Delivering high-quality energy

Vision

Already the largest coal producer in Russia and one of the key heat and electricity suppliers, our aim is to be one of the world’s leading energy companies. We will achieve this by expanding our existing mining, processing and power generating assets, investing in new technologies and continuing to develop our logistics and distribution systems. We also aim to reduce our environmental impact and enhance our positive contribution to the social and economic development of the regions where we operate.


SUEK’s SWOT analysis
Focusing on efficient growth

Strengthening our presence in resilient, high-margin international coal markets will help ensure the long-term sustainability of our business. In Russia, we are focused on unlocking synergies between our coal and energy businesses and the co-generation of heat and electricity in order to remain a cost-efficient and responsible energy producer.

Increasing output of high-CV products at Tugnuisky

Increasing output of high-CV products at Tugnuisky

At the Tugnuisky and Nikolsky open-pit mines, we mine coal with a low nitrogen and sulphur content, which makes it especially attractive for Japanese buyers, given the growing demand for high-CV coal in this premium market.

In 2019 we started the trial operation of a second Tugnuisky WP. New wastewater treatment plans are being built for the mine and the washing plant.

Goals

  • Increase the total capacity of Tugnuisky and Nikolsky to 15.5 Mt by 2023
  • Double the supply of coal from Buryatia to Japan by 2021

Increasing production of high-quality and high-demand coal products

2019 plans

Expanding mines in Buryatia, Khakassia and the Khabarovsk region.

Building a new washing plant at Tugnuisky, increasing the throughput of the Chegdomyn WP.

KPIs

2019 result

We continued to develop our assets in Khakassia (Chernogorsky), Buryatia (Tugnuisky and Nikolsky), Khabarovsk region (Pravoberezhny), which led to a 5% year-on-year increase in production at these open-pit mines. Meanwhile, we used the market downturn to upgrade underground mining equipment, which led to a decrease in underground production, leading to a total 7% hard coal production decrease year-on-year.

SUEK launched a second washing plant at Tugnuisky, bringing the share of washed hard coal to 62%.

2023 plans

Increasing hard coal to
70 %
of total production
Raising the share of washed hard coal to
> 65%
Bringing hard coal production to
> 90 Mt
by developing Pravoberezhny, Chernogorsky, Nikolsky, improving mine efficiency in Kuzbass

Strengthening our presence in premium coal markets

2019 plans

Strengthening our market presence in Japan, South Korea and Southeast Asia’s premium markets.

Growth in the share of direct sales by developing distribution networks in key sales countries.


KPIs

Total international sales, Mt

2019 result

Sales Southeast Asia increased by 4%, driven mainly by growing exports to Vietnam and Hong Kong.

SUEK stepped up sales to other premium markets, including 1.2 Mt supplied to Mexico.

In the Atlantic, despite a general market decline, shipments to the countries of the Mediterranean basin increased by 1% to 6.5 Mt, mainly due to an increase in shipments to Morocco.


2023 plans

Supplying more coal to Japan and South Korea through the promotion of products with a low ash content and higher calorific value.

Increasing deliveries to core markets (Taiwan, Malaysia, Hong Kong, Mexico).

Increasing supplies to new markets (Vietnam, Thailand, Pakistan, the Philippines, Sri Lanka and others) to
10 %
of Asian sales
Increasing sales to Mediterranean countries from 45% to
55%
of sales in the Atlantic region

Consolidating our position in the Russian thermal coal market

2019 plans

Increasing coal production at Borodinsky in the Krasnoyarsk region to meet growing demand from our power plants.


KPIs


2019 result

Domestic coal sales grew by 3% thanks to growth in supplies to SGC’s plants.

To meet this rising demand from our CHPPs, we increased production at Borodinsky by 4% to 22.3 Mt.


2023 plans

Increasing Russian sales to
>65 Mt

Maximising the share of SUEK’s coal supply to our plants


Consolidating our position in the Russian heat and electricity markets

2019 plans

Consolidating our share in the Siberian heat and electricity market through capacity upgrade and potential M&AsM&A — mergers and acquisitions.


KPIs


2019 result

SUEK acquired Reftinskaya GRES and agreed on the purchase of the Krasnoyarskaya GRES-2. This will boost SUEK’s total power generating capacity by 46% to 16 GW, which makes us No. 5 electricity producer in Russia.

The transition of Barnaul to the ‘alternative boiler’ tariff was implemented.


2023 plans

Consolidating Reftinskaya GRES and Krasnoyarskaya GRES-2.

Switching to the ‘alternative boiler’ tariff in and other cities.

Improving operational efficiency and productivity
We always strive to improve operational efficiency and productivity in order to remain competitive in any macroeconomic environment.

Improving the operational efficiency of our coal assets

2019 plans

Continuing to introduce advanced underground mine layouts, increasing the length of longwalls to 350-400 metres.

Optimising the combined operation of excavators and dump trucks to ensure growth in production volumes and investment cost savings.


KPIs


2019 results

Productivity of mining personnel decreased in line with lower production. But we upgraded equipment to improve efficiency in future. At the Kirov mine, we commissioned a 350 m longwall, while another one will be launched in 2020. At the Yalevsky mine, we launched a second longwall 400 m long.

After optimising loads for our excavator and truck units, we reduced the per 1 m3m3 — cubic metre energy consumption by 4%.

SUEK was recertified its compliance with the ISO 50001 Energy Management Systems standards.


2023 plans

Improving labour productivity by refining our incentivisation and training systems, introducing more productive equipment and digital technologies.


Improving the operational efficiency of our energy assets

2019 plans

Optimising the operation of power plants to achieve growth in output and save on investment costs.

Increasing the share of co-generation of heat and electricity to optimise the use of production capacities and fuel consumption.


KPIs


2019 results

We continued the replacement of inefficient old boiler houses and simultaneous reconstruction of 114 kmkm — kilometre of heat networks in Krasnoyarsk, Kemerovo, Barnaul and Novosibirsk.

Projects to upgrade the Tom-Usinskaya GRES, Biyskaya CHPP and Krasnoyarskaya CHPPs 1, 2 and 3 were included in the state DPM-2 programme. This will enable us to replace inefficient boiler houses, increase the share of heat generated in co-generation mode and reduce fuel consumption per unit of energy, as well as supply new customers.


2023 plans

Improving the efficiency of thermal power plants through capacity upgrades.

100%
of heat from co-generation through further replacement of outdated boiler houses in Belovo, Chernogorsk, Krasnoyarsk, Novosibirsk

Developing our railcar fleet

Developing SUEK’s railcar fleet

Developing SUEK’s railcar fleet

In April 2019, SUEK acquired
16,025 higher-capacity railcars
  • 5 years old or younger
  • 32-year service life and a capacity of up to 77 t
  • Lower environmental impact per tonne compared to conventional railcars

This increased SUEK’s fleet under management to 53,350 units. Higher-capacity railcars make up 65% of our managed railcar fleet.

As a result, SUEK has ensured that more than 80% of its railcar needs are covered by its own fleet. The company can minimise its use of third-party railcars and improve the reliability of on-time deliveries to key Asian markets, as well as optimising transportation costs.


2019 plans

Maintaining the share of railcars under management to cover our needs by 80% or more.

Cooperating with Russian Railways to accelerate the turnover of cars on SUEK routes and increase investment in priority coal transportation areas.


KPIs

Railcar fleet under management, units, and coverage of transportation needs

2019 results

SUEK purchased more than 16,000 high-capacity railcars bringing the fleet under management to 53,350 units and covering over 80% of the company’s transportation needs.


2023 plans

Covering
over 80%
of our own transportation needs using railcars under management

Expanding our transhipment capacities

Further developing Vanino Terminal.

Developing Murmansk Commercial Seaport to meet our coal transhipment target of 15.5 Mt and attract third-party cargo, including for the development of the Arctic.

Completing the upgrade of Maly Port to boost its capacity to 4 Mt a year.


KPIs

Transhipment through dedicated ports, Mt and share of volume

2019 results

SUEK increased coal transhipment through its own ports to 82%, thereby minimising the use of third-party ports.

Coal shipment through the Vanino Bulk Terminal reached a record 20.5 Mt, benefiting from the completed upgrade of the port.

Murmansk Commercial Seaport transshipped 16.3 Mt of coal and 1.3 Mt of non-coal products.

In Maly Port to increase transhipment capacity up to 4 Mt of coal a year, we completed dredging of the operational waters and approach canal and restored railways.


2023 plans

Covering
over 80%
transhipment of our coal exports with own ports
Maintaining a robust balance sheet
SUEK’s goal is to maintain profitability by controlling costs, diversifying cash flows and focusing on premium markets.
Project financing development

Project financing development

In June 2019, SUEK signed an agreement with the Japan Bank for International Cooperation (JBIC) to open an export credit line for the purchase of Japanese mining equipment. A loan of up to $50m has been financed by JBIC and commercial banks. The Japanese state export credit agency, NEXI, provides credit insurance to the extent financed by commercial banks. Project financing enables SUEK to diversify borrowed capital sources and cut rates across the Group’s loan portfolio.

Reftinskaya GRES consolidation

Reftinskaya GRES consolidation

In October 2019, SUEK acquired from ENEL one of the largest power plans in Russia, Reftinskaya GRES, located in the Sverdlovsk Region (Urals).

  • Installed capacityInstalled capacity — the amount of energy that a power station is able to produce of 3.8 GW
  • 40% of the total electricity supply to the Sverdlovsk region
  • Equipped with modern filters that capture 99.9% of ash emissions and an online emissions monitoring system
  • 330-metre chimney No. 4 is one of the tallest stacks in the world
    • Audited compliance with ISO 14001:2015 Environmental Management Systems
    • ISO 9001:2015 Quality Management Systems
    • OHSASOHSAS — Occupational Health & Safety Assessment Series 18001:2007 Health and Safety Management Systems.

Sustaining profits despite the cyclical nature of the business

2019 plans

Maintaining profitability through cost control and a focus on premium markets.


KPIs

Revenue, $m
EBITDA, $m

2019 results

Thanks to the contribution from the energy business, SUEK was able to partially offset the impact of a significant decrease in global coal prices on the Group’s revenue.

Cost control and the synergistic effect following the consolidation of the coal and energy businesses helped the company maintain EBITDA at over $2 billion and EBITDA margin at 28%.


2023 plans

Ensuring a stable positive cash flow.



Maintaining a conservative financial policy

2019 plans

Keeping an optimal Net debt / bank EBITDA ratio within the approved KPIKPI — Key performance indicator.


KPIs


2019 results

A year-on-year decrease in EBITDA and a temporary increase in debt as a result of major strategic acquisitions in the non-coal mining sectors (rail cars, power stations) pushed the Net debt / EBITDA ratio up to 3.1x.

The investments planned for 2019 were limited to key projects and the maintenance of our capacities. SUEK’s operating cash flow grew by 7% thanks to our focus on working capital management, which enabled us to maintain our operating cash flow to CAPEX ratio at 2.1x.


2023 plans

Maintaining Net debt / EBITDA ratio at an average of
2.5x x
throughout the cycle

Optimising borrowing costs

2019 plans

Developing a portfolio of financial instruments.


KPIs

Credit ratings

2019 results

We continued to diversify our loan portfolio, in particular involving a large number of international banks in our syndicated loan, enabling us to optimise the rate on this instrument.

In light of the favourable domestic market environment, SUEK placed rouble-denominated bonds and reduced the average funding rate of our overall portfolio.

We also expanded our project financing, and in particular entered into transactions with Japanese state export agencies to finance the acquisition of Japanese mining equipment.

Our credit ratings were confirmed with a stable outlook.


2023 plans

Optimal finance costs

Achieving high safety standards
All of SUEK’s facilities comply with advanced international health and industrial safety standards. Our main goals are to reduce injuries and prevent fatalities.

Digital technology enhances industrial safety

In the reporting year, SUEK carried out pilot tests of a number of digital safety control solutions at its mining, energy and logistics facilities facilities.

Smart helmet

Smart helmet

Equipping a worker’s helmet with digital tools to analyse the location of equipment and people relative to each other, prevent collisions through warning signals, and to urgently call the dispatcher.


Smart bracelet

Smart bracelet

With similar functions also monitors human health status and vital signs.


Video analytics

Video analytics

At our power plans we have launched video control systems for employees working with high voltage, which allow both remote monitoring of employees’ actions and advice from a supervisor. This allows to reduces the possibility of emergency situations.


Georeferencing

Georeferencing

Helps determine the location and control of employees in mines. In 2019, this system was introduced in the logistics segment, which helps determine the location of trackwalkers in remote areas, control their route, call the dispatcher in case of emergency.

Preventing accidents and fatalities

2019 plans

Promoting a culture of health and safety, including zero tolerance for accidents at all of SUEK’s assets.

Investing in the development of monitoring and warning systems.

KPIs

0
collective fatalities

2019 results

There were no collective fatalities in 2019. However, despite our efforts, eight individual fatalities occurred in the company.

Based on a detailed analysis of each case, we identified the root causes of these accidents related to the organisation of work processes, the adequacy of the protective equipment and locks.

The company developed comprehensive measures aimed at preventing similar cases in the future.

A complex of operational remote monitoring and control of the safety of production processes was launched, in which information from all subsystems is consolidated and analyzed using special mathematical algorithms in real time.


2023 plans

0
industrial accidents
0
fatalities

Reducing occupational injuries

2019 plans

Progressive development of monitoring and safety systems at particularly hazardous facilities.

Implementing training programmes for personnel to reduce occupational injuries.


KPIs


2019 results

We continued the development of monitoring and warning systems at our facilities, in particular, designed a remote control system for ensuring industrial safety at open-pit mines and washing plans for subsequent integration with systems in use at our underground mines.

We began the transition of our coal, logistics and energy assets to the new international ISO 45000 Occupational Health and Safety standard.

The Industrial Safety Committee under SUEK’s Management Board, as part of the upgrade of the company’s training base, approved:

  • The upgrade of our training centre at Urgal
  • Further development of the Virtual Mine, with computer simulation of the mining process and equipment

2023 plans

Progressive decline in LTIFR aiming for
0 injuries
Committed to sustainable development
Our goal is to contribute to global energy security through the safe production of coal, heat and electricity, for the benefit of all stakeholders.
Transformation of Rubtsovsk heating system

Transformation of Rubtsovsk heating system

Following the transition of the town of Rubtsovsk to the ‘alternative boiler’ method, SUEK invested about
$ 30 m
in upgrading local heating system.

Results

  • Secure heat supply to >140,000 people
  • 32% fewer breakdowns of heating systems
  • Over 9 km of pipelines upgraded

Better supplies of heat to the regions where we operate

2019 plans

Reducing accidents and minimising interruptions in case of emergencies on heat networks, connecting new facilities to the company’s heat supply system.


KPIs

New facilities connected to SUEK’s heat networks, units
Accident rate across heat networks

2019 results

In 2019, we reconstructed
114 km
of heat networks
and built
55 km
of new pipelines in the cities of operation
In Novosibirsk, where the heat networks
were especially outdated, our investment in the
upgrade of heat networks rose by
2.1
times
506 residential, industrial and social facilities
were connected to our heat networks,
increasing our heat coverage by
2 %

2023 plans

The progressive replacement and upgrade of heat networks and ensuring their trouble-free operation.


Reducing adverse environmental impacts

2019 plans

Implementing environmental programmes, including projects to reduce air and water pollution and enhance waste recycling.

Constructing taller stacks and installing filters to reduce emissions at power plants.

Replacing inefficient boiler facilities with CHPPs.

Dust reduction in ports.

Increasing the share of washed coal to minimise emissions during transportation, transhipment and use of coal.


KPIs

Air emissions from power facilities (CO, NOX, SO2, kg/kWhkWh — kilowatt-hour
Suspended and dissolved solids in wastewater, kgkg — kilogramme per tonne of coal

2019 results

A new 275-metre-tall stack construction was completed at Krasnoyarskaya CHPP-1. In 2020, we plan to reconnect boilers to it and demolish another chimney, which will improve the environmental situation in Krasnoyarsk.

Our CHPPs replaced 3 inefficient old boiler houses.

In the Coal Segment we used less overburden for backfilling in 2019 due to smaller worked out areas for reclamation. Our Novosibirskaya CHPP-1 passed all necessary examinations to use ash and slag materials for the restoration of disturbed land. We expect positive outcome for similar requests from Novosibirsk CHPP-2 and CHPP-3, as well as Biyskaya CHPP in 2020.

We continue to process organic waste, rubber products, polymers, rubbers, oil sludge, bitumen, roofing materials, electronic equipment, used oils, medical, wood and other carbon-containing waste.

At the Murmansk Commercial Seaport, SUEK completed the introduction of a state-of-the art stationary spraying system and installed Phase 2 dust shields. Besides, the port launched an environmental dispatcher’s office.


2023 plans

100 %
share of co-generation in heat production
24 / 7
monitoring of CHPP emissions
0 %
untreated water outflow

Ensuring the sustainability of communities in the regions where we operate

2019 plans

Guaranteeing the development and well-being of our employees.

Delivering a long-term programme for social infrastructure development and support for local communities.

Cooperating with regional and municipal authorities on projects to develop social infrastructure and support educational institutions.


KPIs

Growth points Growth points are organisations set up as a result of social projects aimed at enhancing living standards in a particular district or town (maternity support centre, music workshop, mini-cinema etc.).
Employee turnover

2019 results

The company implemented over 250 social and charitable programmes, with investment amounting to $26m.

They resulted in 84 growth points in regions where SUEK operates.

We were able to keep staff turnover at 14% in the Coal Segment and decrease it by 6 p.p. in the Energy Segment, due to the implementation of an effective personnel strategy.

50 employees in the Kuzbass region improved their housing thanks to SUEK’s housing assistance programme.

As part of the company’s staff development, 34% employees received training / retraining / professional development.


2023 plans

Qualitative growth of the social component, taking into account the created growth points in regions where we operate.

Providing sufficient qualified personnel to implement strategic goals.


Improving corporate procedures

2019 plans

Introducing best practices in the corporate culture.

KPIs

International certificates


2019 results

The compliance of our corporate practices with international standards was confirmed by the following certificates received:

  • ISO 19600:2014 Compliance Management
  • ISO 37001:2016 Anti-Corruption Management

Vladimir Hlavinka and Michael Baumgärtner joined the Board of Directors, after which the share of independent directors reached 50%


2023 plans

Further introduction of best practices to SUEK’s corporate system