The company set itself ambitious but exciting targets: updating the strategy and management structure in line with the changed business model, transforming the incentivisation system and fostering a strong corporate culture that reflects the evolution of the business.Samir Brikho, Chairman of the Board of Directors
In just a few years, SUEK has evolved from a coal mining company into a diversified holding capable of generating a stable income from various economic segments. The company set itself ambitious but exciting targets: updating the strategy and management structure in line with the evolved business model, transforming employee incentivisation and nurturing a strong corporate culture that reflects business evolution.
Having assessed the global, national and corporate risks, SUEK’s Board of Directors initiated large-scale changes to the company’s management, a revision of its development strategy for the core divisions and measures to enhance the company’s corporate culture. SUEK’s strategic priorities, such as customer focus and innovation, leadership in cost reduction, social and environmental responsibility, remain unchanged.
We analysed our main business areas to ensure we maintain our key competitive advantages in a changing macro environment. Our three businesses — energy, logistics, and commodities — have turned into independent profit centre and strengthened their leading positions in their markets whilst benefitting from cost efficiencies and services that our Group function offers all of our businesses.
We also began to search for new business opportunities in related markets that offer synergies with our current assets and support future profitability. We continue to review opportunities in a range of associated markets, including mechanical engineering and the manufacture of components for renewable energy sources, cargo transportation, the production of building materials, and energy services.
In the energy sector, we continue to expand our offer in terms of geography and capabilities and upgrade our fixed assets. Following the acquisition of assets in the Urals, Siberia and the Russian Far East, the installed capacity of SGC’s plants is now 17.5 GW. We are implementing a significant modernisation programme to ensure uninterrupted power and heat supply to our millions of consumers, while also reducing our environmental and carbon footprint.
Our logistics segment is becoming a fully-fledged profitable business and a significant market player. The National Transportation Company that we founded at the end of 2020 combining SUEK's and EuroChem's logistics assets is now one of Russia's TOP-5 bulk railcar and port operators. Furthermore, we aim to develop our capacities, range of services and operational efficiency.
The focus of our commodities business is on consolidating our position in both mature and developing markets, and broadening the product range to meet customer requests. To support this, we have updated our asset portfolio development programme, prioritising assets with an optimal quality-to-cost ratio, conveniently located for deliveries to our target markets, and expanding product R&D work.
Fortunately, this impact was not as significant as we first expected, not least thanks to the timely measures put in place by the Group’s management. We established effective response centres for preventing the spread of
Key safety initiatives included quarantine measures at industrial and infrastructural facilities, disinfection of urban areas, a multi-million rouble aid package to medical institutions, and coordinating and supporting our volunteers who provided significant assistance to doctors and people with reduced mobility.
Stringent quarantine measures enabled us to work effectively and honour all of our commitments to consumers. At the same time, we did not reduce the number of staff.
This year presented a real test for all energy companies. We saw a decrease in demand, both globally and domestically, caused by reduced international trade and production declines due to the pandemic. Nevertheless, in these difficult conditions, SUEK showed resilience and provided consumers with high-quality and affordable products and even increased its presence in several markets.
While ensuring our employees’ safety and business continuity, we kept on executing our strategy of developing a stable energy business. After expanding the areas to which we supply electricity and heat, we increased capacity sales by almost 50% and electricity supplies by a quarter.
In the commodities business, a timely entry into emerging markets and expanding our logistics infrastructure towards high-margin growth markets boosted supplies to the Asia-Pacific region, to offset declining demand in Europe. By doing this, SUEK has strengthened its position in key export markets and is now one of the five largest coal exporters globally.
The company’s EBITDA in this difficult year amounted to $2bn, a decrease of 9% year-on-year, whereas operating cash flow remained strong and sufficient for financing our major investment projects. Affected by foreign exchange rate costs, net income fell to $200m. Our solid performance helped us to maintain our Moody’s and Fitch credit ratings.
Given our new strategy, sustainable development is even more important. We appointed the rating agency S&P to conduct an international audit of our environmental and social responsibility and corporate governance practices. The audit results stated that SUEK is more advanced in this area than its industry and regional peers.
However, we are not complacent and always aspire to improve our position. We consider strong ESG management to be of the utmost importance. In 2021, we established a dedicated board-level committee to oversee environmental and industrial safety.
We also pay special attention to the development of our corporate culture and governance improvements. Our management structure is being streamlined and will be more flexible and efficient with fewer levels. We significantly revised our risk management system and improved cooperation with international experts. We are also upgrading our internal communications and have improved staff engagement in all corporate processes, including at the level of the Board of Directors.
In 2021, SUEK celebrates its 20th birthday. This is an important anniversary for us, as it turns a new page in the company’s history. Just like in previous years, we will focus on growth and creation, with these two words forming the motto of our anniversary. At the same time, we are looking forward to seeing the initial results of our evolved management model and strategy
Of course, we are all waiting for life to return to normal after the pandemic and the revitalisation of manufacturing in various economic sectors. These processes will inevitably require a reliable and affordable energy supply, a need SUEK will undoubtedly be able to satisfy. This, combined with SUEK’s financial stability, business diversification and a growing presence in key markets allows us to look to the future with optimism.
meeting our sustainability challenges
In 2020, SUEK initiated an independent ESG evaluation by S&P Global Ratings benchmarked to global peers and regional standards.
The analysts found SUEK to be in line with industry sustainability standards and highlighted outperformance in health and safety, workforce development and corporate governance. This was reflected by an ESG profile score of 51 out of 100.
S&P evaluated SUEK’s preparedness to a possible rapid energy transition scenario as ‘emerging’, and accordingly the long-term evaluation score was adjusted to 44.
In response, we introduced the following improvements:
- Established high-level ESG governing bodies to develop a comprehensive ESG strategy, including the Board HSE Committee and the role of the Group HSE Officer reporting to CEO
- Added climate-related disclosure to the Annual Report
- Intensified focus on business diversification
We will continue to have our ESG practices audited on a regular basis.
NEW HEALTH, SAFETY AND ENVIRONMENT COMMITTEE
In February 2021, SUEK’s Board of Directors approved the creation of a Health, Safety and Environment Committee dedicated to sustainability issues.