annual REPORT 2018 PACE THROUGH THE RACE RUSAL ANNUAL REPORT 2018 REPORT ANNUAL RUSAL CONTENTS FINANCIAL AND OPERATIONAL HIGHLIGHTS 2 CORPORATE PROFILE 5 CHAIRMAN’S STATEMENT 11 CEO’S REVIEW 14 BUSINESS OVERVIEW 17 MANAGEMENT DISCUSSION AND ANALYSIS 41 PROFILES OF DIRECTORS AND SENIOR MANAGEMENT 81 DIRECTORS’ REPORT 99 CORPORATE GOVERNANCE REPORT 177 FINANCIAL STATEMENTS 197 GLOSSARY 343 APPENDIX A 355 - Principal Terms of the Shareholders’ Agreement with the Company APPENDIX B 359 - Principal Terms of the Shareholders’ Agreement among Major Shareholders only CORPORATE INFORMATION 366 1 Financial and Operational Highlights Annual Report RUSAL 2018 FINANCIAL AND OPERATIONAL HIGHLIGHTS 2 Financial and Operational Highlights Annual Report RUSAL 2018 USD million (unless otherwise specified) 2018 2017 2016 2015 2014 Revenue 10,280 9,969 7,983 8,680 9,357 Adjusted EBITDA 2,163 2,120 1,489 2,015 1,514 Adjusted EBITDA Margin 21.0% 21.3% 18.7% 23.2% 16.2% EBIT 1,481 1,523 1,068 1,409 942 Share of Profits from Associates and joint ventures 955 620 848 368 536 Pre Tax Profit 1,953 1,288 1,354 763 147 Profit/(Loss) 1,698 1,222 1,179 558 (91) Profit/(Loss) Margin 16.5% 12.3% 14.8% 6.4% (1.0%) Adjusted Net Profit 856 1,077 292 671 17 Adjusted Net Profit Margin 8.3% 10.8% 3.7% 7.7% 0.2% Recurring Net Profit 1,695 1,573 959 1,097 486 Basic Earnings/(Loss) Per Share (in USD) 0.112 0.080 0.078 0.037 (0.006) Total Assets 15,777 15,774 14,452 12,809 14,857 Equity Attributable to Shareholders of the Company 5,209 4,444 3,299 1,391 2,237 Net Debt 7,442 7,648 8,421 8,372 8,837 3 Reduced weight Manoeuvring and speedy CORPORATE 01 PROFILE Corporate Profile Annual Report RUSAL 2018 CORPORATE PROFILE RUSAL is a low-cost, vertically integrated aluminium producer with core smelting operations located in Siberia, Russia. In 2018, RUSAL remained among the largest producers of primary aluminium and alloys globally. million tonnes 8 7.5 7 6.6 6 5 4.0 3.8 4 3.7 3.7 3.7 3.5 3.6 3.5 3 2.5 2.5 2.4 2.5 2.3 2.3 2.1 2.0 1.9 2 1.6 1 0 Hongqiao Chalco RUSAL Xinfa Rio TintoEGA SPICAlcoa Norsk Vedanta Group Hydro 2017 2018 * China producers 2018 output wasn’t published/publicly available at the time of Annual Report preparation, therefore Aladdiny source was used for the volumes estimation. 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 neph- operations. Our existing bauxite resource base is suffi- eline ore mines, alumina refineries, aluminium smelters cient to supply for over 100 years of operations. and casting houses, foil mills, packaging and wheels pro- duction centers. Efficient midstream, proprietary R&D and internal EPCM expertise Secured access to green, renewable electricity RUSAL aluminum smelting operations go through Electricity is a key component of the aluminum regular upgrades. RUSAL has developed its own production process. RUSAL’s core smelting operations in-house R&D, design and engineering centers and are favorably located close to the Siberian hydro power operates RA-300, RA-400 and Green Soederberg plants sourcing from them approximately 93% of the smelting technologies. A new energy efficient and Group’s total electricity needs. The Company has environmentally friendly RA-500, RA-550 smelting long term agreements with the region’s hydro-power technology has been designed and currently RUSAL is energy suppliers. Using renewable and environmentally testing it, targeting the best energy efficiency yields in friendly hydro generated electricity, RUSAL is targeting the industry. the lowest CO2 footprint in the industry. RUSAL is actively developing a groundbreaking inert an- Captive raw material supplies ode technology. Introducing this state-of-art technology into the production process will lead to complete elimi- RUSAL alumina production capacities are located nation of greenhouse gas and polyaromatic hydrocarbon in Russia and abroad. These operations cover over emissions coupled with 10% cut in operational costs ’ approximately 100% of the Group s total alumina needs. through reducing anode and energy consumption and over a 30% cut in Greenfield projects expenditure costs. Our alumina refineries bauxite needs are covered by up to 75% with supplies from the Group’s bauxite mining 6 Corporate Profile Annual Report RUSAL 2018 Cost efficiency 2017 RUSAL has launched a new low carbon aluminium brand, ALLOW, which features a significantly lower carbon The efficient smelting technologies together with footprint – specific volume of greenhouse gas emissions low cost input material and utilities mix secures the – as compared to industry average (4t CO2/t Al vs 12.3t Company’s global leadership on the cost curve. CO2/t Al of world average (scope 1 and 2 at the smelter). The Company first verified its ALLOW brand in 2018 with Focus on higher margin downstream business the help of the international auditor KPMG. In 2017, 77% of the Company’s output was attributed to this brand. The RUSAL has a diversified product mix with a strong share computations followed the methodology contained in of VAP in the portfolio (1.66 million tonnes per annum the International Aluminium Institute’s carbon footprint out of 3.67 million tonnes of total sales). reporting guidelines published in February 2018. Diversified sales geography Diversification opportunities through investments RUSAL sales mix is represented by a diversified portfolio of regions. The Company delivers aluminium products — As at the Latest Practicable Date, RUSAL owns an ef- to the domestic market and to all key global consuming fective 27.82% interest in Norilsk Nickel, the world’s regions (Europe, America, South East Asia). largest nickel and palladium producer and one of the leading producers of platinum and copper1. — ’ Growth potential of the RUSAL platform RUSAL s 50/50 LLP Bogatyr Komir coal joint ven- ture in the Ekibastuz coal basin, one of the largest coal basins in the CIS, provides RUSAL with a natu- The BEMO Project (RUSAL and Rushydro JV) includes ral energy hedge. the 3,000 megawatt BEMO HPP (the construction of which was completed in 2014) and Boguchansky aluminium smelter in the Krasnoyarsk region of Russia. Key facts In March 2019, the launch of the second part of the first stage brought the total production capacity to almost In 2018, RUSAL accounted for approximately 5.8% 300 thousand tonnes per annum. of the world’s aluminium output and about 6.2% of the world’s alumina production, generated from the One of RUSAL’s other major projects is the Taishet following facilities located around the world. aluminium smelter in the Irkutsk region. The production capacity of the first line once launched will be — 10 aluminium smelters, of which 9 are in Russia, and 428.5 thousand tonnes. During 2018, the Company 1 in Sweden continued to finance this smelter’s construction using its — 8 alumina refineries, of which 3 are in Russia, 1 in own funds. It is important to note that the launch of these Ireland, 1 in Ukraine, 1 in Jamaica, 1 in Italy and 1 in projects is happening when the market is experiencing a Guinea growing aluminium deficit. — 7 bauxite mines, of which 2 are in Russia, 1 in Ja- maica, 3 in Guinea and 1 in Guyana — Implementing environmental initiatives 1 nepheline mine in Russia — 4 foil mills, of which 3 are in Russia and 1 in Arme- nia RUSAL was one of the first Russian companies that joined — 4 powder plants, all of which are in Russia UN Global Compact. By following its environmental — 2 silicon factories, all of which are in Russia policy and undertaking to regularly review and update — 2 wheels factories situated in Russia its provisions, the Company is constantly developing and improving its environmental management system and implementing its principles at all production facilities. In RUSAL’s ordinary shares are listed on the Hong Kong Stock Exchange and the Moscow Exchange. 1 Source: www.nornickel.ru 7 Map of Operations Annual Report RUSAL 2018 MAP OF OPERATIONS ARMENIA 01 Armenal AUSTRALIA 02 QAL 14 GUINEA 19 21 32 03 Compagnie des bauxites 15 25 23 de Kindia (CBK) 24 12 33 17 40 22 34 26 28 04 Dian Dian Project 18 16 13 37 05 Friguia Bauxite & 35 29 20 31 Alumina Complex 27 30 07 36 RUSSIA 38 GUYANA 12 Achinsk Alumina Refinery 39 10 41 06 Bauxite Company 13 Bogoslovsky Alumina Refinery 41 of Guyana (BCGI) 14 Boguchanskaya HPP 0808 01 (BEMO) IRELAND 15 Boguchansky Aluminium Smelter 07 Aughinish Alumina (BEMO) 16 Boksitogorsk Alumina Refinery ITALY 17 Bratsk Aluminium Smelter 08 Eurallumina 18 Irkutsk Aluminium Smelter 09 19 Kandalaksha Aluminium Smelter 03 05 JAMAICA 20 Khakas Aluminium Smelter 11 04 09 WindalcO 21 Kia-Shaltyr Nepheline Mine 06 22 Krasnoturyinsk Powder Metallurgy KAZAKHSTAN 23 Krasnoyarsk Aluminium Smelter 10 LLP Bogatyr Komir 24 Nadvoitsy Aluminium Smelter 25 North Urals Bauxite Mine NIGERIA 26 Novokuznetsk Aluminium Smelter 11 ALSCON 27 Sayana Foil 28 SAYANAL 29 Sayanogorsk Aluminium Smelter 02 30 Shelekhov Powder Metallurgy 31 Silicon (ZAO Kremniy), Shelekhov 32 SKAD wheels factory 33 Taishet Aluminium Smelter (project) 34 Timan Bauxite 35 Urals Alumina Refinery 36 Urals Foil 37 Urals Silicon 38 Volgograd Aluminium Smelter 39 Volgograd Powder Metallurgy SWEDEN 40 KUBAL UKRAINE 41 Nikolaev Alumina Refinery 8 Map of Operations Annual Report RUSAL 2018 14 19 21 32 15 25 23 24 12 33 17 40 22 34 26 28 18 16 13 37 35 29 20 27 31 36 30 07 38 39 10 4141 0808 01 09 03 05 11 04 06 02 Aluminium Foil Nepheline ore Alumina Powders Other business Bauxite Silicon Wheels 9 Improved swing Vibration absorbing CHAIRMAN’S 02 STATEMENT Chairman’s Statement Annual Report RUSAL 2018 CHAIRMAN'S STATEMENT Bernard Zonneveld Chairman of the Board Dear Shareholders, I am delighted to welcome you to RUSAL’s Annual Report for 2018.