Table of Contents Introduction 2 Oleg Popov, CEO of SCM 2 Maxim Timchenko, CEO of DTEK 4 DTEK Group at a glance 8 15 facts about DTEK Group 10 Mission, vision, values 12 Development Strategy until 2030 13 DTEK Group corporate governance structure 16 Key performance indicators of 2019 17 Location of DTEK Group production enterprises 18 Key Events in 2019 20 Top management of the DTEK Group 24 An overview of Ukraine’s industries and macroeconomic indicators 28 Electricity Market 30 Natural Gas Market 40 Ukraine’s macroeconomic indicators 44 Performance results 48 Production activity 50 Investment projects 62 Analysis of financial results 72 Corporate governance 74 Corporate governance structure 76 Supervisory Boards of the operating holdings companies 77 Risk management system 82 Compliance and corporate ethics 83 Dividend policy 85 Sustainability 86 Sustainability 88 Environmental protection 92 Society 100 Employees 110 Annex 1 122 Annex 2 124 Annex 3 128 2 Integrated report 2019 Integrated report 2019 3 Introduction Dear colleagues and partners, please find hereby the annual report ted itself to achieving the UN Sustainable Development Goals. As of DTEK Group. a result, our actions have remain consistent and our commitment to the principles of ESG (Environmental, Social and corporate Gov- In 2020, DTEK celebrated its 15th anniversary. This year has been a ernance) unwavering, as we strive to support the interests of socie- challenge for all of us because of the global coronavirus pandem- ty. For this purpose, we adopted our ESG Strategy. The 12 UN Sus- ic, which has reignited the discussion about the role and purpose tainable Development Goals were subsequently integrated into this of business for society. As a business, we were able to provide a strategy, in addition to measures to monitor progress. This means quick and clear answer — a reliable partner and supporter of the that the interests of employees and residents of the regions where sustainable development of society. The history of DTEK supports the enterprises operate have become the focus of the company's this both with facts and figures. development strategy. Today DTEK Group is a significant player Ukraine’s energy sec- ESG is a value code that determines the level of maturity and social tor. As a leading entity, our responsibility is, first of all, to contrib- responsibility of society, business and the state. We have proven ute to the progress of the entire industry through the creation of that SCM is a business that is ready to take responsibility. During new directions, the integration of leading technologies and solu- the coronavirus pandemic, SCM businesses took responsibility for tions, sharing our experience and expertise with other Ukraini- the lives and health of their employees and residents of the cities an companies, engaging in open dialogue with all stakeholders where we operate. regarding further development. All these are components of the Moreover, we began work on the country's economic strategy in country's successful economic development. DTEK's contribu- the context of the global crisis, and this initiative was supported by tion to the Ukrainian economy over 15 years is almost USD 23 bln: other businesses and the government. I am sure that both in the USD 10.4 bln was invested in the energy sector, USD 1.5 bln in world and in Ukraine, industrial business will be the main factor in sustainable development, more than USD 11 bln was allocated to overcoming the uncertainty of the economic recession caused by budgets of all levels in Ukraine. the coronavirus, the main driver of growth, and the main fulcrum. Behind these numbers is a team of 70.000 employees who are It is now clearer than ever that the national economy will survive leading experts. After all, the company invests heavily in the devel- if metallurgy, energy and the agricultural sector survive. They are opment and training of personnel. Our corporate university, Acad- the basis of the Ukrainian economy. Our recovery plan for Ukraine emy DTEK, has been a major success, and has become a tool for is to boost the industry and support the revival of small and medi- managing talent, knowledge and change. um-sized businesses. And we are following this plan. Additionally, residents of the cities where DTEK’s production en- I would especially like to thank all DTEK employees for your dedi- terprises operate form part of our story. From the very beginning cation and work. You have become the foundation of resilience for of the company’s work, we have been guided by corporate social the entire country, helping it overcome the effects of the pandemic. responsibility, implementing local projects aimed at improving the Truly, thanks a lot for your work! Oleg Popov quality of life in the cities of our activity. Today, DTEK has commit- CEO of SCM Introduction Introduction 4 Integrated report 2019 Integrated report 2019 5 Introduction Dear colleagues and partners! strategic goal — to build 1 GW of capacities in renewable energy. In that year, we successfully placed green Eurobonds for the amount I would like to present the results of the DTEK Group performance of 325 mln Euros and thus created an effective financial mechanism in 2019. This year has been the year of ambitious achievements and for Ukraine’s transition to the energy balance with lower СО2. Now, new challenges. the discussion concerning the further support of renewable energy We have achieved our target of 1GW of installed capacity in renew- in Ukraine, determining the pace of development of the sector for able energy and have successfully issued green Eurobonds on several years to come, is still ongoing. In this discussion it is impor- Euronext Dublin. This is our contribution, and it is a significant one, tant not to lose sight of the main goal — the decarbonisation of the to Ukraine’s transition to low-carbon energy sector. Thanks to en- Ukrainian economy. ergy reform, and we already started to see the first results in 2019, The Ukrainian energy sector also needs technologies and tools Ukraine has significant opportunities to introduce structural chang- to accelerate the pace of the gas production industry. Our com- es in the industry, with the aim of developing the modern energy pany DTEK Oil&Gas successfully drills deep gas wells, which has sector. become possible because of our investment into advanced equip- I would like to tell you about the outstanding events of the year in ment and innovative technologies. the context of our corporate development strategy to 2030. The volume of coal production in the country is predetermined by both — international commitments and the energy balance of Ukraine, reflecting our drive towards energy independence. DTEK Energy sector keeps the volume necessary for complete provision of the compa- ny’s thermal generation. The coronavirus pandemic, which emerged in 2019, is the second A familiar industrial world is rapidly changing for the sake of the fu- event that will have a continued impact on the energy sector. The ture. All changes are based on the energy sector; competitive and clean green energy, and new energy efficiency standards. Such experience of fighting against the spread of coronavirus has shown changes require unity to attain our ambitious goals. Consumers, that civil society, the government and business can work in a coor- the state and business should build up relations on a qualitatively dinated and effective way. This approach is required today to recov- new level via dialogue, transparent competition of energy compa- er after the crisis and to attain the goals set. nies and market pricing. Two events of 2019 will play a crucial role in further development of the Ukrainian energy sector. The first one is Ukraine’s reform of Customers the energy sector and the establishment of the electricity market in line with the European model. The country has been working to- wards this reform for almost 10 years. Unbundling was implement- DTEK Group has introduced systemic changes into its activity, im- Maxim Timchenko ed in order to introduce structural changes: electricity distribution plementing the program of business transformation to create fidu- function was separated from generation and supply. This allowed ciary relations with clients. CEO of DTEK for the formation of liberalised electricity markets, of which the Our company D.TRADING contributes to the development of retail and wholesale segments were respectively established on wholesale segments of the electricity market through involvement January 1 and July 1. Thus, Ukrainian consumers became active of international marketing and trading experience. market participants with the opportunity to purchase electricity We strive to become a benchmark for a client-focused approach in from producers under direct contracts or freely choose their elec- the sector and to be the leader in the competitive market. Opera- tricity supplier. The words ‘client’ and ‘choose’ were introduced tors of the distribution system have become separate companies into the glossary of the Ukrainian energy sector for the first time for electricity suppliers to get equal access to the infrastructure, and provided a real incentive for companies to develop competitive thus ensuring the right of clients to choose any of the suppliers. We advantages and attract investment into business development. have also created a retail brand in the electricity market, YASNO, Green energy has become synomous with modern electricity pro- which aims to ensure the best client service in the sector, to create duction. In 2019, an important step we took was attainment of our a diverse product and solution portfolio, to develop online services. Introduction Introduction 6 Integrated report 2019 Integrated report 2019 7 Ukraine “plus” Our unit dealing with innovation management develops the culture It is high time we changed the paradigm for assessing the success integrated 12 UN Sustainable Development Goals into our ESG of open innovations, successfully cooperates with startups, and it of economies and business.