LKAB 2018 Annual and Sustainability Report

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LKAB 2018 Annual and Sustainability Report 2018 ANNUAL AND SUSTAINABILITY REPORT PERFORMANCE IN IRONMAKING LKAB aims to create prosperity by being one of the most innovative, resource-efficient and responsible mining companies in the world. B LKAB ANNUAL AND SUSTAINABILITY REPORT 2018 CONTENTS INTRODUCTION 1 BUSINESS CONCEPT 2018 in brief 2 Objectives for sustainable development 4 To manufacture and deliver upgraded iron Comments by the President and CEO 6 ore products and services for ironmaking How we create value 10 that create added value for customers on BUSINESS CONTEXT AND STRATEGY 12 the world market from our base in the Global context 12 Swedish orefields. Other closely related Trends in the iron ore market 14 products and services that are based on Strategic framework 16 LKAB’s know-how and that support our PRODUCTS AND MARKETS 18 main business activities may be included Iron ore products for the steel industry 18 in operations. Industrial minerals and other products and services 19 Market development 20 OPERATIONS AND IMPACT 22 VISION Exploration 25 LKAB shall be perceived by customers Mining 28 as the supplier that adds the most value, Processing 32 Transport 36 thus leading the way in our chosen market Suppliers 40 segments. Employees 42 Social responsibility 46 PERFORMANCE IN IRONMAKING Environmental responsibility 53 Performance in Ironmaking is LKAB’s prom- RISKS AND RISK MANAGEMENT 58 Market and external risks 60 ise to customers. It means that we always Business risks 61 put the customer at the centre and ensure Financial risks 62 quality, stability and delivery reliability GOVERNANCE AND CONTROL 64 throughout our value chain from mine to Comments by the Chairman of the Board 64 port. Through close, in-depth cooperation Corporate governance report 65 with our customers we develop our products Board of Directors 72 and help improve our customers’ processes. Group management 74 Materiality analysis 75 GRI content index 78 Auditor’s limited assurance report 80 on the Sustainability Report Group overview 81 FINANCIAL RESULTS 84 ABOUT LKAB’S ANNUAL AND SUSTAINABILITY REPORT 2018 The Board of Directors and the President hereby submit the Annual and Sustain- Financial statements 84 ability Report for Luossavaara-Kiirunavaara AB (publ), corporate identity number Notes 95 556001-5835, for the calendar year 2018. LKAB is a limited liability company that is wholly owned by the Swedish state. The Board’s attestation 130 The Annual Report is integrated, meaning that the description of operations Auditor’s report 131 – including our sustainability work and corporate governance – is reported Mineral reserves and mineral resources 134 together with the administration report and financial statements that make up the statutory part of the Annual Report. A Sustainability Report has been prepared as Ten-year overview 138 part of the administration report, in accordance with Chapter 6 Section 10 of the Swedish Annual Accounts Act, and can be found on pages 5, 10–13, 40–49 and OTHER INFORMATION 139 53–57. LKAB reports its sustainability work in accordance with Global Reporting Terms and definitions 139 Initiative (GRI) Standards at the Core level and the scope of reporting is defined by the GRI index on pages 78 –79. A Corporate Governance Report has been prepared Annual General Meeting and financial information 140 as part of the administration report, in accordance with Chapter 6 Sections 6–7 of Addresses lkab.com the Swedish Annual Accounts Act. GRI Appendix lkab.com Administration report, whole section, pages 2–5, 10–13, 40–71 and 81–83. LKAB's Annual and Sustainability Report is published in both Swedish and English. In the event of discrepancies, the Swedish version is valid. LKAB ANNUAL AND SUSTAINABILITY REPORT 2018 LKAB IN BRIEF 4,188 headcount of the LKAB Group A wide range of expertise is required to operate and develop LKAB’s complex business, from product development, exploration and mining to processing, logistics, sales and delivery to customers. Attracting, retaining and developing employees is key to LKAB's strategy. Read more on pages 16–17. 150,000 tonnes of iron ore are mined by LKAB 77% 82% every day of LKAB’s iron ore prod- of LKAB’s delivery LKAB’s ore deposits are largely mined in ucts are exported to volumes consist of underground mines more than a thou- Europe’s steelworks. iron ore pellets. sand metres below the surface, making demands of both safety and efficiency. All the iron ore mined is then upgraded in our processing plants. Here the ore is sorted and concentrated before finally being pelletised and heated to become small round iron ore pellets. From the processing plants the iron ore products are transported by rail to the ports and shipped to customers in Europe, the Mid- dle East, North Africa, the USA and Asia. 25.9 Read more about how deposits are iden- sales in SEK billion tified and mined on pages 25–31. Three divisions Northern Division Comprises mines and processing plants in Kiruna. The products are transported along the Malmbanan and Ofotbanen ore railway to the port in Narvik for shipment to steel- works customers around the world. Southern Division Comprises mines and processing plants in Malmberget and Svappavaara. The products are transported along the Malmbanan ore railway, mainly to the port in Luleå for shipment to European steelworks customers. Special Products Division Develops and supplies products and services including industrial minerals, drilling Narvik technology and full service solutions for Svappavaara the mining and construction industries. Kiruna Malmberget ARCTIC CIRCLE Ore Railway Luleå LKAB ANNUAL AND SUSTAINABILITY REPORT 2018 1 THE YEAR IN BRIEF 2018 IN BRIEF NET SALES PRODUCED MSEK 25,892 26.9 Mt of iron ore products were pro- duced by LKAB in 2018, compared OPERATING PROFIT with 27.2 Mt in 2017 MSEK 6,869 DELIVERED CASH FLOW FROM OPERATIONS 26.8 Mt of iron ore products were deliv- MSEK 3,126 ered by LKAB in 2018, compared with 27.6 Mt in 2017 KEY RATIOS For management and follow-up the operations are split into three divisions: the Northern Division, the Southern Division and the Special Products Division. NET SALES AND OPERATING PROFIT FINANCIAL OVERVIEW, GROUP Net sales Net sales 2018 Operating profit 2018 2017 MSEK Net sales, SEK million 25,892 23,367 30,000 Underlying operating profit2, MSEK 8,975 7,148 25,000 Operating profit, MSEK 6,869 5,975 Operating margin, % 26.5 25.6 20,000 Profit for the year 5,274 4,803 15,000 Operating cash flow, MSEK 3,126 7,136 10,000 Return on equity, % 14.1 14.4 5,000 Net debt/equity ratio, % 9.2 -6.6 0 Capital expenditure on property, plant and equipment, MSEK 2,455 2,008 -5,000 Provisions for urban transformation at end of reporting period, MSEK 17,625 11,911 -10,000 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dividend to owner , MSEK 3,164 2,882 FINANCIAL OVERVIEW, DIVISIONS SALES BY PRODUCT NORTHERN SOUTHERN SPECIAL PRODUCTS DIVISION1 DIVISION1 DIVISION1 Percentage of sales (MSEK) 2018 2017 2018 2017 2018 2017 Net sales, SEK million 14,278 13,473 10,534 9,999 3,806 3,936 Underlying operating profit2, MSEK 6,016 5,241 2,991 2,746 330 417 Operating profit, MSEK 4,102 4,181 2,799 2,659 330 391 % PRODUCTION OF IRON ORE PRODUCTS, Mt DELIVERIES OF IRON ORE PRODUCTS, Mt 2018 2017 2016 2015 2014 2018 2017 2016 2015 2014 Northern Division1 15.0 14.8 14.3 12.6 – Northern Division1 15.2 15.2 14.3 12.4 – Southern Division1 11.9 12.4 12.6 11.9 – 1 Southern Division 11.6 12.4 12.7 11.8 – % Total 26.9 27.2 26.9 24.5 25.7 Total 26.8 27.6 27.0 24.2 26.0 Iron ore products ......................90 Of which pellets 23.9 24.6 24.0 22.2 23.2 Of which pellets 22.1 22.9 22.7 20.3 21.7 Industrial minerals...................... 8 Other................................................ 2 Of which fines 3.0 2.6 2.9 2.3 2.5 Of which fines 4.7 4.7 4.3 3.9 4.3 1 The Group’s earnings, the composition of the Group and the breakdown of earnings between operating segments are shown in Note 2 on pages 103–104. With effect from 2018 a new model is being used for the internal distribution of earnings between the Northern Division and the Southern Division. Figures for 2015–2017 have been restated according to the new split. 2 Underlying operating profit is reported in Note 46 on page 129. 3 The dividend proposed by the Board of Directors will be put to the Annual General Meeting for approval on 25 April 2019. See also the Group overview on pages 81–83. 2 LKAB ANNUAL AND SUSTAINABILITY REPORT 2018 THE YEAR IN BRIEF KEY EVENTS DURING THE YEAR JANUARY – MARCH Fatal accident in Svappavaara. Just before 10.30 am on the morning of Friday 27 July Record production for a single quarter. a serious accident involving a fall occurs in LKAB gets off to a stable start in 2018 the pelletising plant in Svappavaara. The with a continued increase in production worker involved is transported to Umeå, but volumes, reaching a new record level in dies later as a result of her injuries. This is the first quarter. a serious failure for LKAB and work on our Green light for HYBRIT. SSAB, Vattenfall safety culture has the highest priority. Read and LKAB are collaborating to develop more on pages 42–45. processes for fossil-free steelmaking. Historic building swap. In a ceremony on After completing a pilot study supported 28 August LKAB hands over Kiruna’s new by the Swedish Energy Agency, in February city hall, Kristallen (The Crystal), to the it is decided to take the initiative further LKAB and the Municipality of Kiruna sign Municipality of Kiruna.
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