication of i mpai rment of property, pl ant and eq uip ment. If any such i ndication exists, manag ement esti mates the recoverabl e amount, whi ch i s deter mined as the hi gher of an asset's fair v alue less costs of di sposal and its val ue in u se. The carrying am ount is reduc ed to the recov erable amount and the i m pairment loss i s recognised in the profit and loss. An impairment loss recognised for an asset in prior ye ars is reversed if there has be en a change in the estimates used t o determi ne the asset's value in use or fair val ue less costs of di sposal. The gai n or loss ari sing on th e di sposal or reti rement of an i tem of pr operty, p lant and equi pment i s determined as th e difference between the sal es proceeds and the ca rrying amoun t of the ass et and is recognised in th e consolidat ed statement of c omprehensive in com e wi thin "Other ope rating income/(expense) , net ". MMK INTEGRATED ANNUAL REPORT 160 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) Mineral rights Mineral rights are p resented as part of mi nin g asse ts and i nclu de ri ghts fo r evalu ation, exploration and production of mineral resources under the li censes or agreem ents. S uch assets a re ca rried at cost, amortisati on is charged on a straigh t-lin e basi s over the shorter of the vali d period of t he li cense or the agreem ent, or the expected life of mi ne, starti ng from th e date wh en p roducti on acti vities commence. The costs di rectly attri butable to acquisi tion of ri ghts for evalu ation, explorati on and production are capi tali sed as a part of the mi neral ri ghts. If t he res erves related to the mineral rig hts are not economi cally vi able, the carryin g amount of such mi neral ri ghts is writ ten off. Depreciation Land i s not dep reciated. D eprecia ti on of manu facturing asse ts i s com puted u nder the straight -li ne method utili sing useful lives of the assets whi ch are: Buildings 1-50 years Machinery and equipment 1-40 years Transportation equipment 3-20 years Fixtures and fittings 3-30 years Mining assets 17 -31 years The estima ted useful li ves, re sidual values, and d epreciati on method are reviewed at each reporti ng date, with th e effect of any changes i n estima te accounted for on a pr ospective basi s. Leased assets The Group is a party to lea se contracts as a l essee for, among oth ers: a) l and under buil dings and constructi ons, b) building for office space, warehou ses, c) motor vehi cles and mach inery. Leases are recogni zed, measured and p resented i n line with IFRS 16 " Leases". Based on t he accounti ng poli cy appli ed the Group recogniz es a ri ght - of - use as set an d a l ease li ability at the commencem ent dat e of th e contract for all l eases conv eying t he ri ght to control the u se of an identi fied asset for a p eri od of time. The commence ment date i s the d ate on whi ch a l essor makes an underlying asset availabl e for use by a lessee. The right - of -use assets are ini tially measured at cost, whi ch compri ses: the amount of the i niti al measurement of the l ease liabili ty; any lease payments made at or bef ore the c ommencement dat e, less an y lease incenti ves; any ini tial direct costs incurr ed by the lesse e; an esti mate of costs to be i ncurred by the l essee in dismantli ng and removing the underlyi ng assets or restori ng the si te on which the assets are located. After the co mmenceme nt date t he righ t- of -use ass ets are m easured at cost less an y accumul ated depreciati on and an y accumul ated i mpairment l osses and adju sted f or any re - measurement of the lease li ability. If the l ease transfe rs o wnershi p of th e un derlyi ng asset to th e Group by t he end of the l ease term or if the cost of the ri ght - of -u se ass et refl ects th at the Group will exercise a purchas e opti on, th e Group depreciates the righ t- of - use as set from the comm encement date to the end of the useful life o f the underlyi ng asset. Othe rwise, the Group dep reciates the right - of -use a sset fr om the com mencement date to the earli er of the end of the useful li fe of the right - of -use asset or the end of the lease t erm. MMK INTEGRATED ANNUAL REPORT 161 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) The lease li ability i s initiall y measured at the present value of the l ease payments th at are not p aid at that date. Lease payment s i ncluded in measure ment o f l ease l iabili ty of the Group g enerally incl ude only fixed payment s (i nclu ding i n- substance fi xed payments), l ess any lease incenti ves recei vable. The lease li ability excl udes variable el ements which a re not based on an ind ex or rate such as e.g. energy usage. Variable lease payments not i nclu ded in th e i nitial measurement of th e l ease l i ability are recognized di rectly in the profit and l oss. The lease paym ents are di scounted usin g the i nterest rate imp li cit i n the lease, i f that rate c an be determined, or th e g roup's i ncremental borrowi ng rate. Each l ease payment i s al l ocated b etween the liabilit y and finan ce cost . The finan ce cost is charged t o p rofit or l oss over the lease period so as to produce a constant p eriodic rate of i nterest on th e remai ning bal ance of the li abili ty for each p eriod. The right - of -use a sset is depreci ated over the short er of th e asset's u seful li fe and t he lease term on a straight -line basi s. The lease term dete rmined by the Group comprises: non-cancell able period of l ease contracts; periods covered by an option to extend th e l ease i f the lessee i s reas onabl y certai n t o exerci se that opti on; periods covered by an opti on to terminat e t he lease if the lessee is r easonably certai n no t to exercise that opti on. After the commenc ement date the Group m easures the l ease li ability by: increasin g the carrying amoun t to reflect i nterest on the l ease liabili ty; reducing the carryi ng amount to refl ect lease payments mad e; and re-measuri ng the carryi ng amount to refl ect any reassessm ent or lease modi ficati ons. Intangible asset s, excluding goo dwill Intangibl e assets are recorded at cost l ess a ccumul ated amortisation and imp airment l osses. Inta ngible assets p rimaril y represent li censes and vari ous purchas ed software cos ts. Am ortisati on is charged on a straight -line basi s over their estimated use ful lives whi ch are: Licenses 2 -17 years Purchased software 1-20 years Other intangibles 1-20 years Impairment of ta ngible and intangible asse ts, exc luding goodw ill Tangibl e and intan gible assets are r eviewed for i mpai rment whenever events or chang es in circumstances i ndicate that th e carrying amount may n ot be recoverabl e. If any such in dication exists, the reco verable amount of th e asset is esti ma t ed in order to det ermine the extent of the impairment loss (if any). Recoverabl e amount is the higher of fair value less costs of disposal and val ue in use. I n assessing value in use, the estimated future cash flows are discounted to their present value usi ng a pre-tax discount rate that reflects current market assessments of the time value of m oney and the risks specifi c to th e asset. Where it is not possible to estimate the recoverable amount of an i ndivid ual asset, th e Gr oup esti mates the recoverabl e am ount of th e cash -generati ng unit to which the asset b elongs. Wh ere a r easonable and consistent basi s of al locati on can be identi fied, corporate assets are also all ocated to indi vidual cash-gene rating units, or o therwi se they are all ocated to the smal l est group of cash- generati ng uni ts for whi ch a r easonabl e and consistent al locati on basis can be identi fied. MMK INTEGRATED ANNUAL REPORT 162 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherw ise st ated) 4. Signif icant Accounti ng Policies ( conti nued) If the recove rable amou nt of an as set (or ca sh -generati ng unit) i s estimated to b e less than it s carrying amount, t he carrying amount of t he asset ( cash -generatin g uni t) is red uced t o i ts recoverabl e a mount. An i mpairment l oss i s recogni sed immedi ately i n t he consoli dated statem ent of compr ehensive in come. Where an i mpai rment l oss subsequentl y reverses, the carryi ng amount of th e asset ( cash -g enerating unit) is i ncreased to the revised esti mate of i ts recoverable amount, but so that the increased carrying amount does not excee d th e car rying amount t hat would have been determi ned had no impai rment loss been recogni sed for t he asset (cash - generati ng unit ) i n pri or years. A reversal of an impai rment loss is recogni sed immedi ately in the consol idated stat ement of compre hensive in come. Inventories Inventories are stat ed at t he lower of cost and net reali sable val ue. The cost of in ventories i s determined on the w eighted average basi s and i ncludes all costs in brin ging the invent ory to i ts present locati on and conditi on. Cost i ncl udes direct material , l abour and an allocati on of mate rial and manufacturing o verheads. Co sts of producti on in process and finished goods i nclude the purcha se costs o f raw materials and conversi on costs such as direct l abour and an all ocation of fixed and va riabl e producti on overheads. Raw material s are valued at purchas e cost in clusive of freight an d other shippi ng costs. Net reali sable valu e represents the esti mated sell in g pri ce for invent ories less esti mated costs to completi on and selli ng costs. Whe re appr opriate, an al l owance fo r obs olete and sl ow - movin g i nventory is recognised. The impai rment charged to reduce the ca rrying amou nt of inventori es to thei r net realisabl e valu e and an allowance for obsolete and slow -movi ng inventory are inclu ded in consolidated statement of compr ehensive i ncome as cost of sal es. Deferred drifting costs The direct cost s and attri butable overheads of the preparati on of underg round coal reserv es (d riftin g) for pr oduction usi ng advanced mi nin g machi nery are in cluded i n i nventory an d r ecognised as cost of sales on the uni t of produ ction basi s of each coal drift. Value added taxes Output val ue add ed tax rel ated to sales i s pa yabl e to ta x auth oriti es on the earl ier o f (a) coll ection of receivables from customers or (b) delivery of goods or services to cu stomers. Input VAT i s generall y recoverable against output VAT u pon receipt of the VAT i nvoice. The tax aut horiti es permi t the settlement of VAT on a net basi s. VA T re сeivabl e or/and payable bal ance accounted on the Group’s companies i s r ecognised i n t he consoli dated s tatement of fin ancial position on a gross basis and discl osed separately as an ass et and li ability. Assets classified as held for sa le (or disposal group) Non-current assets an d disposal groups (whi ch may i ncl ude both n on -cu rrent and current assets) ar e classifi ed i n th e consol idated statement of financial posi tion as 'asset s h eld for sal e' if t heir c arryin g amount wi ll be reco vered pri nc ipall y through a sale transacti on (i ncluding l oss of c ontrol of a subsi diary holdin g the assets) wit hin twelve months after the reporting period. Assets are reclassi fied when all of the following conditions are met: (a) th e assets are availabl e for i mmedia t e sal e in their present condition; (b) the Group 's management ap proved an d i nitiated an acti ve programme to l ocate a b uyer; (c) the assets are acti vely marketed for sale at a reasonabl e price; (d) the sale is expected withi n one year; and (e) it is unlikely that signi ficant changes to the plan to sell will be made or that the plan will be withdrawn. Non-current assets or disposal g roups cl assifi ed as hel d for sale i n the current p eriod's consol idated statement of fi nancial posi tion are not r eclassi fied or re -presented in th e comparati ve conso lid ated statement of fi nancial position to reflect th e classifi cation at the end of the current p eriod. MMK INTEGRATED ANNUAL REPORT 163 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise stated) 4. Signif icant Accounti ng Policies ( conti nued) A disposal group is a group of as sets (current or non -cur rent) to be di sposed of, by sal e or otherwise, together as a group in a singl e transaction, and liabilities directl y associated with those assets that will be transfe rred i n the transaction. Goodwill i s i ncluded i f th e disposal group includes an operati on wi thin a cash-gene rating u nit to which goodwill has been all ocated on a cquisi tion. Non -current a ssets a re assets that include amount s e xpect ed to be recovered or collected more than twelve months after the reporting period. If reclassifi cation i s requi red, both th e cu rrent an d non -current portions of an ass et are reclassifi ed. Held for sal e di sposal g roups as a whol e are me asured at the l ower of t heir carryi ng amoun t and fair value less costs of d isposal . Held for sal e property, p lant and equipment are not depreci ated or amortised. Re classi fied non -current de ferred taxes are n ot subject to w rite d own t o the lower of thei r carrying amoun t and fair valu e less costs of di sposal. Liabili ties di rectly associated with the disposal group that wi ll be transferred in the d isposal tran saction are reclassifi ed and pr esented separately in the consolidated consolid ated statement of fi nanci al positi on. Financial instru ments - key measureme nt terms Fair value is the price that would be received to sell an asset or p aid to transfer a liabili ty in an orderly transaction betwe en ma rket parti cipants at the measur ement da t e. The best evi dence of fair va lu e i s the price in an active m arket. An active market is one i n whi ch transa cti ons for th e asset or liabi lity take place wi th sufficient frequency and vol ume to provide p ricing in formation on an ongoi ng basi s. Fair value of financial i nstruments traded in an active ma rket i s measured as the product of the quoted price f or the in dividual asset or liabil ity and the number of in struments held by the entit y. Thi s i s the case even i f a mark et's normal dail y t rading volume i s not suffi cient to absorb the qu anti ty held and placin g orders to sell the position i n a single tran saction mi ght affect the quoted pri ce. Valuati on t echniques su ch as discounted cash fl ow models or mod els based on recent arm 's length transactions or consid erati on of finan cial d ata of th e investees ar e used to m easure fai r val ue of c ertain financi al i nstruments for whi ch external market pri cing information is not available. Fair value measurements a re anal ysed by l evel i n the fair val ue hi erarchy as f ollows: (i ) level one are measurements at q uoted prices (unadju sted) i n active markets for i denti cal assets or l i abilities, (ii) level two measu rements are val uations techni ques with all material inputs observabl e for the asset or liabilit y, either directl y (that is, as prices) or indi rectly (that is, deri ved f rom prices), and ( iii ) level three measur ements are valuations n ot based on solely observabl e market data (that i s, the measurement requires signi ficant unobservable inputs). Transfers between l evels of t he fair value hierarchy are deem ed to have occu rred at the end of th e reporti ng period. Refer to Note 31. Transaction cost s a re in cremental costs that are directly attri butable to the acqui sition, i ssue or disposal of a financial instrument. An i ncrement al cost is one that woul d not have been incurred if the transaction h ad not taken place. Transacti on costs i nclude fees an d c ommi ssions pai d t o ag ents (includi ng employees a cting as sel ling agents), advi sors, broke rs and deal ers, levi es by reg ulatory agencies and securi ties exchanges, and transfer taxes and du ties. Tr ansaction costs d o n ot i nclude debt premiu ms or discoun ts, fin ancing costs or i nternal admi nistrative or hol ding costs. Amortised cost ("AC ") is the amount at which the fin ancial instrument was re cognised at i nitial recognition less any princip al repayments, p lus accrued interest, and for financial assets less any al lowance for expected credit l osses ('EC L'). Accru ed interest i ncl udes amortisati on of transacti on costs deferred at initial recognition and of any p remiu m or di scount to t he maturi ty amount using the effective interest method. Accrued i nterest income and a ccru ed i nterest expense, includin g both accrued coupon and a mortised discoun t or prem ium (including fees deferred at o riginati on, i f an y), a re not presented separatel y and ar e in cluded i n the car rying values of the rel ated it ems in the consol idated statement of fi nanci al position. MMK INTEGRATED ANNUAL REPORT 164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) The effective inte rest method is a method of al locatin g i nterest i ncome or i nterest expense over the relevant peri od, so as to achi eve a constant periodi c rat e of int erest (effecti ve interest rate) on the carrying amount. The effective interest rate i s the rate th at exa ctly discounts estimated fut ure cash payments or receipts (excludin g future credi t losses) th rough the expected life of th e financial instrument or a sh orter period, i f appropri ate, to the gross carrying am ount of the fin ancial i nstrument. The effecti ve in terest rate discount s cash flows of vari able i nterest instrument s to the next i nterest reprici ng date, exc ept for the premi um or d iscoun t whi ch reflects the credi t spread over the floating rate specified i n the instrument, or other vari ables that are not r eset to market rat es. Such premi ums or discoun ts are am ortised over th e whole expected life of the i nstrument. The pres ent valu e calcul ation inclu des all fe es p aid or r eceived between parties to the contract that ar e an i ntegral p art of the effective int erest rate. Financial instru ments - initial recognit ion Financi al instrument s at FVTPL are initi ally recorded at fair val ue. All other finan cial i nstruments ar e initiall y recorded at fai r val ue adju sted for tran saction costs. Fai r value at i niti al recogni tio n is best evidenced by the t ransaction price. A gain or l oss on i nitial recogni tion is onl y recorded i f th ere i s a difference between fai r value and transacti on pri ce whi ch can be evidenc ed by other observabl e current market transacti ons i n the sam e i nstrument or b y a val uation technique whos e i npu ts incl ude only data from observable ma rkets. After the i niti al recognition, an ECL al lowance is r ecogni sed for financial assets measur ed at AC and i nvestments i n debt i nstruments measu red at FVOC I, resulti ng in a n immediat e accountin g loss. All purchases and sal es of fi nancial assets that requi re deli very wi thin the time fram e e stabli shed by regulati on or market conventi on ("regular w ay" purchases and sales) a re record ed at t rade dat e, whi ch is the date on whi ch the Group commi ts to deliver a fi nanci al asset. All other purchases are recognised when the enti ty becomes a party to th e contractu al provisi ons of the instrument. The Group uses di scounted cash fl ow val uati on techni ques to determ ine the fair val ue of cu rre ncy swaps, loans to related parties that are n ot traded in an active market. Differences may a rise between the fair value at in itial recogni tion, whi ch is consid ered t o b e the transacti on price, and the amoun t determined at i ni tial recognition using a val u ati on techn ique with level 3 i nputs. If an y di fferences remain after cal ibration of m odel i nputs, such di fferences a re am ortised on a strai ght line basi s over the term of the cur rency swap s, loans to rel ated parti es. Th e di fferences ar e immedi ately recogni sed in profi t or loss if the val uati on uses only level 1 or l evel 2 inp uts. Financial asset s - cla ssification and sub sequent me asurement - me asurement categories The Group classi fies fin ancial assets in the foll owin g measurement categori es: FVTPL, FVOCI a nd AC. The classifi cation and subsequent m easurement of debt finan cial assets depends on: (i ) the Grou p's busin ess model for managi ng the related assets port folio and (ii) the cash flow characte risti cs of the asset. As of 31 Decemb er 2021 and 31 Decemb er 2020 the Group di d not hol d financial assets at FVOCI. Financial asset s - cla ssification and sub sequent me asurement - bu siness mode l The business model reflects how the Group manages the assets in order to generate cash flows - whether the Group's objective is: (i) solely to coll ect the co ntract ual cash fl ows from the assets ("hold to collect contractual cash flows",) or (ii ) to coll ect both the contractual cash fl ow s and the cash flows a risin g from th e s ale of assets ( "hol d to collect contractual cash flows and sell") or, i f neit her of (i) and (ii) is applicable, the financial assets are cl assifi ed as pa rt of "other" business model and measured at FVTPL. MMK INTEGRATED ANNUAL REPORT 16 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) Business model is d etermined for a group o f a ssets ( on a portfol io l evel) based on all rel evant evid ence about the a cti vities th at the G roup un dertakes t o achi eve th e objecti ve set out fo r the portfoli o avail able at the date of the a ssessm ent. Factors c ons idered b y the Group i n determi ning the business model inclu de the p urpose an d comp osition of a portfol io, past experi ence on how the ca sh fl ows for th e respective ass ets were col lected, how ri sks are assess ed and manag ed, how th e assets' perfor mance is assessed and how manag ers are compensat ed. Financial asset s - cla ssification and sub sequent me asurement - ca sh flow char acteristics Where the bu siness model i s to hold assets to collect contra ctual cash flows or to hol d contractual cas h flows and s ell, th e Group as sesses wh ether t he cash fl ows r epresent s olely payments of pri ncipal and interest ("SPP I"). Fin ancial assets with embedded deri vatives ar e consi dered in th eir entirety when determini ng whether their cas h flows are consistent with the SPPI feature. In making th is assessment, the Group c onsiders whether the contractual cash flows are consi stent with a basi c l endi ng arrangement, i.e. in terest in cludes only considerati on for credit ri sk, time value of money, other basi c lendin g risks and profit margi n. Where the c ontractual terms i ntroduc e exp osure to risk or vol atility that is inconsistent wi th a basi c lendin g arrangement, the financi al asset is cl assified and measured at F VTPL. Th e SPPI assess ment is performed on in itial recogni tion of an asset and it is not subsequent ly reassessed. The g roup holds t he t rade receivables with the objective t o collect contractual cash flows and therefore measures th em subsequentl y at amorti sed cost usi ng th e effective i nterest method. D etail s about the Group's imp airment pol icies and the exp ected credit l oss measurement are pr ovided in Note 18. Financial asset s - recl assification Financi al i nstruments are reclassifi ed only when the business model for ma naging the portfoli o as a whole changes. The reclassificati on has a prospective effect and takes place fro m the beginning of the first reporti ng period th at foll ows after the cha nge i n the bu siness m odel . The Group d id n ot chang e its busin ess model during th e current and comp arative peri od and did not make any reclassifi ca ti ons. Financial asset s impairment - cr edit loss allowanc e for ECL The Group a ssesses, on a f orward -looki ng b asis, the ECL for finan cial assets m easured at AC. The Group measures ECL and recogni ses net imp airment losses on financi al assets at each reporti ng date. The measurement of ECL r eflects: (i) an u nbiased and probability weighted amount that i s de termi ned by e valuati ng a range of p ossi ble outc omes, (ii) time val ue of mon ey and (i ii) all r easonabl e and supportable in formation that is avail able without undu e cost and effort at the end of each reporting period about past e vents, current c onditi ons and forecasts of futur e conditi ons. Trade and other rec eivabl es ar e p resented i n the consolid ated statement of financi al positi on net of the allowance fo r ECL. MMK INTEGRATED ANNUAL REPORT 166 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) The Group appli es si mpli fied approach for imp airment of t rade receivabl es. Note 18 provides informati on ab out th e d etails of the ap pli ed app roach an d th e p rovisi on matri x fo r t rade receivabl es. For other financi al assets that are subject to IFRS 9 ECL model the Group appli es a three stage model for impairment, based on changes in credit quality since initial recogniti on. A financi al instrument that is not credit-imp aired on ini tial recogni tion is cl assified i n Stage 1. Fi nancial assets in Stag e 1 have their ECL m easured at an amount equal to the porti on of li fetime ECL that results from d efault events possibl e withi n the next 12 m onths or unti l con tractual maturi ty, if sho rter ("12 Months ECL"). If th e Group identi fies a signi ficant i ncrease in credi t risk ( "SICR") si nce ini tial recogniti on, the asset is transferred to Stag e 2 and i ts ECL i s measur ed bas ed on ECL on a lifeti me basi s, t hat i s, u p until contractual maturity but consideri ng expect ed prepa yments, i f any ("Lifetime ECL"). R efer to Note 28 for a d escripti on of how th e Group det ermines when a SICR has occ urred. If th e Group d etermines that a financial asset is credit -impaired, the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. The Group's defini tion of credit impaired assets and defi nition of default is explai ned in Note 28. N ote 28 provid es i nformation about i nputs, assump tions and esti mation techni ques used i n measuring ECL. Cash and cash equivalents ar e also subject t o the impai rment requirement s of IFRS 9, identifi ed ex pected c redit l oss was not material . Financial asset s - write-off Financi al assets are writ ten-off, i n wh ole or i n part, wh en the Group exhau sted all practical recovery efforts and ha s c oncluded that there is no reasonabl e expectati on of reco very. The w rit e-off represents a derecogniti on event. Indi cators that there is n o reasonabl e expectation of reco very in clude: the counterparty experiences a sig nificant f inanci al difficulty as evidenced by its financial informati on that the Group obtai ns; the counterparty c onsiders bank ruptcy or a fin ancial reorgani sation; there i s advers e change in the paym ent status of the counterpa rty as a result of chang es i n t he national or local economi c conditi ons that impact the counterparty. The Group may w rite- off financi al assets that a re still subject to enforcement activi ty when the Group seeks to r ecover am ounts that are contra ctuall y due, h owever, there is n o reasonabl e expectation of recovery. Financial asset s - der ecognition The Group derecogni ses finan cial assets when ( a) the assets are redeemed or the rig hts to cash flows from the a ssets otherwise expi re or (b) the G roup has transf erred the rights to the c ash flows from the financi al assets or entered into a qual ifyin g pass-th rough arrangemen t whilst (i ) also transfer ring substanti ally all th e risks and rewards of o wnershi p of the assets or (ii ) neither tran sferring nor retaining substantiall y all the risks and r ewards of ownershi p but not retai ning control. Control is retained if the counterparty does not have t he pra cti cal ability to sell the asset in its enti rety to an unrelated thi rd party with out needing to i mpose addi tional restrictions on the sale. Financial asset s - modific ation The Group sometimes renegoti ates o r otherwis e m odifi es the contractual terms of the finan cial assets. The Group assesses whether t he modifi cation of cont ractual cash fl ows is sub stanti al considering, among other, the following factors: any new contractual terms that substan tiall y affect the risk profile of th e ass et ( e.g. pr ofit share or equi ty-based return), signi ficant change in int erest rate, chan ge i n the cur rency den ominati on, new collat eral or credit enhancement that si gnificantl y affects th e credit risk associated wi th the asset or a signi ficant extension of a loan when the borrower i s not in financi al difficulti es. MMK INTEGRATED ANNUAL REPORT 167 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) If the modifi ed terms are substantiall y differe nt, the rights to cash flows fro m the original asset e xpire and the Group derecogni ses the original financial asset and recognises a new asset at i ts fai r val ue. The date of renegotiati on is consi dered to be the date of ini tial recogni tion for subsequent impairment calculati on pu rposes, i ncl uding d etermini ng whether a SICR has occu rred. Th e Group also assesses whether the new l oan or debt instrument meets the SPPI cri terion. Any di fference between t he carrying amount of th e origi nal ass et d erecognised and fai r value of th e new substan tiall y modi fied asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transa ction with owners. In a situation where the renegoti ation was driven by financi a l difficulti es of the co unterpa rty and inabili ty to make th e ori gin ally agreed paym ents, the Group co mpares th e orig inal an d revised expected cash fl ows to assess wh ether the ri sks and rewards of th e asset are substan tiall y different a s a result of the contractual modification. If t he ri sks and rewards do not change, th e modi fied ass et i s not substanti ally different from th e orig inal asset a nd the m odifi cation does n ot result in derecog nition. The Group recalcul ates t he gross car rying amount by discounti ng the modifi ed contractual cash flows by the origi nal effective i nterest rate, and recog nises a modifi cati on gain or loss in profit or loss. Financial liabilities - mea surement c ategories Financi al liabili ties are c lassi fied as subsequent ly m easured at AC, e xc ept for ( i) fi nancial liabiliti es at FVTPL: thi s classi ficati on is app lied t o deri vatives, fi nancial liabil ities held for tradin g (e.g. sho rt positi ons in securities), contin gent consid eration recogn ised by an a cqui rer in a busi ness com bination and other financi al li abilities design ated as such at i niti al recognition an d (i i ) fin ancial guarantee contracts and loan commi tments. As of 31 Dec ember 2021 and 31 Decemb er 2020 t he Group did not h ave fin ancial guarantee contract s and loan commi tments or financi al li abilities at FVTPL. Financial liabilities - derec ognition Financi al liabili ties are derecogni sed when t hey are extingui shed (i .e. wh en th e obli gation specified in the contract is di scharged, cancel led or expi res). An exchange between th e Group and its original lenders of debt instrume nts with substan tially di fferent terms, as well as substant ial modificati ons of th e terms an d c onditi ons of exi stin g fin ancial li abilities, are accoun ted for as an extin guishment of t he origi nal financial liabili ty and th e recogniti on of a new financi al li ability. The terms a re sub stanti ally d ifferent if the discounted present value of the ca sh flows under the n ew terms, i nclu ding any fees pai d ne t of any f ees received an d di scounted usi ng th e o riginal effective interest rat e, is at least 10% di fferent from the di scounted present val ue of t he remai ning cash fl ows of the original finan cial li ability. In add ition, other qual itati ve factors, such as the currency that the i nstrument is denomin ated i n, changes i n the type of in ter est rate, new conversi on feat ures attached to the instrument and chan ge i n l oan covenant s are also consi dered. If an exchan ge of debt instrument s or modifi cation of terms is accounted for as an extinguishment, any costs o r fees incurred are recognised as part of th e g ain or loss on the extingui shment. If th e exchange or modifi cation is not accounted for as an ext inguishm ent, an y co sts or fees incurr ed adj ust the car rying amount of th e liabilit y and are amorti sed over the remain ing term of the modi fied li abi lity. Modifi cations of l iabili ties that do not result in extingui shment are ac counted for as a change i n esti mate using a cum ulative catc h u p method, wi th an y gai n or l oss recognise d i n profi t or loss, u nless t he economic substance of the di fference i n car ryin g values is attribu ted to a capital transacti on with owners. MMK INTEGRATED ANNUAL REPORT 168 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) Offsetting fina ncial instrum ents Financi al asse ts and li abilities are o ffset and the net amount reported in the consoli dated state ment of financi al positi on onl y when there i s a l egally enforceable ri ght t o offset the r ecognised am ounts , and th ere is an i ntenti on to eit her settl e on a net basis, or to reali se the as set and settl e the liability simult aneously. Such a rig ht of set o ff (a) must not be c onting ent on a fut ure event an d (b) m ust b e legally enforceable i n all of the fol lowin g circumsta nces: (i) in the normal course o f busin ess, (ii) in the event of defaul t and (iii ) in the event of insol vency or bankrupt cy. Trade and other receivables Trade an d other recei vables are recogni sed i nitiall y at fai r val ue an d ar e sub sequently carried at AC using the effective interest method. Cash and cash e quivalents Cash and cash equival ents inclu de cash i n hand, deposits held at cal l with ban ks, an d o ther short -term highly liqui d investment s wi th origin al maturiti es of th ree mon ths o r l ess. Cash and cash equival ents are carri ed at AC because: (i) they are hel d fo r coll ection of c ontractual cash fl ows and those cash flows represent SPPI, and (ii) they are n ot designated at FVTPL. Features mandated solel y by legisl ation, such as the bail -in legislati on in certain countries, do not have an imp act on the SPPI test, unless they a re incl uded in contractual terms such t hat the feature woul d appl y even i f the legisl ation is sub sequently changed. Restricted balan ces are excluded from ca sh and cash equi valents for th e purposes of the c onsolidated cash flow stat ement. Bal ances restri cted from bei ng exchanged or used to settle a liabili ty for at least twel ve months aft er the reportin g period ar e in cluded in other non -current assets. Trade and other payables Trade and other payab les are accrued when th e coun terparty perfor ms its oblig ations under th e contract and are recogni sed i nitially at fair value and subsequentl y carried at AC usin g the effective interest method. Borrowings Borrowing s are recogni sed i ni tially at fai r val ue, net o f t ransacti on costs incurred, and a re subs equentl y carried at amorti sed cost usi ng the effective i nterest method. Employee benef it obligations Remuneration to emplo yees i n re spect of services re ndered during the period is recogni sed as an expense in the consolidated statement of comprehensi ve income. Defined contrib ution plans The Group's Ru ssian subsidiaries and t he Pa rent Company are l egal ly obliged to mak e defined contributi ons to the Rus sian Federati on State Pensi on Fund (a de fined contrib uti on plan fin anced on a pay- as -you-go basi s). T he Group's cont ributi ons to the Russian Federation State Pension Fund relati ng to d efined contri bution pl ans are charg ed t o consolid ated statem ent of comprehensi ve i ncome i n th e period to whi ch they relate. In the Ru ssian Fede ration all state soci al contribu tions, i ncluding contribu tions to the Russian Federation State Pension Fund, are collected through social co ntri butions calculated by the application of a r egressive rate of th e annu al gross remun eration of each empl oyee. This rate depends on th e annual gross remun erati on of each employee. The Group's obl igati ons for contributi ons to other defi ned contributi on plans are recogni sed as expense as incurr ed. MMK INTEGRATED ANNUAL REPORT 169 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 4. Signif icant Accounti ng Policies ( conti nued) Defined benef it plans The Group accounts for the cost of defined benefi t plans using the pr ojected unit credit method. Un der this method, the cost of provi ding pensions is cha rged t o the consoli dated statem ent of comprehensi ve income, so as t o at trib ute th e total pension co st o ver the service li ves of employees i n accordance with the bene fit formula of the plan . The Group 's ob ligati on in respect of defi ned retirement benefi t pl ans is cal culated sepa rately fo r each d efined benefi t plan by discount ing the am ounts o f futu re benefi ts that empl oyees have already earned th rough t heir service i n the cu rrent and pri or periods. The di scount rate applied repres ents the yiel d on government bonds that have mat urity dates approxi mating the terms of the Group's obligati ons. The cu rrent service cost of the defi ned b enefit plan , recognised in profi t an d loss i n employee benefi t expense r eflects the i ncrease i n th e defined be nefit obli gation resulting fr om empl oyee service i n th e current year, b enefit chang es, curtai lments and settl ements. Past -service cost s are reco gnised immediat ely in profit and loss. The n et int erest c ost is cal culate d by appl ying the d iscount rate to t he net balan ce of t he defi ned benefit obli gation. This cost is inclu ded in employee be nefi t expense in the profit and loss in the consolidat ed statement of compreh ensive i ncome. Actu arial gains and losses are full y recog n ised i n other comprehensi ve income in the period they occur. Provisions Provisi ons are recogni sed when th e Group h as a present obli gation (l egal or con structive) as a result of a past event, i t i s pr obable that th e Group will b e required to s ettle the obl igation, and a reliabl e estimate can be mad e of the amoun t of the obligat ion. The amount r ecognised as a provisi on is th e best estimate of th e consi deration requi red to set tle the present obl igation at the dat e of consoli dated statement of fi nanci al posi ti on, takin g into acc ount the risks and uncertainti es surrounding the obli gation. Where a provision is measured using the cash flows estimated to s ettle the p resent obli gation, its car rying amount is th e pr esent val ue of t hose cash f lows. When some or all of the e conomi c benefits required to settle a provision are expected to be recovered from a thi rd party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amoun t of the recei vable can be measu red reliabl y. Site restoration pro vision The Group provides for t he costs of restorin g a site where a legal o r constructi ve o bli gation exists. The amount recognized as a provision is t he b est e stimate of th e exp enditu re requi red to settle the present obligati on at the reporting date. The estimated future land restoration costs, di scounted to net present value, are capitali sed i n resp ective i tems of property, plan t an d equi pment an d am ortised over the useful life of the correspondi ng asset. In case at the date w hen the site restorati on obligation ari se no correspondi ng assets exist r elati ve provi sion is i ncluded i n the consoli dated statemen t of comprehensi ve income as other expens es. The Group reviews si te restorati on provi sions at each reporti ng date a nd adj usts them t o refl ect t he current best esti mate. The risks an d uncertai nties that inevitably surround many e vents and circumstances are taken in to account in reachin g the best esti mate o f a p rovisi on. Chan ges i n the measurement of a provi sion that result from chang es in the estimated ti ming or amount of cash outflow, or a change in the di scount rat e, ar e add ed to or d educted from the cost s of the related assets as appropri ate in the curr ent period or wh en th ere a re no r elative assets ar e recogni sed in the consoli dated statement of comp rehensive i ncome as oth er expenses. Provisi ons are discounted to thei r present val ue based on the rate s of government bond s adjusted for the speci fic ri sk which are consistent with the currency and estimated term of the liabil ity. T he unwindi ng of th e obli gation i s in cluded in t he consoli dated statement o f comprehensi ve income as finance costs b efore revi sing the provisi on at year end. MMK INTEGRATED ANNUAL REPORT 170 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unless oth erwise stated) 4. Signif icant Accounti ng Policies ( conti nued) Dividends Dividends an d rel ated taxati on thereon are recognised as a li ability i n the peri od i n which they h ave been declared and become legall y payabl e. The maxi mum dividend payab le is restricted to the t otal accumulat ed retai ned earni ngs of the Parent Company determi ned accordin g to Russian l aw. Segment inform ation Segment rep orting is presented on th e basi s of management's perspecti ve and relates to the parts of the Group that ar e defined as op erating segme nts. Operati ng segments are identi fied on the b asis of internal reports to the Group's chief operating decisi on maker ("COD M"). The Group has identi fied the General Director of th e Par ent Compan y as its CODM and the internal reports used by the top management team to oversee operations and make decisions on allocati ng the resources serve as the basis of informati on presented. Th ese internal reports are prepared on the same basi s as these consolidat ed finan cial statements. Based on t he current management structur e, the G roup has i denti fied th ree reportabl e segment s: Steel (Russi a), Steel (Turkey) and C oal mini ng. 5 . Critical accounting judgeme nts and key so urces of estim ation uncert ainty In t he applicat ion of the Group' s accountin g policies, management is required to make judgements, estimates and assum ptions ab out the carryin g amounts of assets and liabili ties that a re not readil y apparent from other sources. The estimat es and associated assumpti ons are bas ed on hi storical experience and other f actors that are consi dered to be r elevant. As a result of the vol atili ty in the global and Russian fin ancial markets, management 's estima tes may change and r esult i n a signi ficant impact on th e Group. Actual resul ts may differ from th ese estimates. The estimates and underlyin g assumptions are reviewed on an ongoing basi s. Revisions to accounting estimates are recogni sed in the period in which the estimate is revised i f the revision affects only that period or in the per iod of the revision and future periods if the revision affects both current and future periods. Critical judgements in applying acco unting po licies The foll owing are th e cri tical judgments, i ncluding those in volving estimati ons (see below), that the management has mad e i n the process of appl yin g th e Group's a ccounti ng policies and that ha ve th e most signi ficant effect on th e amounts recogni sed i n the consoli dated fin ancial statements and affect the amounts of assets and li abiliti es within the next fina ncial year. Key sources of e stimation unce rtainty The fol lowing are t he k ey as sumpti ons concer ning the futu re, and ot her k ey s ources of esti mati on uncertainty at the end of the reporti ng peri od that affect the a mounts recogni sed i n t he consoli dated financi al statements an d h ave a si gni ficant ri sk of causi ng a material adjustment to th e carryi ng amounts of assets and l i abilities withi n the next finan cial year. Useful econom ic life and residu al value of prop erty, plant and equipment The Group's prope rty, p l an t an d equi pment are depr eciated using th e st raigh t -line method over t heir estimated useful lives whi ch are b ased on ma nagement's busi ness plans and operati onal estimates, related to those a ssets. The factors that coul d affect the esti mation of useful lives and resid ual valu es include the foll owing : changes in asset ut ilisati on rates; changes in mai ntenance technol ogy; changes in regul ations and legisl ation; and MMK INTEGRATED ANNUAL REPORT 171 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 3 1 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 5. Crit ical accounting judgeme nts and key so urces of estim ation uncert ainty (continu ed) unforeseen operati onal issues. Any of the above co uld affect prospe ctive depreci ation of property, p lan t and equi pment and their carrying and residual values. Management p eriodicall y reviews th e approp riateness of a ssets' useful economic l ives. The re view i s based on th e current co ndition of th e assets an d the esti mated peri od duri ng which th e y wil l conti nue to bring economi c benefi ts to the Group. Site restoration pro vision The Group estima tes site restoration provisi on based on ma nagement' s understandi ng of the current legal requirements and internall y g enerated engineerin g esti mates and repr esents man agement's best estimate of the pr esent valu e of the future costs requi red. Future events t hat may affect th e amount required t o settl e an obli gation ar e reflected in the amount of a p rovisi on where th ere is suffici ent objective evidence that they will occur. Signi ficant estimates and assumpt ions ar e made i n d etermini ng the am ount of restoration provisi ons. Th ose esti mates and assumptions deal with uncertainti es such as: requi rements of t he relevant l egal and regul atory framework, th e magni tude of possi ble contami nati on and t he ti ming, extent an d co sts of required restoration activity. These unc ertainti es may result in fut ure a ctual expenditu re di ffering from the amounts currentl y provided. The p rovisi on recogni sed for each site is period ically revi ew ed and updated based on the facts and circumstances avai labl e at th e ti me. Changes to the estima ted fut ure costs fo r op erating sites are recognised i n the consoli dated stat ement of financi al posi tion by ad justing both the restorati on asset if it exists a nd provisi on. Su ch changes give rise t o a cha nge in future dep reciati on and fi nancial charges. For cl osed si tes, changes to esti mated costs are recogni sed i mmedi ately in the consoli dated statement of compr ehensive i ncome. Detail s are disclosed in Note 23. Impairment of a ssets The Group periodi cally eval uates the recovera bility of the ca rrying amount of i ts asset s. Whenev er events or chan ges i n ci rcumstances i ndicate t hat 1) the carryin g amounts of thos e assets ma y not be recoverable, or, 2) impai rment losses previ ously recogni sed, shoul d be reversed, the Group estimates the recoverable amount of the asset. This requires the Group to make judgments regarding long - term forecasts of future revenues and costs related to the assets subject to review. In turn, th ese forecasts are uncertai n in that they re qui re assum ptions about demand for products and futur e market conditions. Si gnificant and unanticipat ed changes to these assumptions and estimates inclu ded within the impai rment reviews c ould resul t in si gnificant l y different resul ts than th ose recorded i n the consolidat ed financial stat ements. Detail s of the assumptions are di sclosed in Note 16. Initial recognitio n of related p arty transac tions In t he normal course of busin ess the Group enters i nto transacti ons w i th it s rel ated parties. IFR S 9 requires i niti al recogni tion of fi nancial instruments based on their fair valu es. Judgement i s appli ed in determini ng if transactions are priced at market or non-market interest rates, where there is no acti ve market fo r such t ransacti ons. The basi s for judg ement i s pri cing for si milar types of transacti ons wi th unrelated parti es and ef fective i nterest rate anal yses. Terms and conditi ons of rel ated party bal ances are discl osed in Note 27. MMK INTEGRATED ANNUAL REPORT 172 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 5. Crit ical accounting judgeme nts and key so urces of estim ation uncert ainty (continu ed) ECL measureme nt Measurement of ECLs i s a signi ficant estima te that i nvolves d eterminati on meth odology, m odels and data inputs. Details of E CL measurement methodol ogy are disclosed in Notes 18 and 28. The following components h ave a major impact on credi t l oss all owance: defi niti on of defaul t, S ICR, probabili ty of default ("PD"), exp osure at default ("EAD"), a nd l oss gi ven d efault ("LGD"). The Group r egul arly reviews and val idates th e models an d input s of the model s to reduce any differences b etween expected credit l oss esti mates and actual credi t loss experi ence. The expected c redit loss all owance for trade receivables i s determi ned acc ording to provisi on matri x based on the number of days that an asset i s past du e. Th e effe ct of adju stments for forward l ooking informati on from the model s of macro-economi c sc enari os do not have signifi cant i mpact on ECL esti mation because perfor mance obligati ons are generally short -term i n nature. Income tax and other taxes The Gr oup i s sub ject to i ncome tax and other taxes in nu merous ju risdi ctions. Si gnifican t j udgement is required i n determining the p rovisi on for in come tax an d other taxes due t o th e complexi ty o f th e tax l egislati on of the Russian Federation and of oth er countries, where the G roup's entiti es operate. There are many transacti ons and calcul ations for which th e u ltima te t ax determinati on is uncertain. The Group recogni ses l iabiliti es for anticip ated tax i nspection i ssues b ased on esti mates of wh ether additi onal taxes will be du e. Wh ere the fi nal tax outcome of th ese ma tters is different from the am ount s that were initi ally re corded, such di fferences will imp act the amount of t ax expense and tax provi sions in the peri od in which such determinati on is made. In addition, the Group records de ferred tax assets at each dat e of the consolidated statement o f financi al positi on based on the am ount t hat management bel ieves i s p robable t o be utili sed in future periods. Thi s determi nati on i s based on e stimates of future p rofitabil ity. A change i n these estimates could resul t in the wri te-off of deferred tax a ssets i n future p eriods for assets that are cu rrently recorded in the c onsolidated statement of financial position. In estimating levels of future profitability, the G roup has consi dered historical results of operati ons in recent y ears and w ould, if nec essary , consider the i mplementat ion of prudent and feasibl e tax pl anni ng strategi es t o gen erate future profitabili ty. Write-off policy Financi al assets are writ ten-off, i n wh ole or i n part, wh en the Group exhau sted all practical recovery efforts an d ha s conclud ed that ther e i s no rea sonabl e expectati on of recovery. Det ermini ng th e cash flows for whi ch t here i s n o rea sonable expectati on of recovery requires ju dgement. Management considered the followi ng i ndicators that there is no reas onable expectati on of recover y: recei vables being past due ov er 360 days, li quidation or ban kruptcy p roceedin gs, fai r val ue of coll ateral is l ess than the costs to rep ossess it or enforcem ent acti vities were completed. Measurement of right- of -us e assets and liabilities Extension and t ermin ation opti ons are in cluded i n a number of prop erty and equi pment l eases across the Group. Th ese terms are us ed to maxi mise operati onal flexibility i n t erms of managi ng contracts. The maj ority of extension an d te rminati on opti ons h eld are exercisabl e o nl y by t he Group and not b y the respective l essor. In determining the l ease term, management considers all facts and circumstances that create an economic i ncentive to exercise an extension op tion, or n ot exercise a t erminat ion opti on. Extension options (or periods after terminati on opti ons) are onl y included in the l ease term if th e lease i s reasonably certain to be extended (or n ot termi nated). The assessment i s reviewed i f a signifi cant event or a sig nificant change i n circumstan ces occurs which affects t his assessment and that is within the control of the l essee. MMK INTEGRATED ANNUAL REPORT 173 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 6. Reven ue By product (including transportation services) 2021 2020 Hot rolled steel 5,497 2,542 Galvanised steel 2,304 1,154 Long steel products 886 601 Galvanised steel with polymeric coating 846 577 Cold rolled steel 820 496 Wire, sling, bracing 237 130 Hardware products 183 132 Tin plated steel 161 119 Band 137 79 Slabs 117 5 Coking production 115 72 Formed section 78 81 Scrap 77 69 Tubes 64 43 Coal 40 21 Others 307 274 Total 11,869 6,395 By customer destination 2021 2020 Russian Federation and the CIS 74% 83% Middle East 11% 7% Europe 7% 3% Asia 4% 5% Africa 2% 2% North America 1% - % South America 1% - % Total 100% 100% By type of performance obligation 2021 2020 Revenue from sales of products – at point in time 11,375 6,073 Revenue from transportation services – over time 494 322 Total 11,869 6,395 7. Segme nt Informatio n An op erating segment i s a c omponent of th e G roup that engages i n business a cti vities from w hich it may earn revenues and i ncur expenses, i ncluding revenu es an d expenses that r elate t o t ransacti ons with any o f the Group's o ther components. IFRS 8 requires op erati ng segments to be identi fied on t he basis of i nternal reports about components of the Group t hat are regularly reviewed b y the chi ef operating decision maker ("CODM") in order to allocate resources to the segments and to assess their performance, and f or whi ch discrete finan cial informati on is avail able. Based on th e current man agement structu re and in ternal reportin g the Group has i dentified the followin g operating segment s: Steel segment (Russia) , which in cludes the Parent Company and i ts subsidiar i es involved in production of steel, wi re an d hardware products. All significant assets, p roducti on and management and admi nistrative facili ties of thi s segment are l ocated in the cities of Magn itogors k and Lysva (Russi an Federati on); Steel segment (Turkey) , which includes MMK Metalu rji i nvolved in producti on of steel. Th e two sites of thi s segment are located i n Iskenderun and Istanbul (Turkey); and MMK INTEGRATED ANNUAL REPORT 174 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unl ess otherwise stated) 7. Segment Inform ation (cont inued) Coal mining segm ent , which in cludes OJSC Belon and LLC MMK Ug ol i nvol ved in minin g and refinin g of coal . All significant assets, p roductio n and ma nagement an d admi nistrati ve faciliti es of this segment a re located in the city of Belovo (R ussian Federati on). The p rofitabili ty of th e t hree operati ng segm ents i s p rimaril y measured by CO DM ba sed on Se gment EBITDA. S egment EBITDA i s det ermined a s seg ment's op erating p rofit ad justed to exclu de d epreci ation and amorti sation exp ense and l oss on di sposal of p roperty, pl ant an d equi pment, and to i ncl ude t he share of result of associates, includin g the impairment of investments in associates. Since this term is not a standard mea sure in IFRS the Gr ou p's defi nition of EBITDA may differ from that of other companies. Inter-segment p ricin g is determined on a consi stent basi s using market benchm arks. The following table presents measures of s egment results for t he years ended 31 D ecember 2021 and 2020: Steel (Russia) Steel (Turkey) Coal mining Elimination s Total 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Revenue (incl uding transportati on revenue) Sales to external customers 10,643 5,855 1,184 518 42 22 - - 11,869 6,395 Inter-segment sales 457 117 - - 403 157 (860) (274) - - Total revenu e 11,100 5,972 1,184 518 445 179 (860) (274) 11,869 6,395 Segment EB ITDA 3,909 1,440 203 34 235 13 (57) 5 4,290 1,492 Depreciation an d amortisation (462) (437) (13) (17) (34) (30) - - (509) (484) Loss on disposal of property, plan t and equipment (27) (65) - - (1) (1) - - (28) (66) Operating pr ofit/(loss) per IFRS fina ncial statements 3,420 938 190 17 200 (18) (57) 5 3,753 942 A reconcili ation from operating pro fit per IFRS fi nanci al statements to profit before taxation is i nclu ded in the consoli dated statement of comp rehensive i ncome. At 31 December 2021 and 2020, th e segments' total assets and li abilities were reconci led to total assets an d li abilities as follows: 31 December 2021 Steel (Russia) Steel (Turkey) Coal mining Eliminations Total Total assets 9,9 30 1,0 38 599 (1,852) 9,715 Total liabiliti es 3,1 28 341 145 (229) 3,385 31 December 2020 Steel (Russia) Steel (Turkey) Coal mining Eliminations Total Total assets 8,2 66 499 400 (1,673) 7,492 Total liabiliti es 2,7 57 95 99 (60) 2,891 MMK INTEGRATED ANNUAL REPORT 175 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 7. Segment Inform ation (cont inued) The segm ental addi tions to propert y, pl ant and equi pment and intan gible assets fo r the y ears end ed 31 December 2021 and 31 Decemb er 2020 were: 2021 2020 Steel (Russia) 1,078 679 Steel (Turkey) 18 5 Coal mining 71 57 Total capital expenditure 1,167 74 1 8. Cost of sales 2021 2020 Raw materials used 5,861 3,422 Payroll and social taxes 643 602 Depreciation of property, plant and equipment 483 459 Other expenses 258 202 7,245 4,685 Changes in work in progress, f inished goods and goods - in -transit (217) 6 Total 7,028 4,691 9. General and admin istrative expense s 2021 2020 Payroll and social taxes 116 103 Taxes other than income tax 29 33 Depreciation and amortisation 25 24 Professional services 24 22 Insurance 3 2 Materials 4 4 Other 22 17 Total 223 20 5 10. SELLIN G AND DISTRI BUTION EXPENSE S 2021 2020 Transportation expenses 579 398 Export duties (Note 30) 218 - Materials 24 16 Payroll and social taxes 15 13 Packing costs 13 37 Advertising expenses 3 2 Depreciation 1 1 Other 24 25 Total 877 49 2 MMK INTEGRATED ANNUAL REPORT 176 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 11. Other ope rating inco me/(expense) , net 2021 2020 Loss on disposal of property, plant and equipment (28) (66) Provision for advances issued (2) - Provision for legal claims (2) (17) Gain on disposal of other assets 25 13 Gain/(loss) on disposal of subsidiaries 3 (3) Insurance compensation of damage 16 9 Other operating gain, net - 1 Total 12 (63) 12. Other ex penses For the years ended 31 December 2021 and 2020, other e xpenses i ncluded US D 45 milli on and US D 58 m illi on, respectivel y, related to social program s and mai ntenance of social assets. 13. Finance Costs 2021 2020 Interest expense on bonds 23 23 Interest expense on provisions 10 13 Interest expense on borrowings 4 1 Expenses related to withholding tax in respect to dividends paid in prior periods and related compensation, net (Note 27) - 6 Other - 1 Total 37 44 14. Foreign exchange ga in/(loss), net 2021 2020 Foreign exchange gain/(loss) from operating activities, net 10 (9) Foreign exchange gain/(loss) from financing activities, net 21 (120) Total 31 (129) 15. Incom e Taxes The Group’s income tax e xpense attribut able to di fferent tax jurisdicti ons fo r the years e nded 31 December 2021 and 2020 was: 2021 2020 Current income tax 787 167 Adjustments recognised in current year relating to prior year current income tax 1 - Deferred income tax expense, net 76 19 Total income tax expense 864 18 6 MMK INTEGRATED ANNUAL REPORT 177 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 15. Income Taxes (co ntinued) The i ncome t ax charge i s different from th at wh ich would be obtai ned by app lying the Ru ssian Federation stat utory income tax rate to p rofit before income t ax. A recon ciliati on between the ex pected and the actual taxation charge i s provided bel ow. 2021 2020 Profit before income tax 3,985 79 0 Theoretical income tax charge 797 158 Adjustments due to: Effect of different tax rates 16 - Expenses not deductible 9 12 Change in unrecognized deferred tax assets (4) (5) Cash equity contribution discount (21) - Adjustments recognised in current year relating to prior year current tax 1 - Effect of Turkish currency depreciation for tax accounting purposes 63 - Unrecognized deferred tax assets as a result of difference between functional and tax accounting currency - 15 Other 3 6 Income tax expense 864 18 6 Deferred in come tax assets and li abiliti es comp rise i ncome ta x effect o f the di fferences a rising between the tax and accoun ting bases of th e foll owing assets and li abiliti es: 31 December 2021 Recognised in profit or loss Effect of translation to presen-tatio n currency 31 December 2020 Property, plant and equipment 14 (1) - 15 Investments 2 - - 2 Unused tax losses 14 (1) - 15 Investment tax credits 1 (3) - 4 Inventories 37 22 - 15 Accounts receivable 7 - - 7 Site restoration provision 21 (6) - 27 Accounts payable 24 - - 24 Deferred tax set off (55) 5 - (60) Deferred income tax assets 65 16 - 49 Property, plant and equipment (448) (73) 2 (377) Right- of -use assets (2) (2) - - Intangible assets (2) - - (2) Investments (3) - - (3) Inventories (48) (11) - (37) Accounts receivable (6) (2) - (4) Loans (1) 1 - (2) Deferred tax set off 55 (5) - 60 Deferred income tax liabilities (455) (92) 2 (365) Net deferred tax liability (390) (76) 2 (316) MMK INTEGRATED ANNUAL REPORT 178 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less oth erwise st ated) 15. Income Taxes (co ntinued) 31 December 2020 Recognised in profit or loss Effect of translation to presen-tation currency 31 December 2019 Property, plant and equipment 15 1 (3) 17 Investments 2 - - 2 Unused tax losses 15 (2) (3) 20 Investment tax credits 4 (1) - 5 Inventories 15 4 (3) 14 Accounts receivable 7 3 - 4 Site restoration provision 27 (12) (8) 47 Accounts payable 24 3 (2) 23 Deferred tax set off (60) 6 11 (77) Deferred income tax assets 49 2 (8) 55 Property, plant and equipment (377) (9) 71 (439) Intangible assets (2) - - (2) Investments (3) (1) - (2) Inventories (37) (10) 3 (30) Accounts receivable (4) 6 3 (13) Loans (2) (1) - (1) Deferred tax set off 60 (6) (11) 77 Deferred income tax liabilities (365) (21) 66 (410) Net deferred tax liability (316) (19) 58 (355) At 31 December 2021 and 2020, the aggregate amount of t emporary di fferences as sociated wi th undi stributed earni ngs of sub sidiari es for which deferred tax liabili ties have not been recogni sed was USD 847 milli on and USD 558 mi lli on, respectively. No l i abilities have been r ecog ni sed i n these consoli dated fi nancial statements i n resp ect of th ese di fferences b ecause th e Group is in a posi tion to control the ti mi ng of the reversal of t he temporary differenc es and it is probabl e t hat such d ifferences will not reverse in the foreseeabl e future. Based upon h istorical taxable i ncome an d pr ojections for future taxab le income ov er the pe riods i n which deferred in come tax as sets are deducti ble, management of the Group b elieves that the Grou p will reali se the benefits of the deductibl e diff erences. All deferred t ax assets have been recogni sed i n 2021. Defe rred tax a ssets o f USD 4 mi lli on have not been recognised in 2020 (whi ch don't i ncl ude relat ed t o tax l osses) because i t is not p robable that future taxable p rofits will be availabl e again st which t he Group can utili se the benefits therefrom. At 31 December 2021 unrecogni sed d eferred tax assets other than related to tax l osses were USD 3 mil lion (31 December 2020: USD 5 8 milli on). Tax losses expi re in the foll owing years: 31 December Year of expiry 2021 2020 Without expiry date 9 9 From 2 to 5 years - 11 9 20 MMK INTEGRATED ANNUAL REPORT 179 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 16. Property, Plant and E quipment Land and buildings Machinery and equipment Trans-port ation equipment Fixtures and fittings Mining assets Construc- ti on - in -progr ess Total Cost At 1 January 2020 3,219 6,574 205 185 109 994 11, 286 Additions 1 184 3 3 - 535 726 Transfers 15 7 339 2 13 - (511) - Site restorati on provision - - - - (1) - (1) Disposals (39) (312) (4) (6) (13) (13) (387) Effect of transla tion to presentation cur rency (425) (910) (28) (30) (18) (165) (1,576) At 31 Decemb er 2020 2,913 5,875 178 165 77 840 10, 048 Additions 2 148 5 1 - 997 1,153 Transfers 84 264 22 15 - (385) - Site restorati on provision - - - - (9) - (9) Disposals (8) (174) (4) (2) - (17) (205) Utilised allowance for impairment losses - - - - - (3) (3) Effect of tran slation to presentation cur rency (14) (30) (1) (1) - (13) (59) At 31 Decemb er 2021 2,977 6,083 200 178 68 1,419 10, 925 Depreciation At 1 January 2020 (1,493) (4,210) (142) (158) (74) (29) (6,106) Charge for the year (84) (367) (14) (10) (2) - (477) Reversal of im pairment - - - - - 3 3 Disposals 16 265 4 6 13 - 304 Effect of tran slation to presentation cur rency 169 541 19 25 11 4 769 At 31 Decemb er 2020 (1,392) (3,771) (133) (137) (52) (22) (5,507) Charge for the year (93) (376) (18) (8) (2) - (497) Reversal/(a ccrual) of impairment 235 15 - - - - 250 Utilised allowance for impairment losses - - - - - 3 3 Disposals 4 146 3 2 - 2 157 Effect of tran slation to presentation cur rency 7 18 1 1 - - 27 At 31 Decemb er 2021 (1,239) (3,968) (147) (142) (54) (17) (5,567) Carrying amo unt At 31 Decemb er 2020 1,521 2,104 45 28 25 818 4,541 At 31 Decemb er 2021 1,738 2,115 53 36 14 1,402 5,358 Carrying amo unt had no impairment taken place At 31 Decemb er 2020 1,895 2,188 46 28 37 840 5,034 At 31 Decemb er 2021 1,877 2,139 54 35 26 1,419 5,550 For the year ended 31 December 2021 and 2020 Gr oup c apit alised b orrowing costs USD 1 milli on an d US D 1 mill ion to property, pl ant and equip ment, respectively. At 31 December 2021 and 2020 th ere is no property, plant and equipment pl edged. Capital commitments are di sclosed in Not e 30. MMK INTEGRATED ANNUAL REPORT 180 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 16. Property, Plant and E quipment (co ntinued) At 31 December 2021 carrying amo unt of the construction in pro gress in cluded impairment provision of US D 17 milli on (31 December 2020: USD 22 mi lli on). During th e year ended 31 Decemb er 2021 the Group u tili zed the provi sion for i mpairment i n t he amount of USD 3 mi lli on. During the year ended 31 D ecember 202 0 managem ent approve d the d ecision to restart the moderni sation proj ect and reversed previousl y recogni sed provisi on on amount of USD 3 mi llion . MMK INTEGRATED ANNUAL REPORT 181 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 16. Property, Plant and E quipment (co ntinued) As of 31 December 2020, the managem ent analysed changes i n the economy, metals industry and the Group's busin ess since 31 Decemb er 2019 an d decided to test non -cu rrent assets for i mpairment for all CGUs of the Group: Steel segment (Russi a), Steel segm ent (Turkey) and Coal mini ng segment. As the result of the i mpairment test no impai rment was identi fied for all CGUs as at 31 Decembe r 2020. In 2021 global recovery of business activity in Russia and several re gions of the worl d from COVID - 19 consequences has continued. An increased demand for metal products again st the backdrop of limited supply was observed at the w orl d markets. As a result, t he prices f or metal pr oducts were steadil y high at the main gl obal markets during the entire year. I n 2021 the Group' s management successfull y launched producti on of hot-rol led steel at metall urgical complex in th e Republ ic of Tur key, wit h pl ans to reach full capacity in 202 2. The Group's manageme nt assessed the abovem entioned circumstances as i ndicators of reversal of the impai rment loss p reviousl y recogni zed in respect of t he cash generati ng uni t (CGU) - St eel s egment (Turkey) - on e of the operati ng segments of the Group. The management prepared calculati on of recoverable value of non -current assets for this operating segment using di scounted cash flows (DCF) model based on value i n u se. As the resul t o f the test t he partial reversal of p reviousl y record ed impai rment for Ste el (Turkey) in th e am ount of USD 250 mill ion was recogni zed as at 31 D ecember 2021. The recoverable was calculat ed using pro jected cash flows for 5 years prepared by an extrapolati on of actual f inan cial data for 9 months 2021 and the management's forecast for 4 quarter 2021 as the base period over the next 5 years, using projected growth rat es. Cash f l ows beyond the five-y ear period were extrapolated bas ed on long -t erm growth rate. The followi ng assumptions were used for the calcul ation of recoverable val ue of non -current assets as at 31 December 2021 for the Steel segment (Turkey) CGU: Sales volume in 2022 is exp ected t o go 83% up vs. 2021, remai ning flat in 2023, 2024, 202 5 and 2026; Average steel products price in 2022 is expected to go 19% down vs. 2 021, 15% down i n 2023, 1% down in 2024, 3% down i n 2025 and 2% u p in 202 6; EBITDA margin in th e terminal period i s projected at 10.9 %; Growth rate beyond five years i s projected at 2.4%; A pre-tax di scount rat e was e stimat ed in US D terms based on th e wei ghted average c ost of capital basis and was 15.47% (p ost-tax rate was 13.1%). The esti mates of fut ure di scounted ca sh flows and th e results of calcul ation of r ecoverable va lue of non-current assets are parti cularl y sensi tive i n the foll owing areas f or the Steel segment (Turkey) CGU: a 10% d ecrease in future pl anned volume of sales w ould l ead to dec reas e of the r eversal amount by USD 75 mil lion; a de crease in aver age steel products price for 1 % woul d lead to d ecrease of t he reversal amount by USD 98 mil lion; a 0.5% increase in the post-tax disc ount rate woul d l ead to decr ease of the reversal amount by US D 37 mill ion; a 0.5% decrease in growth rate beyond five years would lead to d ecrease o f the reversal am ount by USD 14 mil lion. MMK INTEGRATED ANNUAL REPORT 182 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unless oth erwise stated) 17. Inventorie s 31 December 2021 2020 Raw materials 883 661 Finished goods and goods for resale 464 279 Work in progress 227 160 Goods in transit 2 1 Deferred drifting costs 50 48 Total 1,626 1,149 Allowance for obsolete and slow-moving items and write down to net realisable value (20) (21) Total inventories, net 1,606 1,128 The mo vement in the all owance for obs olete an d sl ow -movi ng i tems and write down to n et r eali sable value was as f ollows: 2021 2020 Balance at th e beginning o f the year 21 29 Change in allowance (1) (4) Effect of translation to presentation curren cy - (4) Balance at the end of the year 20 21 18. Trade and Other Receiva bles 31 December 2021 2020 Trade receivables 1,080 528 Other receivables 8 9 Expected credit loss allowance (28) (32) Total financial assets within trade receivables 1,060 505 Advances paid 82 42 Prepaid expenses 28 27 Other receivables 21 32 Total trade and other receivables 1,191 606 Guarantee letters received in re lati on to trade receivabl es that are not impai red amo unted to USD 137 milli on (31 December 2020: USD 119 mi lli on). MMK INTEGRATED ANNUAL REPORT 183 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 18. Trade and Other Rece ivables (continued) The Group appl ies the IFRS 9 simpli fied app roach to mea suring expected credit losses which uses a lifetime expect ed loss al lowance for all trade recei vables. To mea sure the expect ed credit l osses, t rade r eceivabl es have been g rouped b ased on share d credi t risk characteri stics and th e days past d ue. The expected loss rates are based on the payment profil es of custom ers over a p eriod of 36 month before each bal ance sh eet date an d the c orrespondi ng hi storical credit losses experienced within this period. The effect f rom adjustment s to hi storica l los s rat es f or ma croeconomi c factors i s not material because performanc e obli gations are short -term i n natu re. The credit l oss al lowance for trad e receivab les is d etermin ed ac cording to p rovisi on mat rix presented in the tabl e below. The provisi on matrix i s ba sed on the numb er of days that an asset i s past due. 31 December 2021 2020 Gross carrying amount Lifetime ECL Gross carrying amount Lifetime ECL Current 1,036 2 484 1 Less than 30 days overdue 22 - 21 - 30 to 90 days overdue 4 1 2 1 91 to 180 days overdue 3 2 1 1 over 180 days overdue 15 15 20 20 Total financial assets within trade receivables 1,080 - 528 - Expected сredit loss allowance - 20 - 23 Total financial assets within trade receivables (carrying amount) 1,060 - 505 - The foll owin g table explains the chang es i n the credit l oss all owance fo r trad e recei vables under simpli fied ECL model be tween the begin ning and the end of th e annual period: 2021 2020 Balance at the beginning of the year 23 25 Changes in estimates and assumptions - 2 Total credit loss allowance char ge in profit or loss for the period - 2 Expected credit loss utilised (2) (1) Effect of translation to presentation currency (1) (3) Balance at the end of the year 20 23 As a result of th e credi t risk anal ysis for other receivabl es, the total amount of the e stima ted expected credit losses for other financi al receivabl es amounted to USD 8 mill ion as at 31 Decemb er 2021 (USD 9 mi lli on as at 31 December 2020). The am ount of t he provi sion was pri maril y formed i n respe ct of finan cial assets imp aired as a result of defau lt in Phase 3 of the "thr ee- stage" model . The chan ge in th e e stimated EC L on other receivable s in 2021 and 2020 is not mate rial . MMK INTEGRATED ANNUAL REPORT 184 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 19. Investme nts in secu rities and other financial ass ets 31 December 2021 2020 Non-current financial assets Unlisted securities 6 2 Total non-current 6 2 Current financial assets Trading debt securities 7 7 Bank deposits, USD 521 200 Total current 5 28 2 07 Trading debt securi ties are liqui d publicly traded bonds and notes of Ru ssian compani es and banks. They a re r eflected at p eriod -end market val ue ba sed on trade p rices obtain ed from i nvestment b rokers. The expect ed credi t l osses for b ank d eposits balances are n ot mat erial. The anal ys i s of the credit quality of bank d eposits i s as follows: 31 December 2021 2020 ВВB - to ВBВ+ rated 521 200 Total 521 200 20. Cash and Cash Equivalents 31 December 2021 2020 Cash, RUB 1 - Cash in banks, USD 271 255 Cash in banks, RUB 105 44 Cash in banks, EUR 11 8 Cash in banks, others 1 1 Cash in transit, USD - 1 Bank deposits, RUB 125 461 Bank deposits, USD 313 85 Bank deposits, EUR 16 1 Bank deposits, TRY - 2 Total 843 858 The exp ected credit losses for c ash an d cash equi valents b alances are n ot ma terial . Th e an alysis of the credit quali ty of bank bal ances and deposits i s as follows: 31 December 2021 2020 A-to AA+ rated 26 8 ВВB - to ВBВ+ rated 596 575 BB - to BB+ rated 92 215 B- to B+ rated 124 55 Other 5 5 Total 843 858 Based on the credi t rating s of independent rati ng agenci es Standard&Poors an d Fitch rati ngs. MMK INTEGRATED ANNUAL REPORT 185 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 21. Share Capit al Common stock 31 December 2021 2020 Authorised, issued and fully paid common shares with a par value of RUB 1 each (in thousands) 11,174,330 11,174,330 Treasury stock At 31 December 2021 and 31 Decemb er 2020, the Group di d not hol d issued common sh ares of the Parent C ompany as treasury stock. Currency transl ation reserve The curr ency tran slati on reserv e compri ses al l foreign exchange differenc es a risin g from the trans lation of th e cons oli dated fi nancial statements of forei gn op erations an d translati on to presentati on currency. The reserve is deal t with i n accordance with th e accountin g policies set out in Note 4. Shareholders' vot ing rights The shar eholders of ful ly p aid common stock ar e enti tled to one vote p er sha re at the ann ual general shareholders' m eeting of the Parent Compan y. Dividends On 25 D ecember 20 20, the Par ent Company decl ared di vidends of RUB 2.391 (US D 0.032) pe r ordin ary share represent in g total divi dends of USD 357 milli on. In January an d February 2021 divi dends were paid out. On 28 May 20 21, t he Parent Company decl ared d ividends of RUB 0.945 (US D 0.01 3) for t he yea r ended 31 December 20 20 and RUB 1.795 (USD 0.024) for the period ended 31 March 2021 per ordinary share r epresenti ng total di vidends of USD 144 milli on an d USD 27 3 milli on, respecti vely. In Ju ne and July 2021 di vidends were pai d out. On 10 Septemb er 20 21, th e Par ent Compan y declared divid ends of RUB 3.530 (USD 0.048) per or dinary share represe nting total dividends of US D 539 mill ion. In S eptember 2021 di vidends were paid out. On 24 D ecember 20 21, the Par ent Company decl ared di vidends of RUB 2.663 (US D 0.036) pe r ordin ary share rep resentin g total di vidends of USD 406 milli on. In Janu ary 2022 di vidends were parti ally paid out (Note 32). 22. Long-te rm borro wings 31 December 2021 2020 Unsecured listed bonds, USD 479 478 Unsecured loans, EUR 44 70 Unsecured borrowings, RUR 5 - Total 5 28 5 48 Borrowings The Group has vari ous borrowi ng arrangemen ts denomin ated in RUB, USD and EUR wit h various lenders. Those borrowi ngs co nsist of unsec ured l oans an d credi t faci li ties. At 31 D ecember 2021 and 2020, th e total unused element of all credit facilitie s was USD 1,77 1 mill ion an d USD 1,494 milli on, respectively. MMK INTEGRATED ANNUAL REPORT 186 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 22. Long term borrowings (continued) According to the terms of the borrowing s, th e Group i s required to comply with a number o f covenants, i ncludi ng under c ertain fi nancial rati os. The Group was in complian ce wi th covenant s duri ng the reportin g periods and as at 31 December 2021 and 2020. Debt repayment schedule Year ended 31 December 2021 2022 (presented as current portion of long-term borrowings, Note 26) 59 2023 34 2024 475 2025 17 2026 and thereafter 2 Total 587 Year ended 31 December 2020 2021 (presented as current portion of long-term borrowings, Note 26) 60 2022 56 2023 30 2024 451 2025 and thereafter 11 Total 608 Eurobonds On 13 Jun e 2019, the Group issued 5 year USD 500 milli on eurobonds with an annual coupon rate of 4.375% payable semi -annuall y to finan ce its general corporate purposes. The bonds are repayabl e o n 13 Ju ne 2024 . Th e G roup issued bonds th rough a consoli dated structured enti ty MMK International Capital DAC i ncorporated in Irelan d. Thi s ent ity was cons olidated as it was speci ficall y set up for the purposes of the Group, and the Group has exp osure to substan tiall y all the risks and rewards through outstandi ng guarantees of the entit y's obl igati ons. Th e Group g uarante es al l obli gations of t his entity represented by th e bonds issued. MMK INTEGRATED ANNUAL REPORT 187 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 22. Long term borrowings (continued) Net Debt Reconci liation The tabl e be low sets ou t an an alysis of net debt. Net debt reconciliation i s a reconciliati on of th e movements i n th e Group's liabili ties from fin ancing activities net of c ash and cash equi val ents and bank deposits for each of the periods p resented. The items of these liabilit ies are those that are reported as fin ancing in th e consoli dated statement of cash fl ows: Borrowings (Notes 22, 26) Leases Cash and cash equivalents (Note 20) Bank deposits (Note 19) /Interest income Total At 1 January 2020 (860) (10) 1,105 - 23 5 Cash flows, net (43) 4 (20 0) 179 (60) Effect of translation to presentation currency and exchange rate changes (32) - (47) 1 (78) Interest (charge)/income (24) (1) - 20 (5) Change in lease, net - (4) - - (4) At 31 December 2020 (959) (11) 858 200 88 Cash flows, net (5) 5 (4) 296 292 Effect of translation to presentation currency and exchange rate changes 30 2 (11) 1 22 Interest (charge)/income (27) (1) - 23 (5) Change in lease, net - (5) - - (5) Other - - - 1 1 At 31 December 2021 (961) (10) 843 521 39 3 For the pu rposes o f thi s di sclosure i nterest i ncome amounts inclu de interest acc rued on al l bank deposits (Note 19 an d 20). 23. Site restor ation provisio n 2021 2020 Balance at the beginning of the year 136 237 Unwinding of discount rate 8 12 Change in estimates (24) (63) Provision utilised (12) (11) Effect of translation to presentation curren cy - (39) Balance at the end of the year 108 136 Included in the consolidated statement of financial position as: Long-term portion of site restoration provision 96 125 Current portion of site restoration provision 12 11 Total 108 136 According to envi ronmen tal regulati on and Ec ological program approve d by the ma nagement in 2013 the Group recognised a p rovision fo r restorati on of lan d and open pit in Magn itogorsk u p to 20 40. At the mom ent of provi sion recognition there wer e no a ssets i n the consoli dated statement of finan cial positi on related to this provi sion due the open p it was depl eted long years ago. In 20 21 the manag ement reassessed the cost of rest oration of op en p i t due to changes in di scount rate and site restoration expen ses and de creased relati ve pro visi on by U SD 15 million accordingly and recognized it in related line i n consolidated statements of comprehensive income. Provision for restoration and closi ng of mi ne shaft was decreased by USD 9 mill ion due to chang es in discount rate and recognised i n the costs of rel ated assets. MMK INTEGRATED ANNUAL REPORT 188 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 23. Site restor ation provisio n (continue d) In 20 20 management c hanged the restorati on plan for the part of depl eted open p it by appro priate submissi on of techni cal project, a s the r esult, provi sion for r estorati on decreased b y 71 milli on. Due to the i mpl emented chan ges th e Group p lans to complete its r estoration pr ogram for other parts of th e depleted open pit in 2030. Changes i n di scount rate and site restorati on expenses l ed to i ncrease of related provi sion by US D 9 mi lli on. All those changes w ere recogni zed i n relat ed l ine in consolidated statements of comp rehensi ve income. Provisi on for restorati on and closin g of mi ne shaft was dec reased by U SD 1 mill ion due to chan ges i n discount rate and recog ni sed in the costs of relat ed assets. The Group used di scount rate of 8.5% (202 0: 5.9%) t o calculat e p rovisi on. 24. Defined contribution plans Contributi ons to the Ru ssian Federation Stat e Pension Fund amoun ted to USD 130 mi lli on and US D 123 milli on for the years ended 31 D ecember 2021 and 2020, resp ectivel y. 25. Trade and Other Paya bles 31 December 2021 2020 Trade accounts payable 848 620 Dividends payable 413 370 Total financial payables within trad e and other payables 1,261 990 Advances from customers 284 243 Other taxes payable 108 48 Salaries payable 61 55 Claims provision 19 19 Other current liabilities 37 25 Total trade and other payables 1,770 1,380 Performance obligati ons of th e Group a re short -t erm in nature. Consequentl y all advances to customers as of 1 January 2021 a nd 2020 we re recognised in revenue durin g t he year s end ed 31 D ecember 2021 and 2020 resp ectively. The maturity profi le of the Group' s fin ancial payabl es within trade and o ther pa yabl es was as foll ows: 31 December 2021 2020 Due in: 1 month 1,007 823 1-3 months 200 109 3 months to 1 year 54 58 Total 1,261 990 MMK INTEGRATED ANNUAL REPORT 189 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 26. Short-term borrowin gs and current portion of long -te rm borrowings 31 December 2021 2020 Short-term borrowings: Unsecured loans, EUR 204 246 Unsecured loans, RUB - 40 Unsecured borrowings, RUB 6 2 Unsecured loans, USD 164 63 374 3 51 Current portion of long-term borrowings: Unsecured listed bonds, USD 21 21 Unsecured loans, EUR 38 39 59 60 Total 433 4 11 At 31 December 2021 and 2020 short-term l oans were not secured. Short-term bor rowings an d current portion of l ong- term borrowi ngs are repayabl e as foll ows: 31 December 2021 2020 Due in: 1 month 12 9 1-3 months 296 262 3 months to 1 year 125 140 Total 433 411 27. Related P arties Transactions an d balances outstanding with related part ies Transacti ons between the Par ent Co mpany and its subsidiari es, which are r elated parties of the Parent Company, have be en elimi nated on consolid ation and are not di sclosed i n this note. The Group enters into transactions wi th related parties i n t he or din ary cour se o f bu siness for the purchase an d sale of g oods and services and i n relation to th e p rovi sion of fi nancing agreements to and fr om th e Group entities. T ransacti ons with related parties are g enerall y performed on arm's l ength basis. Details of transacti ons with and bal ances b etween the G roup and r elated parties at 31 December 2021 and 2020 and for the years ended 31 D ecember 2021 and 2020 are di scl osed below. In 2020 th e Group recei ved monetary rei mbursement of expenses i ncurred i n Ju ne 2020 rel ated to withhol ding t ax i n respect to divi dends pai d in prior periods i n th e amount of USD 7 mi lli on from the Parent company's maj or sharehol der (Note 13). a) T ransactions w ith associates of the Group 2021 2020 Revenue 9 3 Purchases - 5 Other expenses 4 6 MMK INTEGRATED ANNUAL REPORT 190 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 27. Related Parties (continued ) 31 December Balances outstanding 2021 2020 Trade and other receivables 2 - b) Transactions with oth er related parties 2021 2020 Revenue 1,230 383 Purchases 5 4 Bank charges 1 1 31 December Balances outstanding 2021 2020 Cash and cash equivalents 35 35 Borrowings 6 1 Trade and other receivables 169 106 Other related pa rties in clude enti ties under com mon control with th e Group and compan ies cont rolled by key management p ersonnel of the Group. The amounts outstandi ng are un secured and wi ll be settl ed in cash. Remuneration of the Group’s k ey manage ment personne l Key manag ement personnel include key management o f t he Group and membe rs of the B oard of Directors and receive only short-term employment benefi ts. For th e year s end ed 31 D ecember 2021 an d 20 20, total key management personnel compensati on i ncluded i n general and admi nistrative expenses amounted to USD 12 mill ion and USD 8 milli on, respecti vely, inclu ding social taxes. 28. RISK MAN AGEMENT A CTIVITIES The mai n risks in herent to the Group's operati ons are those r elated to liq uidity risk, credit risk exposures, market movements in in terest rates, equi ty i nvestment prices and fluctu ations in forei gn exchange rates. A desc rip tion of the Group's ri sks an d ass ociated management poli cies i n relation t o these risks are d etailed bel ow. Liquidity risk Liqui dity risk is the risk th at the Group wil l not be abl e to settle all liabili ties as they fall due. The Group 's li quidity positi on i s carefully monitored and manag ed. The Group has i n p lace a d etail ed budgeti ng and cash forecasti ng process t o help ensur e that it has adequat e cash avail able to meet i ts payment obli gations. Presented b elow i s the maturi ty profi le of t he Group's borrowings (the ma turity profil es for fin ancial liabiliti es withi n trade and oth er payabl es are pr esented i n Notes 25) b ased on contractu al undiscounted paym ents, in cluding i nterest: MMK INTEGRATED ANNUAL REPORT 191 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 28. RISK MANAGEME NT ACTIVITIES (co ntinued) 2021 Total Due within one month Due from one to three months Due from three to twelve months Due in one year to later Fixed rate borrowings Principal 722 7 114 94 507 Interest 57 - 1 23 33 77 9 7 11 5 117 54 0 Floating rate borrowings Principal 243 5 181 11 46 Total fixed and floating rate borrowings 1,022 12 29 6 128 58 6 2020 Total Due within one month Due from one to three months Due from three to twelve months Due in one year to later Fixed rate borrowings Principal 902 3 264 111 524 Interest 78 - - 23 55 98 0 3 26 4 134 57 9 Floating rate borrowings Principal 64 6 - 10 48 64 6 - 10 48 Total fixed and floating rate borrowings 1,044 9 26 4 144 62 7 Credit risk Credit ri sk refers to the risk that one part y to a financi al instrument will d efault on i ts contractual obligati ons resulting in a financial loss to the Group. Credi t risk arises from ca sh and cash equi valents and deposits with ban ks as well as credi t expo sures to custom ers an d other counterparti es, i nclu ding outstandi ng uncollaterali sed trade and other rec eivabl es. The Group's maximu m exposure to credi t risk is represented b y the carryin g amoun t of financial assets recorded in the consolidated fin ancial st atements, net of any impai rment l osses. Credit ri sk is th e one of the l argest risks for th e Group's b usiness; ma nagement th erefore ca refully manages i ts exposu re to credit ri sk. Prior to acceptan ce of a new customer, t he Gr oup assesses the customer's credi t quality and defines credit limits. Credit limi ts attributable to customers are regularly reviewed, at a mi ni mum annually. At 31 December 2021 and 2020, th e Grou p assessed credit quality for trade and othe r receivabl es i ncluding trade an d other receivabl es from rel ated parties by type of customers as follows: 31 December 2021 2020 Automobile producers 123 66 Traders 364 180 Tube plants 197 74 Other industries 376 185 Total 1,060 505 MMK INTEGRATED ANNUAL REPORT 192 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 28. RISK MANAGEME NT ACTIVITIES (co ntinued) Expected credit loss (ECL) m easurement ECL is a pr obabili ty-weigh ted estimat e of the present value of futu re cash sh ortfall (i.e., the wei ghted average of credi t losses , with the respe ctive risks of defaul t occurri ng in a gi ven time p eriod u sed as weights). An ECL measurement is determined by evaluatin g a range of p ossibl e out comes. ECL measurement is bas ed on four components used by th e Group: Probabi lity of Defaul t ("PD"), Exposure at Default ("EAD") , Loss Gi ven Default ("LGD") and Discount Rat e. EAD is an esti mate of exposu re at a future d efaul t d ate, taki ng in to ac count expect ed changes in th e exposure after th e reporting per iod. PD is an estimate of th e li kelihood o f default to o ccur over a given time period. LGD is an esti mate of the loss arisi ng on defaul t. It is based on the difference between the c ontractual cash f lows du e and th ose that the l ender w ould expect t o receive, incl uding from any collat eral. The expected losses are discounted to present valu e at the end of the reporting period. The discount rate represents the effective interest rate ("EIR") for the fi na ncial in strument or an approximati on thereof. Expected credi t losses are m odell ed over i nstrument's l ifetime period. Th e l ifeti me period i s equal to the r emaini ng contractual period to maturity of debt instruments, adjusted for expected p repay ments, if any. Management mod els Lifetime ECL, th at is, losses that resul t from al l possibl e default events ove r the remaini ng li fetime period of the financi al instrument. The 12 -m onth E CL, represents a portion of lifetime E CLs th at resul t from default events on a fi na nci al in strument that are p ossibl e withi n 12 months aft er the r eporting period, or remai ning l ifetime period of the finan cial i nstrument i f it is l ess than a year. The ECLs that are esti mated by management for the purposes of these consoli dated financial statements are poi nt - in -time estimates, r ather than through -the-cycl e estimates. The estimates consider forwa rd looking informati on, that is, ECLs refl ect p robabil ity weigh ted development of ke y macroeconomi c variabl es that could have an imp act on credi t ri sk. For purp oses of measu rin g probabili ty of default, the group defines de fault as a si tuation when th e exposure meets one or more of the foll owin g criteria: the customer is mo re than 90 days past du e on i ts contractual payments; internati onal rating agen cies have cl assifi ed the customer in the default rati ng class; the customer meets th e unli keliness- to -pay criteria li sted below: - the cust omer is i nsolvent; - the cust omer is i n breach of finan cial covenants; an d - it i s becoming li kely that the cust omer will enter bankruptcy. For purposes of discl osure, the Group full y aligned the defini tion of default with the defi nition of credit-i mpaired assets . The d efault defini tion stated above i s appl ied to all types of finan cial assets of the Group. An instrument is considered to no longer be in de fault (i.e. to have cu red) when it no l onger meets the default crit eria that was appli cable to the rel evant counterparty. The ass essment whether or not there has been a significant in crease i n credit r isk ("SI CR") since ini tial recognition is performed on an i ndivi dual basis. The criteria used to identify a SICR are monitored and reviewed p eriodi cally for app ropriat eness by the Group's management . Th e p resumpti on, bei ng th at there hav e b een signi ficant i ncreases i n credit risk since i niti al recogni tion when fi nanci al assets a re more than 30 days pa st due, has not b een rebutted. The Group considers a financial in strument to h ave experienced a S ICR when one or mo re of the followin g quantitative, q ualitati ve o r backstop criteria have been met. For t rade and other receivabl es: MMK INTEGRATED ANNUAL REPORT 193 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 28. RISK MANAGEME NT ACTIVITIES (co ntinued) 30 days past due; commencement of l egal proceedi ngs wi th the counterparty in respect of the existi ng debt; Relative threshold: the G roup regularly monitors de btors wit h increased credit risk and, depending on th e a ssessment of m acroeconomi c, i ndustry and other relevant facto rs, c onsiders i f such debtors have a SICR. The level of ECL that is recognised in these consoli dated financial statements dep ends on whether the credit ri sk of the debtor has i ncreased si gnificantly sin ce initial recognitio n. Foreign currency risk Foreign currency risk i s t he risk that th e fin ancial result s of the Gr oup will b e adversel y i mpacted by changes in exchan ge rates to whi ch the Group i s exposed. The objective of t he Group's forei gn exchang e ri sk man agement i s to mi nimise th e vol atili ty of the Group's cash fl ows arising from fluctuations i n foreign exchange rates. Manag ement focuses on assessing the G roup's f uture cash fl ows i n forei gn cur rencies and manag ing th e gaps arisi ng between inflows an d outflows. Currentl y, th e Group do es not use hedgin g in struments t o manage exchang e rate exposures. At 31 December 2021 and 2020, the carrying amounts of the G roup's moneta ry assets and li abilities deno minated i n foreign currenci es other than its functional currency were as fol lows: 31 December 2021 31 December 2020 EUR USD EUR USD Assets Cash and cash equivalents 27 483 7 317 Deposits - 521 - 200 Trade receivables 15 305 12 189 Total assets 42 1,309 19 70 6 Liabilities Trade and other payables (53) (93) (56) (91) Borrowings (290) (501) (361) (501) Total liabilities (343) (594) (417) (592) Total net position (301) 71 5 (398) 11 4 The t able below details the Gr oup's sensitivity to deval uati on of the RUB agai nst USD and EUR b y 10% (2020: 10%), whi ch management believes is an appropriat e me asure in the current market condi tions and whi ch would imp act its operations. EUR impact USD impact 2021 2020 2021 2020 Loss or profit (30) (40) 72 11 Capital (30) (40) 72 11 Interest rate risk Interest rate ri sk arises from the possibil ity that changes i n interest rates wil l affect th e value of financi al instruments. Int erest rate risk is not material for the Group. Equity and debt investment price risk Investment pri ce risk arisi ng from holdi ng equity and debt in vestments i s not material for the Group. MMK INTEGRATED ANNUAL REPORT 194 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unless oth erwise stated) 29. CAPITAL MANAGEMENT The Group manag es its capi tal to ensur e that entiti es in the Group will be abl e to conti nue as a goin g concern whil e maximisin g the return to shareh olders through the optimi sation of debt an d equi ty. As at 31 Decemb er 2021 the capi tal structure of th e Group con sists of d ebt (borrowi ngs and oblig ations under l eases) i n the amount of USD 97 1 mi llion (31 December 202 0: USD 970 mill ion), share capital of USD 38 6 mi llion (31 December 2020: USD 386 milli on) and retained earni ngs of USD 11,281 mi lli on (31 December 2020: USD 9,522 mi lli on). The ma nagement of the G roup reviews the Group's capital structure on an annual basis. As part of thi s review, managem ent co nsiders the cost of capi tal and the risk s associated with each class of ca pital. Based on their r ecomme ndations, the Group bal ances its overall capital structur e throug h th e pa yment of di vidends as well as the i ssue of n ew d ebt o r the r edempti on of exi sting debt. The Group moni tors capital on the basis of the debt- to -equi ty ratio (to be not h igher than 1: 1). Addi tionally, the Gr oup monitors the adequac y of its debt l evel usi ng the net debt to EB ITDA ratio. There were no si gnificant chan ges i n th e Grou p's ap proach to capi tal man agement durin g the y ear ended 31 Decembe r 2021 in comparison to the prior pe riod. 30. Commitment s and conting encies Commitments f or expenditur e In th e course of ca rryi ng out i ts operations and other activiti es th e Group enters i nto various agreements which requi re th e Gro up to invest in or provi de financin g t o speci fic projects or undertakin gs. In th e opini on of th e Gr oup's management, th ese commitments ar e entered int o un der stan dard term s, which are r epresentati ve of each project's feasibi lity and should not resul t in un reasonabl e l osses t o the Group. At 31 December 2021, th e Group had p urchase agreements of ap proximately USD 1,1 37 milli on to acquire p roperty, plant and equi pment (31 December 2020: USD 678 mi lli on). At 31 December 2021, the Group had purchas e agreements of approximatel y USD 3,838 milli on to acquire in fut ure periods through 20 22-2027 coking coal, zinc, i ron ore and natural gas (31 December 2020: USD 3,305 mi lli on). As at 31 Decemb er 2021, future cash out flows of USD 80 mi lli on (undiscounted) to whi ch the Group is potenti ally exposed to duri ng the l and l ease term have n ot b een i ncluded in the lease liabili ty becau se th ey i nclude variable lease payments that are linked t o cadastral val ue (31 December 2020: USD 83 mi lli on). Penalties a re payabl e or receivabl e under th ese ag reements i n certai n circumstan ces and where s upply terms are not adh ered to. Managem ent does no t expect such c onditi ons to resul t in a l oss to the Group. In the p ast, th e Group t ransferred soci al assets to l ocal mu nicip al auth orities. The G r oup 's man agement expects that the Group will contin ue to partl y fund these social operations for the foreseeabl e fut ure. These costs are recognised i n the cons olidated statem ent of compreh ensive i ncome as i ncurred (Note 12). Letters of guara ntee At 31 December 2021 the Group had letters of guarantee obtained fr om banks and given to sup pliers amounted to USD 254 milli on (31 December 2020: USD 207 mi lli on). MMK INTEGRATED ANNUAL REPORT 195 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unless oth erwise stated) 30. Commitments and contingenc ies (conti nued) Russian busines s environment The Russi an Federation displays certai n characteristi cs of an emerging mar ket. Its economy is particularl y sensiti ve to oi l and gas pri ces. The l egal, tax and regul atory frameworks continue to develop and a re subj ect t o f requent changes and va rying interpr etati ons. The Russian economy continu es to be negati vely impacted by ongoing politi cal tensi on in the region and i nternati onal sanctions ag ainst certain Russian compani es an d individ uals. Fi rm oil prices, l ow unempl oyment and rising wages suppo rted a modes t growt h of the economy in 2021. The operati ng environment has a signi ficant impact on the Group's operations an d finan cial position. In Ju ne 2021, the Russian Government approved the introducti on of t emporary combi ned duti es on the e xport of f errous and non-ferrous metals from August 1 to December 31, 2021. The Group applied it's judgement an d considers these duti es as addi tional charge, but not a part of the product p rice. As the customers do not rei mburse these duties to the Group, but rather pay the ag r eed price, the Group decided to account for these expo rt duti es in sellin g expenses, but no t as t he reducti on of revenue (Note 10). From 1 January 2022 a n excise tax on li quid steel has been i ntroduced and th e mineral extract ion tax (MET) was increased. In general, excise tax on l iqui d ste el should be cal culat ed i n relation to the mass of semi-fi nished products obtai ned from liq uid steel as 2.7% of the monthl y average export market price of steel sl abs. Al ong wi th that, if the steel i s smel ted i n open -hea rth, i nducti on an d ( or) electric steelmakin g furnaces a nd i f the share of ferrous s crap i n t he total mass of raw materi als used for the production of liq uid steel is at least 80%, the excise tax should be calculated as 30% of the difference between monthl y average export mar ket p rice of steel billet and average m onthl y market p rice of scarp on the Ru ssian market minus 12.5 thousand rubles an d 50% of t he cost of purchased ferroall oys and all oying elements. MET for i ron ore should be calcul ated on the wei ght o f i ron ore mi ned as 4.8% of th e index SGX TS I Ir on O re CFR Chi na (62% Fe Fines) Index Fu tures/Opti ons multi plied by the ratio of the actual iron content in the ore to th e reference value (62%). MET rate for coki ng coal is set as 1,5% of av erage price of co king coal for related tax period b ased on t he in dex SGX TS I FOB Australi a Premium Coki ng Coal OTC Futures/Opti ons. In th e first hal f of 2 021 Russia's Federal Antimonopoly Service (hereinafter, "FAS") initiated proceeding s i n respect to violati on of anti - mo nopoly legi slation against PAO MMK and other Russi an metals companies operating in the Russian hot-rolled flat steel product market. On 10 February 2022, FAS Commi ssion completed consid eration of an ti -monopol y l egislation vi olati ons and assessed PAO MMK's acti viti es from January 20 21 in the Russi an hot -rol led fl at steel product mark et as vi olati on of Articl e 10.1.1 of the Co mpetiti on Law. At the t ime of i ssuing these fi nancial statements, FAS nei ther issued any order t o PA O MMK for rectifi cation of the vi ol ati on nor initiated an admi nistrati ve offence case. PAO MMK strong ly disagrees wi th the fin al conclusi ons of Russi a's FAS Commi ssion and relat ed decision and wil l defend it s positi on in court wi th regard t o economi c justi fication of their p ricing and MMK's commi tment to f air competi tion pri nciples. Managem ent cannot reli ably estimat e the impact of these proceedi ngs on the financi al statements an d, therefore, does n ot make a p rovisi on for potenti al losses result ing from the deci sion taken by FAS . In 2022 ong oing fore ign politi cal tensi on escalated as a r esult of furthe r devel opments in Ukraine whi ch may hav e negati ve i mpact on commodi ty and fi nancial markets, and increased vol atilit y, parti cularly with regard to f oreign exchange rates and financi al ma rkets. T here is an expectation of furth er sanctions and li mitati ons on business acti vity of compani es operatin g in respecti ve regions, as wel l as consequences on the economy i n general , but the ful l nature and possi ble effects of the se are unknown. Management i s taki ng necessary measures t o ensure sustai nabilit y of the Group's op erations. Howev er, the future effects of th e current economi c sit uation are difficul t to predi ct and management's current expectations and e stimates coul d di ffer from actual results. MMK INTEGRATED ANNUAL REPORT 196 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 30. Commitments and contingenc ies (conti nued) Taxation continge ncies in the Ru ssian Federat ion Russian tax legi slation which was enacted or su bstantivel y enacted at the end of the reporting period, is subject t o va rying in terpretations when being applied to t he transactions and a ctiviti es of the G roup. Consequentl y, tax p ositions tak en by managem ent and the f or mal documentati on supporti ng th e tax positi ons may be chall enged by tax authoriti es. Russian tax administrati on is gradually strengthenin g, inclu ding the fact that th ere is a hi gher ri sk o f review of tax t ransacti ons wi thout a cl ear busin ess purpose or wit h t ax i ncompli ant counterparti es. F iscal periods remain open to review b y the authori ties in respect of t axes for th ree cal endar years precedi ng the year wh en d ecisi ons about the r eview wa s made. Under certai n circumstan ces reviews ma y cover longer p eriods . The Russi an transfer pricin g (TP) legi slation i s gene rally ali gned wi th the int ernational TP p rinciples developed by the Orga ni sation for Economic Coop eration and Devel opment (OECD), al though it has specific features. The TP legisl ation provides for the p ossi bility of additi onal tax assessment for controlled transa ctions (t ransacti ons between rel ated parties and certai n transacti ons between unrelated parties) if such transactions are n ot on an arm's -l ength basis. The Man agement h as impl emented internal controls to compl y with current TP legi slation. Tax l iabiliti es arisi ng from c ontroll ed transacti ons are determi ned ba sed on their actual transacti on prices. It i s possibl e, wi th the evolu tion of the i nterpretation of TP rules, that such p rices cou ld be chall enged. The impact of any such chal lenge cannot be reli ably estima ted; however, it may be signi ficant to the financia l positi on and/or the Group's operati ons. Started 1 Janu ary 2015 the Cont roll ed Foreign Company (CFC) l egisl ation came i nto force i n R ussia n Federation, accordin g to which Ru ssian taxp ayers have to report and pay taxes on retai ned earnings of foreign co mpani es and non-corpo rate structures (including trusts) own ed and controll ed by Russian tax r esidents. CFC i ncome i s subject to a 20% tax rate . The Group's management bel ieves, that the Group's taxati on policy compli es with the Russian CFC legi slation requirements. As Russi an tax l egislation does not provide d efini tive gui dance in certai n areas, th e Group adopts , from time to ti me, int erpretations of such uncertai n area s that reduce the ove rall tax rate of the Group. While ma nagement currentl y estimat es that it is probabl e that the tax p ositions and interpretati ons that it has tak en will be sustain ed, there is a possibl e risk that an outflow of resources will be required should such tax posi tions and int erpretations be chall enged by t he tax auth orities. Th e i mpact of any such challenge cannot be rel iabl y estima ted; however, it may be si gnifi cant to the financial position and/or the ove rall opera tions of the Group. Impact of COVID 19 The 2021 was marked by a global recovery of busi ness activi ty on t he back of th e normalization of th e pandemic sit uation and government stimulu s measures globally. At the same time, the Russian economy al so showed solid perfor man ce, refl ecting favorable marke t condi tions and gover nment measures t o sup port t he economy, which ultimately had a p ositi ve effect on steel demand. MMK Group has a stable fin ancial position and th e lowest debt bu rden among gl obal stee l makers. The Group's manageme nt conti nues to closely monitor the d evelopment of the pandemi c, takin g active measures to minimize respective risks to employe es and to the busin ess as a whole that proved be ing effective for the l ast two years. While the Group has not experi enced a si gnificant negat ive impact of COVID -19 i n 20 21, t here i s still an u ncertainty associated wi th future pandemi c devel opments. The potenti al i mpact of such uncertainty cannot be re liabl y estimated; h owever, it may be signi ficant to t h e financi al posi tion and/or the overall operations of the Group . MMK INTEGRATED ANNUAL REPORT 197 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Dollars, un less otherwise st ated) 31. Fair value of financial instr uments The estima ted fair val ues of certai n finan cial instruments hav e been dete rmined u sing avail able market informati on or oth er v alu ation meth odologies that requi re consid erable judgment i n in terpreting market dat a an d devel oping estimates. Accordi ngly, the esti ma tes ap plied are not necessarily indi cative of the amount s that t he Group co ul d realise in a current market exchange. The use of different assumpti ons and e stimati on methodologi es ma y have a materi al impact o n the estimated fair values. Where i t was avail abl e, management of th e G roup determined fair value of unli sted shares usi ng a valuati on technique that was supported by pub licly avail able market i nformation. The ca rrying amount s of fi nancial instruments su ch as ca sh (L evel 1) and cash equi valents (Level 2 ) , bank d eposits, trad e and other receivabl es, l ease obli gations, short -ter m an d long -term borrowi ngs (except for l i sted bonds), trade an d other payabl es (Level 3 of fair val ue hi erarchy) ar e reaso nabl e approximati on of their fai r values as at 31 Decemb er 2021 and 31 Decembe r 2020. Fai r val ue of the f inanci al assets carried a t amorti zed cost is valued at t he net present val ue of estimated future cash fl ows. The G roup al so c onsid ers liqui dity, credit and ma rket ri sk fact ors, an d adjusts the valu ation model a s deemed n ecessary. The fair valu e of fl oating rate in struments is normal ly approxi mation of their ca rrying amount . Th e estimated fai r valu e of fixed interest rat e in struments is based on esti mated future ca sh fl ows expected to be received discounted at cu rrent i nterest rates for new instrument s wi th si milar cr edit risks and remaini ng maturiti es. Discount rates used depen d on the credi t risk of the counterpa rty. The fai r value of eurobonds i s d etermined on t he basis of mark et value an d rel ates to l evel 1 o f the fair valu e hierarchy. The fol lowing table pr esents the fair valu e of fi nancial instruments carried at FVTPL and eurobond s at the end of rep orting period across the three l evels of the fair valu e hierarchy d efined i n IFRS 13 Fair Value Mea surement , wi th the fai r val ue of each fi nancial in strument catego rised i n i ts entirety based on the lowest level of input that is significant to that fair value management. The levels are defin ed as follows: Level 1 (hig hest level): fair val ues measu red usi ng quoted pr i ces (unadju sted) in active markets for identi cal financial instruments. Level 2: fair val ues measured u sing quoted prices i n acti ve markets f or simil ar finan cial instruments, or using val uation techniq ues in whi ch all signi ficant inputs ar e directl y or in di rectly based on observable market data . Level 3 (lowest l evel): fai r val ues m easured usi ng valu ation techniqu es i n which any si gnifi cant i nput is not based on observable market dat a. Level 1 Level 2 Level 3 Total 31 December 2021 Unlisted equity securities - - 6 6 Trading debt securities 7 - - 7 Total assets 7 - 6 13 Eurobonds 522 - - 522 Total liabilities 522 - - 522 31 December 2020 Unlisted equity securities - - 2 2 Trading debt securities 7 - - 7 Total assets 7 - 2 9 Eurobonds 540 - - 540 Total liabilities 540 - - 540 MMK INTEGRATED ANNUAL REPORT 198 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (In milli ons of U.S. Doll ars, unl ess otherwise stated) 32. Events after the date of consolidated statement of financial pos ition In January 2022, divi dends were p aid in the amount of USD 375 milli on. The di fference wi th the declared amount i s caused by th e change in the exch ange rates. 33. Approv al of the consolidated financial stat ements The consoli dated fi nancial stat ements for the year ended 31 Decembe r 2021 w ere approved by the Group's managem ent and aut horised for issue on 28 February 2022. MMK INTEGRATED ANNUAL REPORT 199 GLOSSARY Units of measu rement CO₂e – Carbon di oxid e equivalent Gcal/t – Gi gacalori es per tonne GJ/t – Gigajoul es per tonne m t – Million ton nes mtpa – Milli on tonnes per ann um p.p. – Percentage p oints t – Tonne (1,000 kg) Abbreviations AGM – Annual General Meeti ng BOF – Basic oxygen furnace BSI – Briti sh Standards Insti tution CAPI – Comprehen sive Ai r Polluti on Index CAPEX – Capi tal expendi ture CHPP – Combi ned heat and power plant COSO ERM – The C ommit tee of Spons orin g Organizations of the Treadway C ommissi on, Enterprise Ri sk Management CRM – Customer R elati onship Management CRU – CRU Group is a business intellig ence company focused on the global minin g, metals and fertilisers ma rkets CUSIP – Commit tee on Uniform Security Id entifi cation Procedures is an i dentificati on nu mber assigned to shares and used to facil itate cl earing and settlement of t rades DRI – Direct-redu ced iron EAF – Electri c arc furnaces EBITDA – Earni ngs Before Interest , Taxe s , Depreci ation and Amortiz ation ESG – Envi ronmental, Soci al and Corporate Governanc e FCF – Free cash fl ow FSU – Former Soviet Uni on GDR – Global depositary recei pts GHG – Greenhous e gas GmbH – Gesel lschaft mit bes chränkter Haftung (German) GRI – Global Reporting Initiative HBI – Hot briq uetted iron HRC – Hot rol led coil IATF – Internati onal Automotive Task Force IEC – Internati onal El ectrotechnical Commission I-REC – Internati onal Renewable Energy Certi ficate Stand ard IRR – Internal Rate of Return ISIN – International Sec uriti es Id entificati on Number i s an internati onal share i dentifi cation code ISO – Internati onal Organi sation for Standardi zation KPI – Key Performanc e Indicators LLC – Limi ted liabili ty company LSE – London Stock Exchange LTI FR – Lost Time Injury Frequenc y Rate LTISR – Lost Ti me Injury Se verity Rate ML – Machi ne Learning MOEX – Moscow Exchange MV – Machine Vi sion MMK INTEGRATED ANNUAL REPORT 200 OHS – Occupat ional Health & Safety OHSAS – Occupati onal Health & Safety Assess ment Series OTIF – On -Ti me In -Full PJSC – Publ ic joint stock compan y PLC – Producti on and logi stics centre R&D – Research and d evelopment RPA – Roboti c process a utomati on SASB – Sustainabil ity Accounti ng Stan dards Board SMEs – Smal l and mediu m enterprises SOC – Securi ty Operations C enter SRM – Suppli er Relati onship Management TCFD – Task Forc e on C limat e-related Fi nancial Di sclosures TSR – Total Shareholder Retu rn UN SDGs – UN Sustai nabl e Development Goal s VR – Virtual Reality WSA – World St eel Associ ation WWF – Worl d Wide Fund for Natu re Industry terms Beneficiati on – crushing and separati ng raw materi als into val uable substances or waste by any of a variety of techn iques. Big Dat a – i s structured and unstructured data a rrivin g at hig h speed and in very l arge vol umes. Blast furnace – a type of metallurgical furnace used for the produ ction of pig iron from iron ore and ferroall oys. CIF ( Cost, Insuranc e an d Freight ) – terms of d elivery, wh ich represents the cha rges paid by a seller to cover the costs, in surance, and freigh t of a buyer's o rd er whil e the cargo is in transi t. Coal concentrate – a product resulting from th e coal beneficiation process, with a high grade of extracted mi neral. Crude steel – steel in its solidifi ed state directly after casting. Thi s is then further processed by ro llin g or other treatment s, which can change i ts properti es. Data s cience – the d omai n of study that d eals wit h vast volu mes of d ata u sing modern tools and techni ques to find un seen patterns, derive meani ngful in formation, and mak e busin ess deci sions. Data science us es compl ex machine learnin g algorithms to bui ld predi ctive models. Fat coal (grade) – grade of coki ng coal with a vol atile content of 30 - 50% . FOB (Free on Board) – terms of d eli very, which represents the seller clears the goods for export and e nsures th ey a re delivered t o and loade d onto t he vessel for transport at th e nam ed port of departure. The buyer ta kes over risk and costs, in cluding i mport cl earance and dut ies, as soon as th e goods are loaded ont o the transport vess el at the port of d epartur e. Internal rate of return (IRR) – th e i nterest rate at whi ch t he net p resen t val ue of al l th e cash flows (both posi tive and negati ve) from a p roject or investm ent equal z ero, i t i s used to evalu ate th e attractiveness of a project or i nvestment . Iron ore – ch emical compounds of i ron wi th other elements. Only ext remely pure (ri ch) i ron - oxygen compounds are used for steel making . Lean iron ore – iron ore, whi ch has an iron cont ent from 20% to 44 %. Long products – i ncl udes bars, rods and structu ral products th at are ‘long’ rather than ‘flat’ . Mill – a complex of equi pment i n which the metal is reshaped wi th the required geometric parameters. Ore mined – ore extracted from the ground for f urther processin g . Pell et – an enri ched for m of i ron ore shaped i nto smal l ball s or pel lets. Pell ets are us ed as raw material in the steel maki ng process. Pig iron – an intermedi ate product o f the metallu rgy in the production of steel which is obtain ed by smelti ng iron ore and pel lets in a bl ast furnace. MMK INTEGRATED ANNUAL REPORT 201 Rebar – a st eel bar or m esh of steel wi res used as a tensi on d evice i n reinforced conc rete an d reinforced masonry structures to strengt hen and ai d the concrete unde r tension . Rich iron ore – iron ore, whi ch has an i ron content of mor e than 44% . Sinter – sinter pl ants agg lomerate iron ore fi nes (dust) wi th other fine materials at hig h temperature, to create a product that can b e used i n a b last furnace. The fi nal product, a si nter, is a small, i rregular nodule of iron mixed wi th small amount s of oth er mi nerals. The process, called sinteri ng, causes th e consti tuent material s to fuse to make a singl e porous mass wi th littl e chan ge i n the chemical properties of the i ngredients. Steel-maki ng charge(s) – the major charge materials of BOF or E AF steelmaki ng are s crap, pig iron, iron ore, p ellets and oth ers. Synthesis gas (syn gas) — a gas mixtu re of predomin antly CO and H 2 . ZH grade coal – g rade of coki ng coal whi ch is mai nly used in th e coke production proces s. MMK INTEGRATED ANNUAL REPORT 202 CONTACTS Investor relations Veronika Kryachko Head of IR Tel: +7 (915) 380 62 66 E-mail: [email protected] MMK Legal Address 93 Kirov Street, Magnitogorsk, Chelyabinsk region, Russian Federation, 455000 Tel: +7 (3519) 24 40 09 Fax: +7 (3519) 24 73 09 Telex: 624117 Contacts for press Irina Melnik Tel: +7 (3519) 24 03 02 E-mail: [email protected] Dmitry Kuchumov Tel: +7 (499) 238 26 13 E-mail: [email protected] ESG Yaroslava Vrubel Head of ESG Tel: +7 (982) 282 96 82 E-mail: [email protected] MMK representative office in Moscow LLC MAGSTORN 8 Malaya Yakimanka Street, Moscow, Russian Federation, 119180 Tel: +7 (499) 238 13 66 Fax: +7 (499) 238 13 33 Information and Public Relations Department Tel: +7 (3519) 24 03 02 Fax: +7 (3519) 24 85 54 E-mail: [email protected] Corporate secretary Victor Sedov Tel: +7 (3519) 24 38 22 E-mail: [email protected] Depositary Citibank N.A. Michael Klochkov Director of Issuer Serv ices Tel: +1 212 816 6622 E-mail: [email protected] Information support center Tel: +7 (3519) 24 23 88 Fax: +7 (3519) 25 33 33 E-mail: [email protected] Shareholders Information Support Centre Tel: +7 (3519) 24 73 88, +7 (3519) 25 45 73 E-mail: [email protected] Auditor OJSC PricewaterhouseCoopers White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047 Tel: +7 (495) 967 60 00 Fax: +7 (495) 967 60 01 Web: https://www.pwc.ru/ Registrar JSC STATUS Ring Park Business Centre, 23 Novokhokhlovskaya Street, Building 1, Moscow, 109052, Russian Federation Tel: +7 (495) 280 04 87 E-mail: [email protected] Magnitogorsk Branch of JSC STATUS: 212 Karla Marksa Avenue, 455008, Magnitogorsk, Russian Federation Tel.: +7 (3519) 25 60 22/25 60 23