DEEP ROOTED AS A SYCAMORE, STRONG AS STEEL 2020 Integrated Annual Report CONTENTS 1 ABOUT THE REPORT SUSTAINABLE GROWTH 2 CHAIRMAN’S MESSAGE 58 FINANCIAL PERFORMANCE 5 BOARD OF DIRECTORS 60 CUSTOMER’S SOLUTION PARTNER 6 SENIOR MANAGEMENT 62 PROCESS DEVELOPMENT ACTIVITIES 10 CORPORATE PROFILE 65 SUPPLY CHAIN 16 OYAK’S MINING METALLURGY COMPANIES IN 2020 18 A STRATEGIC APPROACH RESPONSIBLE PRODUCTION 22 BUSINESS MODEL AND STRATEGY 66 OCCUPATIONAL HEALTH AND SAFETY 24 MATERIALITY ANALYSIS 73 ENVIRONMENTAL PERFORMANCES 78 R&D AND INNOVATION GENERAL OVERVIEW 81 DIGITAL TRANSFORMATION AND TECHNOLOGY 32 ECONOMIC AND INDUSTRIAL ENVIRONMENT 36 DEVELOPMENTS IN SHARES THE APPROACH THAT PUTS PEOPLE AT THE HEART OF WHAT 38 INVESTMENTS WE DO 42 PRODUCT MANAGEMENT 87 THE EMPLOYEES 44 PRODUCTION AND SALES 94 SOCIAL CONTRIBUTION 98 MANAGEMENT SYSTEMS CORPORATE GOVERNANCE 49 BOARD OF DIRECTORS APPENDIX 49 SENIOR MANAGEMENT 100 SOCIAL PERFORMANCE INDICATORS 50 COMMITTEES AND THEIR RESPONSIBILITIES 101 ENVIRONMENTAL PERFORMANCE INDICATORS 50 COMPLIANCE WITH ETHICAL PRINCIPLES 102 CORPORATE MEMBERSHIPS 51 INTERNAL AUDIT SYSTEM 51 RISK MANAGEMENT 104 STATEMENT OF COMPLIANCE WITH CORPORATE 54 RISK MANAGEMENT PROJECTS GOVERNANCE 105 SUSTAINABILITY PRINCIPLES COMPLIANCE REPORT 114 CORPORATE GOVERNANCE COMPLIANCE REPORT 121 CORPORATE GOVERNANCE INFORMATION FORM 128 BOARD OF DIRECTORS COMMITTEE OPERATING PRINCIPLES AND AN ASSESSMENT OF SUCH COMMITTEES’ EFFECTIVENESS 130 OTHER ISSUES 131 AFFILIATED COMPANY REPORT 132 STATEMENT OF RESPONSIBILITY 134 FINANCIAL INFORMATION 240 GRI INDEX CONTACT ABOUT THE NAVIGATION ITEMS OF THE REPORT FINANCIAL CAPITAL HUMAN CAPITAL SOCIAL CAPITAL INTELLECTUAL CAPITAL PRODUCED CAPITAL NATURAL CAPITAL ABOUT THE REPORT Audit The financial indicators included in the report constitute the data disclosed in the consolidated financial statements of the OYAK’s Mining Metallurgy Companies, which have undergone independent audits. Other content other than financial data has not undergone any external audit or control process. Feedback The report can be reached from our official website at www.erdemir.com.tr, all opinions and suggestions can be conveyed to [email protected] e-mail address. This report, which is the second While the report predominantly integrated annual report covering focuses on the main production OYAK’s Mining Metallurgy Companies facilities, Ereğli Demir ve Çelik includes the management Fabrikaları T.A.Ş. (Erdemir) and approaches of the companies in the İskenderun Demir ve Çelik A.Ş. (İsdemir), economic, social and environmental the report includes the data of the sphere and their performance data. OYAK’s Mining Metallurgy Companies. This integrated annual report, which The companies covered by the data combines financial and non-financial presented are specified in the relevant data, shares assessments of the long- sections. The numerical data in the term value creation business strategy report covers the activity period of Mining Metallurgy Companies, between 1 January and 31 December their corporate culture, stakeholder 2020. relations, and how the Companies manage opportunities and risks. The report is prepared in accordance with the Integrated Reporting The Scope and Standards Used framework published by the The report reflects the management International Integrated Reporting approach of OYAK’s Mining Metallurgy Council (IIRC) and the GRI Standards Companies in priority issues, created “Core” option published by the Global with the participation of a wide Reporting Initiative (GRI). range of stakeholders, in line with the sectoral and global trends, their future goals and their planned investments. GRI 102-1, 102-46, 102-53, 102-54 2020 INTEGRATED ANNUAL REPORT 1 CHAIRMAN’S MESSAGE Esteemed stakeholders, business partners and colleagues, The global economy, which had grown by an average of 3.4% between 2016 and 2019, contracted by 3.5% in Leaving behind a year in which the pandemic dominated 2020 according to the International Monetary Fund (IMF). the global economic agenda In its January 2021 World Economic Outlook Report, the The world and our country have left behind what was an IMF revised its estimate of the economic contraction for unprecedented year. The headlines of 2020 around the world 2020, from its earlier estimate of a 4.4% contraction in its were entirely dominated by the pandemic which started previous report, as the global economy gained stronger to affect our country from March, and the political and than expected momentum in the second half of the year. economic fallout of the pandemic. Economies ground to a It also updated its growth forecast for 2021 from the 5.2% standstill due to the measures taken to tackle the pandemic rate of growth which it had previously projected to a revised in many countries, especially developed countries, including forecast of 5.5% growth. Turkey. Central banks and financial authorities also had to launch comprehensive and large-scale financial support Although the forecasts clearly reflect that the effects of programs to mitigate the negative impact of this period. the pandemic on world economies will continue in 2021, the experience gained in the fight against the pandemic and The decline in the number of cases and the steps towards the ongoing vaccination developments will allow us to look normalization taken in the third quarter of the year gave rise positively towards the second half of 2021 in particular. to some partial recovery in economic activity. As the number of cases rose again in the fourth quarter, progress in the development of vaccines helped calm mounting concerns in the global economy. The rapid progress achieved in vaccine development and subsequently the start of the vaccination rollout allowed us to enter 2021 with greater hope. GRI 103-2, 103-3 2 2020 INTEGRATED ANNUAL REPORT In order to contribute to our vision of becoming a global player and to propel our country, which ranks as the world’s 7th largest steel producer, to ever higher levels, we pressed ahead unwaveringly with our investments in 2020. The great potential of the Turkish economy we pressed ahead unwaveringly with our investments in As giant economies shrank in 2020, which was dominated 2020. With our investments, we aimed to increase the use by the pandemic, Turkey was among the few countries to of local resources, increase steel production capacity and record a positive rate of growth. Thus, Turkey’s economy efficiency in production, promote the use of state-of-the-art once again proved both its resilience and its potential. technology and complete the backward integration within our Mining Metallurgy Companies, and thus strengthening The policy of price stability implemented in November 2020 our competitiveness. proved a highly astute a significant policy change in terms of maintaining fiscal discipline in our country and ensuring At Erdemir, which has just celebrated its 55th year of Turkey’s sustainable growth. Economic activity is expected operation, and İsdemir, which will mark its 50th anniversary post a strong recovery when compared to last year, this year, we focused on the production of high value-added supported by the base impact and domestic demand. innovative products and efficiency, and maintained our investments in this direction. Likewise, with 83 years of OYAK’s Mining Metallurgy Companies form one of the experience, Erdemir Mining continued its activities with a cornerstones of the economy focus on efficiency. Consumption of steel increased by 13% in 2020 while production increased by 6% in the Turkish steel industry. While we continued to contribute to the country’s economy Thus, Turkey’s steel industry managed to diverge positively by doing away with the need to import of millions of dollars from the global steel industry during the pandemic. worth of products with the investments undertaken by Focusing on sustainable growth and efficiency, OYAK’s our companies, we also upheld our national values. The Mining Metallurgy companies once again demonstrated acquisition of Kümaş Magnesite, in which negotiations got that they form one of the cornerstones of the Turkish underway towards the end of 2020 and was announced economy. Our Mining Metallurgy Companies maintained on the Public Disclosure Platform on 4 January 2021, was and built on their healthy growth with the contribution at the forefront of our strategic investments. Major global of our employees, for whom we created a safe working players have also expressed interest in Kümaş Manyezit A.Ş. environment, as well as the vast experience of our with its mines, which account for about 20% of the qualified companies dating back more than half a century. magnetite ore produced in the world. By incorporating this value into our organization, which is of tremendous In 2020, we overcome a number of challenges in the importance for our country in terms of national resources, market conditions, such as the pandemic, disruption to we also brought integration into our activities in the iron, the supply chain, the contraction in global trade, the falls steel and cement industries. in prices due to trade restrictions and protectionism with an agile and efficient approach. In this process, we sold 7.5 In our capacity as mining metallurgy companies, we are million tons of flat final products and 1 million tons of long aware that we also have a leading duty to the country’s final products. In 2020, the market value of our Mining industry in terms of efficiency. We are one of the most Metallurgy Companies increased by 34% compared to assertive players in the global steel market in terms of 2019, with an increase of USD 1.8 billion, to reach USD 7.1 resource utilization efficiency. At a time when states are billion. disrupting the competitive environment, we will strengthen our position and open up the gap between ourselves and We pressed ahead with our investments and upheld our our competitors. We will maintain our investments with our national values robust balance sheet structure, strong product portfolio In order to contribute to our vision of becoming a global and the strength derived from our competent human player and to propel our country, which ranks as the resources.