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OMKAnnual Report 2020

Annual Report 2020

1.1
About the company

OMK is a Russian manufacturer of high-quality steel products and integrated solutions designed to meet the most exacting consumer specifications in the power, transport, construction, and other industries.

The company is located in the Russian Federation, whose economy and financial markets affect OMK’s operations.

OMK was included in the ESG ranking
of Russian companies in 2020. As of
December 15, 2020, the company was ranked
35th
in the general list and
15th
for community service projects.

1.2
Business map*
*as of April 23, 2021
** ** in 2020 - OMK Train Car Repair Company,
new name since April 2021
***Uncoupling repair sites
1.2
Business map*
*as of April 23, 2021
1.3
Russian market position*
*Estimated | **In the 1520 sector
1st place
Automotive springs
55,9 tons
Pipelines for nuclear and thermal power plants
4,900 tons
Pipeline fittings
15,200 tons
Railway wheels**778units
1.3
Russian market position
2nd place
All tubular goods
1 535 000 tons
Large diameter pipes
389 000 tons
Casing pipes
352 000 tons
1.3
Russian market position
3rd place
Oil and gas pipes
411 000 tons
Steel structures
43,700 tons
Significant share
  • Train car repair and maintenance
  • Pipeline valves in OMK operating segments
  • Water and gas pipes
  • Shaped pipes
  • Boilers and boiler equipment
1.4
Contribution to UN SDGs*
*Sustainable Development Goals (SDGs)
Sustainable Development Goal Task Metrics
4. Quality Education 4.3 GRI 404-1 Average hours of training per year per employee. 62,640 training hours. In 2020, there was a 13% drop in the number of training hours due to restrictions on group sessions during the pandemic.
6. Clean Water and Sanitation 6.3 GRI 303-1 How the organization interacts with water. 5.2 million cubic meters of water, (for production purposes) A 13% drop in water consumption is due to the modernization of technological processes at the Vyksa and Chusovoy plants.
7. Affordable and Clean Energy 7.2 GRI 302-1 Total fuel consumption within the organization from non-renewable sources. 13,800 TJ. In 2020, energy consumption was reduced by 9%.
8. Decent Work and Economic Growth 8.2 GRI 404-2 Type and scope of programs implemented and assistance provided to upgrade employee skills. 1,500 employees underwent the Basic Management Skills program.
10. Reduced Inequalities 10.3 GRI 401-1 Total number and rate of new employee hires during the reporting period. 4,200 employees. A 25% increase in 2020 due to the inclusion of new production sites.
11. Sustainable Cities and Communities 11.6 GRI 306-1 Water discharge by quality and destination. 5,695,000 tons. A 7% decrease in waste generated due to a decrease in production volumes and the sale of foundry sand waste at the plant in Blagoveshchensk as a by-product.
12. Responsible Consumption and Production
13. Climate Action
12.4
13.1
GRI 305-1 Gross direct (Scope 1) GHG emissions in metric tons of CO2 equivalent. 511,000 tons
A 1.5% reduction in greenhouse gas emissions in 2020.
15. Life on Land 15.1 GRI 305-7 Significant air emissions. 7,371,000 tons The 2.4-fold increase in the controlled volume of pollutant emissions is due to the inclusion in the reporting of new plants (a plant in Belgorod and more than 30 depots of a car repair company).

OMK strives to make a
maximum contribution to the 17 United Nations Sustainable Development Goals. The company has selected priority goals on which to focus its corporate social responsibility strategy.

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1.5
Our advantages
  • 6 metallurgical and machine-building plants
  • Train car repair company
  • Metal service and trading network
  • Top 3 in Russia for all major product types
  • 34,000 employees
  • RUB 160 billion – current investment program through 2025
  • OMK corporate university
  • Automated idea management system
  • Powerful engineering and technology centers and an excellent engineering school
  • Career development programs
1.6
Business structure

In 2020, OMK transformed its sales system and standardized the brand platform.

The company's
business model consists
of eight units.

These units develop and promote industry strategies, products, and services for clients, and are responsible for financial performance in the areas assigned to them.

Plants serve as production centers for business units. Their areas of responsibility include production volumes and product quality, efficiency, industrial safety, and production culture.

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1.6
Business structure

OMK TEK / OMK Steel Spectre

Pipe products for companies in the fuel and energy sector, vertically integrated oil companies, and international projects in this field.
  • Thick-Plate Mill 5000 (Mill 5000): production of hot-rolled thick sheet
  • Electrical Welding Pipe Shop No. 4, Vyksa: production of large diameter pipes
  • Pipe Anti-Corrosion Coating Shop
  • Electrical Welding Pipe Shop No. 5, Vyksa: production of casing pipes
  • Electrical Welding Pipe Shop No. 1, Vyksa: casing finishing center and production of tubing
Industrial products, products for the construction sector and other areas of the regional markets for tubular products and flat and long rolled metal products.
  • Casting and rolling mill: production of hot-rolled sheet
  • Electrical Welding Pipe Shop No. 2, Vyksa: production of water and gas pipes and small sections
  • Electrical Welding Pipe Shop No. 3, Vyksa: production of oil and gas pipes and large sections
  • Seamless Pipe Shop, Vyksa (opening in 2022)
  • Almetyevsk Plant: production of oil and gas pipes, water and gas pipes, and shaped pipes
1.6
Business structure

OMK Railway Wheels

The unit works with clients in the field of rolling-stock construction and car services.
  • Wheel Plant, Vyksa: production of railway wheels and wheel centers for freight and passenger trains, including high-speed Lastochka trains, and high-speed trains.
1.6
Business structure

OMK Trubodetal

Products for oil extraction, construction of gas pipelines, oil supply systems, equipping of compressor and power plants.
  • Chelyabinsk plant: production of pipeline fittings, including pipeline nodes, cold and hot bent branches, stamped and welded pipeline parts, bends, T-bends, reducers, ends, and modular equipment.
1.6
Business structure

OMK Armsteel

Products for oil and gas extraction and processing, heat and power engineering, and the chemical industry.
  • Blagoveshchensk plant: production of pipeline valves, including wedge gate valves, spring-loaded safety relief valves, rotary check valves, changeover valves, safety relief valve assemblies, wellhead and shutoff valves, etc.
1.6
Business structure
* as of April 23, 2021

OMK Steel Way

The unit is expanding its train car service for owners of rolling stock and operates 37 depots in 26* regions of Russia.
  • Depot repair, overhaul, and maintenance of railway cars, refurbishment and maintenance of rolling stock.
1.6
Business structure

OMK Auto

The unit provides springs and other components for Russian and foreign freight vehicles.
  • Chusovoy plant: production of automotive springs, including multi-leaf and parabolic springs using the latest designs, and half-springs for air suspension, over 1,500 standard sizes.
1.6
Business structure

OMK Energomash

The unit works with clients in the nuclear industry, steel construction, and thermal power engineering.
  • Belgorod plant: production of pipeline fittings, pipes, bellows expansion joints, building metal structures, equipment for boiler rooms.
1.7
Geographical reach

Most of OMK’s products are sold in Russia, but the company is active in the international market.

In 2020, deliveries were made
to more than 30 countries.

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Azerbaijan
Netherlands
Armenia
Norway
Belarus
Poland
Bulgaria
Romania
Bosnia and Herzegovina
Serbia
UK
Slovakia
Germany
USA
Egypt
Tajikistan
Turkmenistan
Spain
Uzbekistan
Italy
Ukraine
Kazakhstan
Finland
Kyrgyzstan
France
Latvia
Czech Republic
Lithuania
Switzerland
Moldova
Estonia
1.8
Results in 2020*
* hereinafter in section 1.8 - in comparison to 2019 results

Financials, production and services Revenue

Tubular products
1 535 th. tons
-9* %
Rolled products (rolls and sheets)
1 250 th. tons
+3 %
Large diameter pipes
389 th. tons
-35 %
Railway wheels
778 th. tons
-18 %
Small and medium diameter pipes
1 146 th. tons
+4 %
Pipeline fittings
15,2 th. tons
+8 %
Wide sheets
414 th. tons
-35 %
Pipeline valves
5,2 th. tons
-5 %
Revenue169,7billion rubles +1%
EBITDA39,3billion rubles =
1.8
Results in 2020

Production and services

Automotive springs
55,9 th. tons
+15 %
Pipelines for nuclear and thermal power plants
4,9 th. tons
+29 %
Wheelset repair – local repair
191,0 th. pcs
+6 %
Steel structures
43,7 th. tons
-7 %
Depot repair and overhaul of train cars
65,4 th. pcs
-3 %
Boiler equipment
5,6 th. tons
+55 %
Train car maintenance
48,9 th. pcs
+1 %
Automotive springs55,9th. tons +15%
1.8
Results in 2020

Social
responsibility*

* special marks indicating social responsibility goals
Investments in labor protection, billion rubles
1,05
Lost Time Injury Frequency Rate (LTI FR)
0,79
+0,07 п.
Social and charitable assistance, billion rubles
1
Current investment in environmental protection, billion rubles
1,54
1.9
Message

A message from
the Chair of the
Board of Directors

Dear colleagues and partners,

It is my pleasure to present to you our OMK Integrated Performance Report for 2020.

Business in our clients’ interests

Last year was unlike any other, with upheavals not previously encountered by humanity in the 21st century. The pandemic has seen global gross domestic product shrink by a record 4.4%, with the world economy set to lose USD 28 trillion over the next five years. Meanwhile, restrictions resulted in a 3% shrinkage of Russian GDP over the course of the year. These factors have had a negative impact on virtually all economic sectors, from retail to manufacturing, with the steel industry also affected.

Despite the difficulties of 2020, I believe the OMK team has risen successfully to the challenges that have emerged, and would like to thank each and every employee for their contribution to our common cause. Together, we have made great efforts to maintain business continuity, while continuing to improve

performance, enhance our working culture, and ensure that new assets are able to adapt to our company structure. I am pleased to say that our team has responded to all the challenges that the year has thrown up, and has achieved significant outcomes in the process.

I would like to highlight several strategically important successes achieved by OMK over the course of the year. We have transformed our overall company structure in accordance with our sectoral business model, assigning plants the role of production centers. This has been done in the interests of our clients. OMK offers unique solutions and high-quality products in line with the most stringent standards, together with consistently great customer service, a more tailored approach, convenience, and speed.

As a result of recent agreements, we have acquired new assets (a train car repair network in 2019 and a facility in Belgorod in 2020), in doing so obtaining access to high-potential market segments. In Vyksa we have commissioned a new pipe shop, supplementing our product line. This has enabled us to expand the range of goods and services available to our customers and position ourselves ahead of the curve in terms of satisfying growing demand from Russian oil and gas companies for sophisticated pipe solutions. We have set up our own sales network,

Anatoly Sedykh
Chair of the Board of Directors
«Despite the difficulties of 2020, I believe the OMK team has risen successfully to the challenges that have emerged».
1.9
Обращение

with warehouses in the Central, Volga, and Ural Federal Districts. As a result, pipe sales on the regional market were up 10% last year.

We doubled down on our efforts to improve efficiency, with Vyksa Steel Works attaining the highest rating for production system development in the global metals industry following an audit by Toyota Engineering Corporation. High ratings were also awarded to three of our other facilities, clearly identifying OMK as a world leader in efficiency.

Safety and wellbeing

One of our highest priorities in 2020 was safeguarding the health of our employees, their families, and the people living in the regions where OMK operates. As a systemically important Russian company, OMK has done everything in its power to prevent the spread of coronavirus, preserve jobs, and support our employees, including by transitioning several thousand staff to remote work.

In addition, we have provided assistance to medical institutions, donated RUB 150 million to hospitals and regional populations, supplied 55 much-needed ventilators, and provided doctors with personal protective equipment.

OMK’s performance during the pandemic has been recognized as the best in Russia, demonstrating our high level of corporate social responsibility. We are also continuing to invest in our employees, in safety at our plants, and in important community and environmental projects. We are engaged in charitable initiatives and support the development of culture and education.

Investing in the future

The next OMK Annual Report will be published in May 2021. While the world continues to live with the pandemic, the economy is slowly beginning to recover. But we anticipate that the demand for tubular goods, which is of key importance for OMK, and which has fallen in recent years, is unlikely to recover soon. Nonetheless, we intend to strengthen our presence on the market, and to this end, we have embarked on a record investment program. OMK plans to invest RUB 160 billion in business development, and as early as next year will be opening yet another innovative shop and launching the production of seamless pipes, together with a number of other important projects which will ensure OMK’s stability and sustainability, and cement our status as a leader in the domestic steelmaking market.

«OMK’s performance during the pandemic has been recognized as the best in Russia».
1.10
Message

A message
from
the CEO

Dear friends,

2020 was a difficult year for the steel industry. Falling demand and unpredictability thrown up by the pandemic have had a negative impact on OMK’s capacity utilization. Nevertheless, we have done everything within our power to retain our leading positions across all our business segments.

Operating results

The domestic market for one of our most important products, large diameter pipes, shrank by approximately a third. This anticipated contraction was caused by the completing cycles of major investors Gazprom and Transneft. Accordingly, production at Trubodetal also fell to its lowest level since 2005.

The performance of other product ranges was more positive, with the fall in demand for these lower than anticipated. OMK even produced more small and medium diameter pipes than it did in the preceding year (a 3% increase). The figures for oil and gas pipes and shaped pipes were excellent

(+11% and +13% respectively). In addition, capacity utilization also increased at our Casting and Rolling Complex, which provides Vyksa Steel Works with high-quality steel sheet. Overall, tubular goods production fell by 10%. In 2021 we will be able to improve these figures by continuing to expand both our product range and our sales network.

While, in 2019, OMK produced railway wheels at maximum capacity, in 2020 the capacity utilization for wheel-rolling production fell as a result of surplus capacity and market specifics, with a year of high demand followed by several years of falling demand.

We put the period of forced downtime to effective use, upgrading our equipment and developing a new product: wheels for high-speed trains. The annual results for train car repair show that the 2019 and 2020 figures for OMK Steel Way are comparable in a range of areas.

In the pipeline fittings segment we succeeded in growing production by 8%, and over the course of the year we also acquired and launched a unique product: technical modules for Russia’s first next-generation gas distribution station, Progress, a separator and slug catcher for cleaning gas in pipelines, thermocases, and equipment for nuclear power stations. OMK also increased

1.10
Message

its automotive spring production capacity by 15%. Chusovoy Steel Works expanded its product line, began to deliver orders to major new clients, and opened its own springs sales divisions in dozens of regions across Russia.

In this annual report we have provided the first performance overview of our new asset, OMK’s Belgorod Plant, which produces a unique product: pipelines for nuclear and thermal power plants, boiler equipment, and bellows compensators. The plant is also one of Russia’s key producers of metal structures, and has been involved in some of the nation’s most complex infrastructure projects, including as a supplier during the construction of Sochi Olympic Stadium, Vnukovo and Gelendzhik Airports, a football stadium, and the Lakhta Center skyscraper in St Petersburg.

Safety is our priority

Despite a significant improvement in the workplace injury rate at OMK’s Almetyevsk, Blagoveshchenk, Chelyabinsk, and Chusovoy plants, a deterioration at Vyksa Steel Works (with the pandemic causing the temporary suspension of incredibly important safety monitoring procedures, including rounds by

management teams, shift meetings, and audits) had a negative impact on OMK’s overall performance in this area, with the annual LTI FR indicator up to 0.79 from 0.72 the previous year. It should nonetheless be noted that this remains one of the best results in the Russian steel industry. The company is investing in safety at its production sites and is committed to achieving its strategic goal of zero workplace injuries.

Growth and prosperity

Although we achieved a great deal in 2020, intensifying competition and other external challenges mean that there is much more still to do. OMK is continuing to pursue its strategic goals. We are improving our customer experience and getting closer to our consumers in every sense, developing new, sought-after products, optimizing logistics, improving production efficiency, and ensuring the safety of our employees and the prosperity of the regions where our plants operate.

I would like to thank the OMK team for their hard work in 2020 and wish them even greater success in the future.

«Although we achieved a great deal in 2020, intensifying competition and other external challenges mean that there is much more still to do».
1.11
Initiatives against the aftermath of the pandemic

OMK’s help to people during the pandemic
in 2020 was recognized as the best in Russia.

On January 31, 2020, the first cases of coronavirus infection were officially recorded in Russia. Then, in February-March, with an increase in the number of cases in the country, strict restrictions were introduced, which affected the work of business and industrial enterprises, including OMK.

With the outbreak of the pandemic, OMK, like other strategic enterprises, continued to work. The company has taken all possible measures to prevent the spread of infection, to save jobs, human health, maintain a good moral climate in teams.

When the priority measures were taken, OMK began to provide assistance to the cities and regions in which its plants operate.

In 2020, the company focused its main efforts in the field of corporate social responsibility on systemic programs for the development of local communities, returned to the practice of targeted assistance to people and healthcare institutions, and took care of the psychological health of residents of single-industry towns.

In the current economic situation, OMK did not cut funding for systemic CSR programs. The focus of the OMK-Partnership social and charitable projects competition and the Start Your Own Business program for the development of social entrepreneurship were shifted to combating the consequences of the spread of the coronavirus.

Social entrepreneurs and volunteers in the cities of the company's presence redesigned their work and started manufacturing personal protective equipment, delivered food kits to those in need, launched author's online training courses during the self-isolation regime.

OMK has taken on additional responsibility for supporting the health care system. In the spring of 2020, the company allocated 150 million rubles to help medical institutions and residents of the regions where its enterprises are located. OMK supplied 55 lung ventilators and more than 1 million personal protective equipment to medical institutions. With the financial support of the company, the infectious wards of two central district hospitals of the Nizhny Novgorod region, repaired and re-equipped the district

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1.11
Initiatives against the aftermath of the pandemic

OMK has allocated 150 million rubles
to help medical institutions and residents
of the regions of presence.

clinic in Chelyabinsk. The company purchased machinery and equipment for medical institutions in the Belgorod Region and the Central Federal District.

In 2020, OMK provided large-scale humanitarian assistance to socially vulnerable categories of the population, involved employees in charity, and supported volunteers.

OMK and the OMK-Uchastiye charitable foundation in partnership with local administrations and the diocese within the framework of the mutual aid campaign #WeTogether delivered about seven thousand food sets for single elderly and people with limited mobility, large and low-income families of Vyksa and Chusovoy.

Also, OMK employees raised more than a million rubles for humanitarian aid to those caught in a difficult situation during the period of selfisolation.

For systematic work to support non-profit organizations and small businesses, prevent unemployment and develop volunteerism during the pandemic, OMK was awarded the Leaders of Corporate Philanthropy award from the Association of the country's largest grant-making organizations, foundations and companies, the Forum of Donors.

OMK took first place in the nomination «The best program for overcoming the consequences of coronavirus infection in the Russian Federation.» The main expert evaluating the results of the systematic work of business in the field of CSR , and the partner of the nomination is the Ministry of Economic Development of Russia. The company also received a «best practice» category A rating.

Together with OMK, this category includes only 12 companies that are leaders in corporate philanthropy in Russia.

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