CRAFTING A GREEN FUTURE RUSAL ANNUAL REPORT 2019 REPORT ANNUAL RUSAL ANNUAL REPORT 2019 Contents CONTENTS Financial and Operational Highlights 3 Corporate Profile 7 Chairman’s Statement 15 CEO’s Review 18 Business Overview 21 Management Discussion and Analysis 45 Profiles of Directors and Senior Management 77 Directors’ Report 95 Corporate Governance Report 129 Financial Statements 145 Glossary 236 Appendix A 247 Principal terms of the Shareholders’ Agreement with the Company Appendix B 251 Principal terms of the Shareholders’ Agreement among Major Shareholders only Corporate Information 258 1 Annual Report RUSAL 2019 01 FINANCIAL AND OPERATIONAL HIGHLIGHTS Financial and Operational Highlights FINANCIAL AND OPERATIONAL HIGHLIGHTS USD million (unless otherwise 2019 2018 2017 2016 2015 specified) Revenue 9,711 10,280 9,969 7,983 8,680 Adjusted EBITDA 966 2,163 2,120 1,489 2,015 Adjusted EBITDA Margin 9.9% 21.0% 21.3% 18.7% 23.2% EBIT 87 1,481 1,523 1,068 1,409 Share of Profits from Associates and 1,669 955 620 848 368 joint ventures Pre Tax Profit 1,054 1,953 1,288 1,354 763 Profit 960 1,698 1,222 1,179 558 Profit Margin 9.9% 16.5% 12.3% 14.8% 6.4% Adjusted Net(Loss)/ Profit (270) 856 1,077 292 671 Adjusted Net Profit (Loss)/Margin (2.8%) 8.3% 10.8% 3.7% 7.7% Recurring Net Profit 1,273 1,695 1,573 959 1,097 Basic Earnings Per Share 0.063 0.112 0.080 0.078 0.037 (in USD) Total Assets 17,814 15,777 15,774 14,452 12,809 Equity Attributable to Shareholders of 6,747 5,209 4,444 3,299 1,391 the Company Net Debt 6,466 7,442 7,648 8,421 8,372 Annual Report RUSAL 2019 4 Financial and Operational Highlights 5 Annual Report RUSAL 2019 02 CORPORATE PROFILE Corporate Profile CORPORATE PROFILE RUSAL is a low-cost, vertically integrated aluminium producer with core smelting operations located in Siberia, Russia. In 2019, RUSAL remained among the largest producers of primary aluminium and alloys globally. million tonnes 2018 2019 8 6.6 6.1 6 5.7 4.2 3.8 3.8 4 3.5 3.5 3.2 3.2 2.6 2.6 2.5 2.5 2.3 2.1 2.0 2.0 2 0 Chinalco* Hongqiao RUSALXinfa Rio TintoEGA SPICAlcoa Norsk Group Hydro * Up to 2018, Chinalco was consolidating production of Chalco. Since 2019, Chinalco is consolidating production of Chalco and Yunnan Aluminum Co., Ltd Source: Based on RUSAL’s internal company report and peer companies’ publicly available results, announcements, reports, and other information. RUSAL’s production chain includes bauxite and nepheline ore mines, alumina refineries, aluminium smelters and casting houses, foil mills, packaging and wheels production centers. Using renewable and environmentally friendly SECURED ACCESS TO GREEN, hydro-generated RENEWABLE ELECTRICITY electricity, RUSAL is Electricity is a key component of the aluminium production process. RUSAL’s core smelting targeting the lowest CO2 operations are favorably located close to the Siberian hydropower plants sourcing approximately footprint in the industry. 93% of the Group’s total electricity needs. The Company has long-term agreements with the region’s hydropower energy suppliers. Annual Report RUSAL 2019 8 Corporate Profile CAPTIVE RAW MATERIAL DIVERSIFIED SALES GEOGRAPHY SUPPLIES RUSAL’s sales mix is represented by a diversified portfolio RUSAL alumina production capacities are located in of regions. The Company delivers aluminium products Russia and abroad. They cover approximately 100% of to the domestic market and to all key global consuming the Group’s total alumina needs. regions (Europe, America and South East Asia). Our alumina refineries bauxite needs are covered by up to 75% with supplies from the Group’s bauxite mining operations. Our existing bauxite resource base GROWTH POTENTIAL OF THE is sufficient to supply for over 100 years of operations. RUSAL PLATFORM The BEMO Project (RUSAL and RusHydro JV) includes the 3,000 megawatt BEMO HPP (the construction EFFICIENT MIDSTREAM, of which was completed in 2014) and Boguchansky PROPRIETARY R&D AND aluminium smelter in the Krasnoyarsk region of Russia. In March 2019, the launch of the second part of the INTERNAL EPCM EXPERTISE first stage brought the total production capacity to RUSAL aluminium smelting operations go through almost 300 thousand tonnes per annum. regular upgrades. RUSAL has developed its own One of RUSAL’s other major projects is Taishet in-house R&D, design and engineering centers and aluminium smelter in the Irkutsk region. The operates RA-300, RA-400 and Green Soederberg production capacity of the first line is 428.5 thousand smelting technologies. A new energy efficient and tonnes. During 2019, the Company continued to environmentally friendly RA-500 and RA-550 smelting finance this smelter’s construction using its own funds. technology has been designed, and currently RUSAL is testing it, targeting the best energy efficiency yields in the industry. IMPLEMENTING RUSAL is actively developing a groundbreaking inert anode technology. Introducing this state-of-art ENVIRONMENTAL INITIATIVES technology into the production process will lead RUSAL was one of the first Russian companies to complete elimination of greenhouse gas and that joined UN Global Compact. By following its polyaromatic hydrocarbon emissions coupled with 10% environmental policy and undertaking to regularly cut in operational costs through reducing anode and review and update its provisions, the Company is energy consumption and over a 30% cut in Greenfield constantly developing and improving its environmental projects expenditure costs. management system and implementing its principles at all production facilities. COST EFFICIENCY The efficient smelting technologies together with DIVERSIFICATION low-cost input material and utilities mix secure the OPPORTUNITIES THROUGH Company’s global leadership on the cost curve. INVESTMENTS — As at the Latest Practicable Date, RUSAL owns FOCUS ON HIGHER MARGIN an effective 27.82% interest in Norilsk Nickel, the world’s largest palladium producer, the largest DOWNSTREAM BUSINESS high-grade nickel producer and one of the leading producers of platinum, copper and cobalt1. RUSAL has a diversified product mix with a strong share of VAP in the portfolio (1.55 million tonnes per — RUSAL’s 50/50 LLP Bogatyr Komir coal joint venture annum out of 4.16 million tonnes of total sales). in the Ekibastuz coal basin, one of the largest coal basins in the CIS, provides RUSAL with a natural energy hedge. 1 Source: www.nornickel.ru 9 Annual Report RUSAL 2019 Key Facts in 2019 Key Facts in 2019 APPROXIMATELY KEY FACTS % 5.9OF THE WORLD’S IN 2019 ALUMINIUM OUTPUT RUSAL ACCOUNTED FOR ABOUT 9aluminium smelters 8alumina refineries of which of which 8 are 3 are in Russia, 1 in Ireland, in Russia and 1 in Ukraine, 1 in Jamaica, % 1 in Sweden; 1 in Italy and 1 in Guinea; 6.3OF THE WORLD’S ALUMINA PRODUCTION 7 1 bauxite mines nepheline mine of which 2 are in Russia, in Russia; 1 in Jamaica, 3 in Guinea and 1 in Guyana; 3MLN TONNES.8 7MLN TONNES.9 4foil mills, of which 2silicon factories, 2 wheels factories OF ALUMINIUM OF ALUMINA 3 are in Russia and all of which are situated in 1 in Armenia; in Russia; Russia. RUSAL’s ordinary shares are listed on the Hong Kong Stock Exchange and the Moscow Exchange. 11 Annual Report RUSAL 2019 Map of Operations Map of Operations MAP OF OPERATIONS ARMENIA ITALY 19 01 Armenal 08 Eurallumina 24 AUSTRALIA JAMAICA 40 02 QAL 09 WindalcO 25 16 22 21 14 34 32 27 13 GUINEA KAZAKHSTAN 07 38 03 Compagnie des 10 LLP Bogatyr Komir 35 37 15 36 23 Bauxites de Kindia 41 39 12 33 NIGERIA 08 26 28 10 BAUXITES DE KINDIA (CBK) 11 ALSCON 01 17 04 Dian Dian Project 29 20 05 Friguia Bauxite & Alumina Complex 18 GUYANA 31 06 Bauxite Company of Guyana (BCGI) 30 IRELAND 03 05 11 07 Aughinish Alumina Refinery 04 06 09 RUSSIA SWEDEN 12 Aughinish Alumina Refinery 26 Novokuznetsk Aluminium Smelter 40 KUBAL 13 Bogoslovsky Alumina Refinery 27 Sayana Foil 14 Boguchanskaya HPP (BEMO) 28 SAYANAL UKRAINE 15 Boguchansky Aluminium Smelter (BEMO) 29 Sayanogorsk Aluminium Smelter 41 Nikolaev Alumina Refinery 16 Boksitogorsk Alumina Refinery 30 Shelekhov Powder Metallurgy 17 Bratsk Aluminium Smelter 31 Silicon (ZAO Kremniy), Shelekhov 18 Irkutsk Aluminium Smelter 32 SKAD wheels factory 19 Kandalaksha Aluminium Smelter 33 Taishet Aluminium Smelter (project) 20 Khakas Aluminium Smelter 34 Timan Bauxite 21 Kia-Shaltyr Nepheline Mine 35 Urals Alumina Refinery 02 22 Krasnoturyinsk Powder Metallurgy 36 Urals Foil Aluminium Alumina Bauxite Foil Powders 23 Krasnoyarsk Aluminium Smelter 37 Urals Silicon 24 Nadvoitsy Aluminium Smelter 38 Volgograd Aluminium Smelter Silicon Nepheline ore Other business Wheels 25 North Urals Bauxite Mine 39 Volgograd Powder Metallurgy Annual Report RUSAL 2019 12 13 Annual Report RUSAL 2019 03 CHAIRMAN’S STATEMENT Chairman’s Statement CHAIRMAN’S STATEMENT Bernard Zonneveld Chairman of the Board Dear Shareholders, It is my pleasure to welcome you to our 2019 Annual This year, RUSAL's headquarters and three production Report. Despite the high level of uncertainty we have sites obtained a certification by ASI (the Aluminium witnessed following the OFAC sanctions, RUSAL has Stewardship Initiative). Meeting various criteria ranging maintained its position as a market leader. Not only from business ethics and governance, environmental have we become the first company in corporate history performance, human rights and social practices is to get the sanctions lifted, but we have also remained an important milestone for RUSAL and reinforces committed to maintaining the high level for best ESG its commitment to being a responsible aluminium practices. producer. RUSAL's compliance with the highest level of ESG RUSAL continues to implement large-scale standards has reinforced its listing among the top 100 environmental projects, raising the bar for the sector.