Accelerating

towards

a sustainable future.

Annual Report

Annual Report 2021 3

Table

of Contents

Strategic Report 4

Severstal at a Glance 8

Chair’s Review 10

CEO's Review 12

Purpose and Strategy 14

Market Environment 20

CFO’s Review 24

Severstal’s Material Matters

and Sustainability Performance

Effective Risk Management 34

Divisional Review 38

Corporate Governance 44

Board of Directors 46

Corporate Governance 52

Board Committees

and Reports from their Chairs 58

Financial Statements and non-financial

key performance indicators 66

Consolidated financial statements

andIndependent Auditors’ Report 68

Independent assurance report

oncertain non-financial key

performance indicators 108

Basis of preparation of certain non-

financial key performance indicators 112

Appendix

114

Appendix 116

Contacts 118

Strategic

Report

Annual Report 20216 Strategic Report

Certain alternative performance measures ("APMs"),

which are contained in the audited financial statements,

are included in this Annual Report. They are used by

management to assess the underlying performance of the

business and as information in recommending dividends.

EBITDA, which is widely used in the industry, represents

profit from operations plus depreciation and amortisation

of productive assets (including the Group’s share of

depreciation and amortisation of associates and joint

ventures) adjusted for gain/(loss) on disposals of PPE and

intangible assets and for share in associates’ and joint

ventures’ non-operating income/(expenses).

Free Cash Flow is used by the Board of Directors, in

conjunction with Net Debt (being Total Debt Finance less

Cash and Cash Equivalents) as a guide in recommending

dividend payments. Free Cash Flow is determined as the

aggregate amount of the following items: Net cash from

operating activities, CAPEX, proceeds from disposal of PPE,

interest received and dividends received.

Reconciliations of Operating Profit to EBITDA and of Free

Cash Flow to Net cash from operating activities are set out

in note 26 of the audited financial statements.

Annual Report 2021 7

US$ million

4,676

2020: 2,144

(+118%)

Net cash from operating activities

3,539

2020: 838

(+322%)

Free Cash Flow

5,978

2020: 2,422

(+147%)

EBITDA

5,391

2020: 1,930

(+179%)

Profit from operations

11,638

2020: 6,870

(+69%)

Revenue

Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Annual Report 20218 Strategic Report

PAO Severstal (“Severstal”, “the Company”, or “the Group”)

is a vertically integrated steel and steel-related mining

business with its major assets located in Russia and some

investments in other countries. The Company was founded

in 1955 at the Cherepovets Steel Mill in Russia. Severstal’s

strategy is aimed at further strengthening its financial

performance, maximising value creation and enhancing

shareholder returns, whilst looking after its employees

and minimising its impact on the environment. Severstal’s

strategic priorities are superior client experience, cost

leadership and embracing new opportunities, supported

by Severstal’s advanced corporate culture. The Company

comprises two major operational divisions: Severstal

Resources and Severstal Russian Steel.

Severstal Resources

Severstal’s iron ore mining assets are a fundamental part of the Company’s vertically integrated business model.

Severstal Resources supplies almost all of the iron ore consumed by Severstal’s steel business, while also selling

significant volumes to external customers both in Russia and abroad. We also plan to conclude a five year arrangement

to purchase hard coking coal from Vorkutaugol once the disposal of the asset is completed during 2022.

Severstal Russian Steel

The Company’s core asset is the Cherepovets Steel mill, one of the lowest cost steel mills in the world, strategically

located near to the Company’s mining operations, the Baltic ports and Russia’s industrial heartland. Severstal Russian

Steel is a leading Russian steel producer. The division has a broad product portfolio, comprising a majority of high value-

added flat steel products and increasing volumes of long products for construction and downstream sales.

Severstal

at a Glance

Annual Report 2021 9Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Financing growth: our targets match our strategic priorities

KPI

Current progress Track record

95%

96%

Quality

77%

85%

Discipline of supply

96%

Service

1.5

0.63

0.65

2020

0.69

20212019

2019 2020

$1.6bn

$1.2bn

2021

$2.9bn

Keep leverage below 1.5

EBITDA margin >20%

Free cash flow positive

through the cycle

Create a significant cost

advantage over competitors

Sell 100% of products in target markets

as a unique selling proposition

CAPEX: accelerating EBITDA growth

Achieve zero fatalities

Safety

Cost position

Superior customer experience

Dividend payout

Low debt

EBITDA margin

Free Cash Flow

Smart CAPEX

0.2

at the end of Q4 2021

~25%

average IRR for 2021

LTIFR:

0.69 for 2021

On an integrated

basis: achieved

A comprehensive

system in place

$2.9bn

paid in 2021

51.4%

for 2021

$3,5bn

for 2021

2020 2021

Dividends paid

LTIFRFatalities

200

400

800

600

Severstal

Slab cost curve, $/t

2021 slab cash costs:

USD 253/t*

0 200 400 600 800

Cumulative capacities, mln t

20%

0.56

0.84

2019 2020

0.2

2021

$1.1bn

$0.8bn

20202019

$3.5bn

2021

34.4%

35.3%

2020

51.4%

20212019

$1.2bn

$1.3bn

2020

$1.2bn

20212019

* Severstal analysis as of December 2021

Annual Report 202110 Strategic Report

Chair’s

Review

Dear Shareholders,

Though our consuming markets, selling prices of

our products and raw materials that we purchase

experienced immense demand or price volatility

in 2021, our business model and its continued

transformation allowed us to navigate well and

achieve record results. Alongside this, we sharpened

our focus оn ESG with important commitments

taken and investments made in the interests of all

stakeholders and in line with the changing global

economic, societal and regulatory environment.

Progress during unprecedented times

While we remain vigilant to the dangers of the pandemic,

due to a successful vaccination programme, new ways of

working and the responsible approach of our employees,

there were no major outbreaks of COVID-19 in the

business during 2021.

COVID-19 had a considerable influence on our markets

and the disruption it caused led to a unique set of

circumstances which affected supply and demand as

well as raw materials and output prices. As a result, we

saw historic price highs for rolled metal products and

coking coal while iron ore prices peaked in July before

falling sharply due to a decrease in steel production in

China.

Throughout these turbulent markets our proven business

model and effective programmes to mitigate inflation

maintained our low cost advantage and with higher steel

prices and an improved product mix we achieved new

record financial results.

Same as in some other countries, the sharp increase

in steel prices forced the Russian government to

impose short-term duties on steel sales to support the

consuming industries. From its side, Severstal proactively

helped clients with discounts and long-term contracts.

Achieving more

Investing in our operations is a key factor in enhancing

our position as a leader of the future steel industry and

we continued the transformation of our business during

the year. We invested in the crucial focus areas of our

strategy: major projects in our steel and resources

divisions, excellence in customer experience, cost

leadership and new opportunities.

We also partner with many businesses whose

expertise and technologies help Severstal to maintain

its competitive advantage and improve continuously.

This culture of co-operation which runs throughout the

business adds immense value and helps accelerate our

transformation.

Corporate Governance

Severstal has always been committed to the highest

global and national standards of corporate governance

with transparent corporate reporting and industry –

Annual Report 2021 11Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

leading disclosure. The role of the Board – half of which

are independent Non-Executives – is crucial to this

commitment and it sets the tone of excellence and

integrity.

A major focus of the Board is health and safety and

ensuring Severstal continues to improve its overall ESG

performance. That is why during the year we renewed

and extended the functions of our previously named

Health, Safety and Environmental Committee to become

the Safety and Sustainability Committee. The Safety

and Sustainability Committee will assist the Board in

obtaining assurance that appropriate systems are in

place to manage safety and sustainability risks including

decarbonisation.

In line with best corporate governance practice, the

Board undergoes an external evaluation every three years

and each year it evaluates its own performance based on

the contribution of each Board member.

Our People

A business is nothing without the people who build it,

shape it and drive it, and Severstal has truly remarkable

employees. Once again I thank them for their

commitment, adaptability and responsibility in ensuring

Severstal excels in every direction.

Their health, safety and wellbeing remains paramount

to us and we continue to provide them with a working

environment which protects them and helps them

flourish.

It is particularly pleasing to see the benefits of our cultural

transformation of recent years reflected in the new

skills and opportunities available and embraced by our

employees. From digital skills to encouraging a business

development mindset, incredible talent has emerged.

Sustainable Development

Being a leader in the steel industry means setting

an example, and we are committed to continuously

improving our environmental strategy. Building on

our targets announced in 2020, in 2021 we set a new

medium-term goal to reduce the carbon intensity of CO

emissions per tonne of steel by 10% by 2030. This is part

of Severstal's commitment to reduce its environmental

impact and contribute to global efforts to achieve the

goals of the Paris Agreement.

We were proud during the year to be recognised as

a Steel Sustainability Champion by the World Steel

Association, reflecting our position as a champion of

sustainable development alongside the world’s largest

steel companies. Severstal was also the first Russian

company to join ResponsibleSteel, a global stakeholder

standard aimed at maximising the contribution of steel

producers to sustainable development.

Climate change not only poses risks, but also

opportunities such as growing demand for green

products and steel, as a versatile and 100% recyclable

metal, has a crucial role to play. During the year we

increased our stake in the WRS Towers joint venture

(WindarSeverstal LLC), the leading manufacturer of wind

power towers in Russia which plans to begin exporting in

2022. Severstal is the largest supplier of steel to Russia’s

wind power industry.

Returns to shareholders

Severstal is financially strong and coupled with our

performance during the year we were able to return

a total of $2.9 billion to shareholders in the form of

dividends, for an average dividend yield of 16% for the

year.

Outlook

Although prices have pulled back slightly from historical

highs, in 2022 they may reach an average level above

previous years, due to a combination of inflation and

continued economic recovery.

We expect demand for steel to grow both in Russia and

abroad, which is why Severstal continues to increase

its output. In China steel exports may decrease due to

restrictions on steel production against a background of

environmental measures for the winter period.

Recent years have been challenging for everyone, but

time and again Severstal has shown its mettle. The

challenges ahead are not just the ongoing pandemic,

but also the wider issues of climate change and the

environment.

We will accelerate our commitment to sustainability for

the future of our company, our people, our customers

and the communities in which we operate, but as well as

mitigating the risk we will also seek opportunities in the

growing green economy.

As ever, on behalf of the Board I wish to thank our staunch

employees and shareholders for their support and the

trust they place in us to continue to position Severstal as

an innovative and sustainable leader in the global steel

industry.

Alexey Mordashov

Chair of the Board of Directors

Annual Report 202112 Strategic Report

CEO’s

Review

Dear Shareholders,

I am pleased to confirm that Severstal once again

delivered a strong performance in 2021. In a year of

challenges including global inflationary pressures

and the ongoing COVID-19 pandemic, we benefitted

once again from our efficient business model, our

customer-oriented business, and our focus on new

opportunities. We progressed important strategic

initiatives that will support our vision of being the

leader of the steel industry of the future.

Our people first

Once again, our priority this year has been ensuring

the health and wellbeing of our people as we

maintained protocols and new working practices to

prevent COVID-19 infection both at our sites and in the

communities we support. In 2020 and to date we have

avoided any large-scale outbreak of COVID-19 at our

operations, and this enabled us to continue to operate at

full capacity throughout the period.

We continued to set new high standards of operational

safety under our Strategy for Operational Safety and

introduced a number of new technologies to further

mitigate human risks in our processes.

A major focus for the year was strengthening our safety

governance to ensure that as much attention is given to

the safety of external personnel working on Severstal’s

sites as to our own employees. This year we began

disclosing LTIFR data for contractors working at the

Company's production sites and contractor safety targets

have also been included in the personal KPIs of top

management, with the senior team’s remuneration now

directly linked to our performance in this area.

Navigating a changing market environment and

expanding our business

In 2021, supply chain disruption due to the ongoing

COVID-19 pandemic drove rolled metal product prices to

historic highs due to both a lack of supply in the markets

and increased demand. We saw price inflation across

a variety of raw materials including coking coal and iron

ore. However, due to the unique vertical integration of

our company and our focus on effective programmes to

mitigate annual inflation, we maintained one of the lowest

positions on the global cost curve.

Severstal continued to increase production to meet

growing demand for steel. We expanded our export

markets, in particular gaining important new energy

sector customers for our large diameter pipes in Italy and

South America, and we continued to extend our product

range.

Our production growth was supported by progress

on some key modernisation projects during the year.

We launched our new continuous pickling unit #4,

giving Severstal the means to produce high-quality

wide galvanized, hot and cold rolled products for our

customers in the automotive, household appliances,

Annual Report 2021 13Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

industrial packaging, wheel manufacturing and

construction segments, and we constructed a new

electric arc furnace at Cherepovets Steel Mill which

will enable us to process additional volumes of cast

iron from Blast Furnace #3. The new technology at the

furnace reduces costs and optimises the consumption

of electricity and graphite electrodes, thereby reducing

Severstal’s exposure to volatile commodity prices and

increasing energy efficiency. The furnace can now work

either without any liquid pig iron at all or, in contrast,

using a high pig iron consumption ratio.

Developing new capabilities

We continue to invest in innovation and digital solutions

to enhance quality and meet the future needs of the

customer. For example, in 2021 we acquired more

than 40 patents and patent applications from Arcanum

Alloys, Inc., an American company that develops and

manufactures innovative materials based on diffusion

alloyed steels. These include technologies that will enable

Severstal to manufacture metal products with specialised

characteristics, such as high aesthetic and corrosive

properties, equivalent to stainless steel produced at

lower cost, as well as with excellent formability.

We also completed the introduction of a new IT system

SAP S/4HANA. Eventually, this will enable us to develop

new solutions such as machine learning and software

robots, to further optimise our operating processes.

Setting new sustainability benchmarks

Having made strong progress against our near-term

GHG reduction target announced in 2020, in 2021 the

Company set out a medium-term target to reduce CO

emissions by 10% by 2030. The target is underpinned by

specific projects set out in our investment programme

including the technical re-equipment of production

facilities and the introduction of the best available

technologies at all the Company's assets. The combined

measures will reduce the intensity of Severstal’s CO

emissions from 2.063 tonnes of CO

per tonne of steel in

the year ending 2020 to 1.857 tonnes of CO

per tonne of

steel in 2030.

Delivering on this target will enable Severstal to become

one of the world’s top 15 steel producers in terms of

having the lowest intensity of greenhouse gas emissions.

Today, Severstal is in the first quartile and has one of

the lowest carbon intensity indicators in the industry

according to the World Steel Association.

For any major company, addressing Scope 3 emissions is

a key element of the decarbonisation strategy. Severstal

is one of the first steel producers in Russia to calculate

scope 3 GHG emissions and we are working closely

with some of our most emission intensive suppliers to

help them reduce their carbon footprint. This year we

also developed our climate memorandum to commit

members of our supply chain to actively reducing their

carbon footprint. We are pleased that our partners,

Schneider Electric and Air Liquide, have already joined

the initiative, and expect this to pave the way for many

others.

This year, we also demonstrated our long-term

commitment to moving away from our coking coal assets

when we announced the sale of Vorkutaugol. While the

Vorkutaugol transaction agreement includes offtake

agreements for Severstal, that will secure competitive

coal supply for our needs over the next five years, we will

increasingly be looking to decrease our consumption of

coking coal. We are pleased to have found a buyer who is

committed to developing these assets responsibly and

safely and I am confident that the futures of Vorkutaugol

and its employees are in good hands.

In 2021 we announced various partnerships that will

enable us to participate actively in the global energy

transition. We signed a Memorandum of Cooperation

with NOVATEK, one of Russia’s leading natural gas

producers, for the development of hydrogen, alternative

energy, and greenhouse gas emissions reduction

technologies that we will employ within our business

to reduce our own greenhouse gas emissions. We

also announced a Memorandum of Understanding

with Gazprom Neft to collaborate on the development

of technologies and materials for the production,

transportation, storage and use of hydrogen. For

example, this may include innovative, highly specialised

large diameter pipe products able to transport hydrogen

for our customers. We are seeing an opportunity to

develop "green" hydrogen at Karelsky Okatysh, and

export this to Finland.

Industry partnerships will be important in driving

progress on global sustainability priorities. In 2021

Severstal was pleased to work with the Mission Possible

Partnership and the Net Zero Steel initiative on the

development of a sector transition strategy for the

steel industry. Our joint objective is to outline pathways

to net-zero carbon emissions by 2050 that are rooted

in technical and economic reality. In 2021 Severstal

also became the first Russian steel producer to join

ResponsibleSteel, a global stakeholder standardisation

and certification initiative aimed at maximising the

contribution of steel producers to the sustainable

development of the global community.

Stepping confidently into 2022

The strategic progress we have made this year on further

enhancing our customer offering, expanding our markets

and delivering towards our sustainability objectives, while

taking advantage of new opportunities for the business,

leaves me confident in our position as we move into

2022. We are building a steel business that is fit for the

future, supported by a talented and motivated team, and

I would like to thank all of my colleagues for their ongoing

commitment.

Alexander Shevelev

Chief Executive Officer

Annual Report 202114 Strategic Report

Severstal’s purpose

Severstal’s purpose is to be an innovative, efficient and

trusted provider of solutions based on steel and non-

steel products, to benefit our clients and stakeholders,

while improving the well-being of our people and society.

Severstal will achieve this through constantly improving

and opening up new opportunities for our clients

and partners and delivering an excellent customer

experience.

Severstal’s business model

Severstal is a steel and mining company with its major

assets located in Russia. The unrivalled efficiency of

the Company’s business is underpinned by its vertically

integrated business model with high quality, modern

upstream and downstream facilities.

The Company is almost fully self-sufficient in raw

materials (iron and energy) and will have a five year

supply arrangement for coking coal once the disposal of

Vorkutaugol is completed. This model gives the Company

a natural hedge against the volatility of raw materials

prices throughout the year, supporting our industry-

leading margins. Severstal has one of the lowest cost

profiles among steel producers globally.

Severstal is predominantly focused on supplying

steel products to the domestic market, though it

is also a significant exporter. The Company’s cost

competitiveness and its position near the key steel

consuming regions of Russia as well as to Severstal’s

export markets are particularly valuable in that they

provide the flexibility to shift its sales focus between

the Russian domestic market and the export market in a

cost effective manner, depending on relative domestic

and global demand for steel and mining products.

Severstal has a diversified product portfolio with an

emphasis on high value-added steel products, and

is focused on consistently delivering new products

that will meet the requirements of the next generation

of infrastructure projects. We are also focused on

opportunities in new growth niches, such as wind

tower production and cryogenic steel components

for LNG tanks. Through Severstal Ventures, we carry

out investments in promising projects in the field of

new technologies and materials. Investing in venture

capital funds gives us unique access to a vast range of

projects focused on technologies that are ready for rapid

implementation.

Severstal has implemented a prudent investment

policy, under which its investments maintain a primary

focus on the key areas of the Company’s updated

strategy– superior customer experience, cost

leadership and embracing new capabilities, supported

by its culture and focus on sustainable development.

Investments are aimed at further strengthening

Severstal's financial performance, maximising value

creation and enhancing shareholder returns. Cutting-

edge technology will allow Severstal to produce

more high value-added and innovative products and

solutions, improve customer care and reduce its

environmental impact.

Purpose and strategy

Annual Report 2021 15Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Severstal’s value creation for its shareholders and stakeholders

Relationships with stakeholders

We maintain constant engagement with our stakeholders (government, shareholders, business partners,

employees, communities).

Facilities

We have unique high-quality production assets and geographical location. We are vertically integrated: 130%

self-sufficient in iron ore and 80% in electricity. We also plan to conclude a five-year supply arrangement for

coking coal with Vorkutaugol.

Financial

We have a strong balance sheet, supporting our investment projects.

People

Our people are fundamental to our business. Severstal retains a capable, engaged and productive workforce, and is

committed to ensuring the health and safety of its people.

Stakeholder value, 2021

Investors – US$ 2,912 m in dividends

Employees – US$ 1,106 m in wages, benefits and social

contributions

Government – US$ 922 m of taxes borne and collected

Operating costs – US$ 5,962 m recognised in

consolidated income statement in 2021*

Communities – US$ 44 m of social and charitable

investment

Interest paid – US$ 145 m

* Calculated by the sum of indicators: cost of sales, general and administrative

expenses, distribution expenses.

KPIs to measure the value we create

To measure the value created, we apply a set of Key

Performance Indicators and targets, covering financial

and non-financial aspects, these are set out on p. 9.

Severstal’s culture of

continuous progress, efficiency,

collaboration, focus on

sustainable development,

continuous improvement and

our search for innovation create

value for all its stakeholders.

Materiality and Risk

Identifying and understanding

Severstal's principal risks

and material matters is

core to the development

and implementation of the

Company's strategy. For

Severstal’s Material Matters and

Effective Risk Management see

pp. 26 to 37.

Governance

Severstal's governance ensures

that we respond effectively

to any matters that have the

potential to cause financial,

operational or reputational

harm to its business, whilst

acting with integrity for the

benefit of all our stakeholders.

For Severstal’s approach to

corporate governance see pp.

44 to 64.

Annual Report 202116 Strategic Report

Severstal's Strategy

Severstal adopted it's Vision and Strategic priorities in

2018. We established five strategic priorities: superior

client experience, leadership in cost reduction, new

capabilities, corporate culture and sustainability

performance.

Since then, significant changes have taken place at

Severstal: internal processes and approaches have

been transformed, with the Company now working more

closely with customers on solutions that will support

their success. A significant focus of our investment has

been the expansion of Severstal’s product range and

improving product quality. In addition, Severstal has

launched a whole new range of services and customer

engagement systems. Severstal’s repositioning towards

external audiences has been supported by fundamental

changes to the Company's working processes.

Superior client experience

Severstal is constantly adapting for its customers.

Priorities include:

• Building a client-focused organisation – three industry

specific teams, each with their own specialisation:

Construction, Mechanical engineering and Energy

engineering.

• Expanding its product mix by investing in products

and services and improving the quality of rolled steel

products (such as commissioning new pickling line

#4, commissioning a unit for slitting and cutting-to-

length).

• Developing new product categories that meet the

growing requirements of the market. Offering steel

grades that are new for the Russian market to help our

customers localise their supply chains.

• Developing digital, logistical, technical and financial

services for consumers.

• Launching financial services for small and medium-

sized business clients (YooMoney, fast bank

guarantees, fast lending, payment via corporate credit

cards).

The elements of Severstal’s strategy

Leadership in cost reduction Superior customer experience New capabilities

Efficiency allows us to direct

more resources to projects that

contribute to the success of our

clients and partners.

Continuous development of the

Company's offering providing

solutions that improve the efficiency

of our clients' businesses.

Going beyond the normal realms of

steelmaking, by using cutting-edge

technologies and business models.

Culture

Building a client-centric culture aimed at improving the efficiency of

customer service and the quality of interaction within the Company.

Sustainability

performance

Severstal takes a proactive, measured approach towards protecting the

environment, it’s people and it’s communities.

Severstal believes that providing our clients with best-in-class customer care will enable the Company to attract and

retain customers in a volatile macro-economic environment.

• Expanding customer segments, entering new niches:

wind energy offers for small and medium-sized

business clients.

• New models of customer interaction: partner

production and delivery of trade racks.

One of the priorities for ensuring Severstal delivers

a superior client experience is managing a range

of products and solutions. We offer a portfolio of

innovative products including products tailored for

individual orders, and have also designed our brand

architecture to make it easy for customers to navigate

through our range and select the products they need.

Offering our customers comprehensive solutions means

we can go beyond steel, while our advanced engineering

helps us optimise the final product design by selecting

the best materials. Our TechConsulting direction

is focused on developing our services to improve

processes and achieve economic benefits for our key

customers. Notable examples of such new solutions

in 2021 were deliveries of pipe piles, shelving units,

offshore piles, sandwich panels, tubex piles, dust and

windscreens.

Annual Report 2021 17Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Our product quality management involves the

identification of individual customer requirements

to ensure that products are of the required quality

and can be easily processed at the customer's site;

we have developed a system to monitor the product

parameters critical for customers, and to quickly

rectify any deviations; we have developed a system to

control product quality during transportation; and we

have streamlined our process for managing customer

feedback.

The main changes to the supply chain management

process include the development of programme

implementation on basic services in terms of delivery

performance; the development of additional services

within our distribution network (warehouse delivery,

cutting, financial instruments); the development of

individual services for key customers (e.g. a consignment

warehouse); and the development of a multimodal

delivery system, i.e. combining different methods for

delivering products to the customer.

We are also focused on customer service support,

and are introducing tools to improve customer

communications such as making up-to-date information

available 24/7 on customer's, personal portals, chat bots,

e-mail notifications; online services (smart calendar

services, online card payments for orders, certificate

verification); loyalty programme with additional services

and special offers to help our customers improve their

margins. In December 2020, Severstal launched its

"Vmeste" client portal ("Together"), which provides

customers with training materials, industry forecasts

and analytics, expert opinions and updates on corporate

activities. In April 2021, the @vmesteseverstal telegram

channel was also launched.

Leadership in cost reduction

Severstal believes that the Company's cost

competitiveness is a vital contributor to its success.

Therefore we continue to pursue a strategy of low-

cost steel production. Severstal's efficient, vertically

integrated structure means it is largely self-sufficient

in primary steel-related raw materials, which enables

the Company to maximise efficiencies and reduce

production costs.

In 2021 we continued to introduce efficient cost-saving

solutions. This enabled us to reach a record high

hot metal production and a record number of steel

meltings. Severstal has a strong track record of delivering

operational improvements that have enabled it to

become one of the lowest cost steel producers in the

world, according to World Steel Dynamics.

With the aim of enchancing its operational, technological

and business efficiency, Severstal invests, in the

construction and modernisation of production and

mining facilities, and the further development of its

supply chain system. These investments help the

Company to maintain and increase its cost advantage

over its competitors. Severstal constantly looks to

introduce advanced technologies across operations in

its key business areas, and is already running a number of

improvement programmes and has expanded its existing

Business System to cover new areas of operation.

New capabilities

Severstal embraces new opportunities by looking

beyond its traditional business to ensure that the

Company remains innovative and at the forefront of the

industry. Furthermore, Severstal endeavours to maintain

its operational leadership by actively identifying new

early-stage opportunities and developing technological

solutions that will add further value to its business model.

Severstal strives to bring innovation to all of its

operations, i.e. products, processes, and business

model. Innovation management covers continuous

improvements as well as breakthrough improvements,

such as R&D advanced engineering, technological

development centers within production segments,

Severstal Digital, and the Company's digital business

innovation team.

We continued to develop unique breakthrough

technologies. At the end of September 2021, we

acquired more than 40 patents and patent applications

from Arcanum Alloys, Inc., an American company that

develops and produces innovative materials based on

diffusion alloying of steels. These include the unique

technology for forming a special alloy on a rolled surface.

The technology makes it possible to produce metal

products not only with improved characteristics, for

example, with high corrosive properties, equivalent to

stainless steel, but also with excellent formability. At the

same time, the production cost will be lower than the

traditional technology of stainless steel production.

Also in 2021, Severstal and Hyperloop Transportation

Technologies, Inc. (HyperloopTT), a leading developer

of high-speed transportation, signed an agreement to

supply steel for the construction of the first commercial

prototype of the hyperloop transportation system.

HyperloopTT is an innovative transport and technology

company focused on the implementation of hyperloop

technology, a public transport system that uses steel

sealed pipes with a pressure close to vacuum and allows

transport capsules inside them to move passengers and

goods at speeds up to 1,223 km/h. Being the most metal-

intensive transport infrastructure, hyperloop can not

only change the market of the global transport system,

but also significantly affect the metallurgy market. One

kilometer of the path of the transport system of the

future consumes more than five thousand tonnes of

steel, and the volume of annual consumption of steel

under construction projects in the 2030s is estimated

at 20 million tonnes per year. Severstal will become

the main supplier of steel for the construction of the

first five kilometers of a full-size commercial transport

system that will serve as a safety certification centre for

HyperloopTT. This step will be decisive in the creation of

a new generation of intercity transport systems around

the world.

We are also strengthening our presence in Russia’s

fast-developing renewable energy market. Severstal

acquired an additional 24.5% stake of joint venture WRS

Annual Report 202118 Strategic Report

Towers from RUSNANO. The transaction was closed

in September 2021, and Severstal's share in the joint

venture has increased to 49% as a result. Today, WRS

Towers is the leading manufacturer of wind turbine

towers in Russia. "Green" power plants built using

the JV’s equipment have already been installed in the

Kamensky, Azov and Verkhnedonsky districts of the

Rostov region, as well as in the Murmansk region. WRS

Towers also plans to supply products for export orders.

Severstal’s Corporate Culture: Efficiency, Inspiration,

Cooperation

Severstal aims to maintain a corporate culture that unites

its talented and ambitious workforce. The Company

believes that maintaining and further developing a strong

corporate culture will enable it to accomplish its new

strategy, without compromising its core values of quality,

collaboration and innovation.

Severstal endeavours to constantly enhance its

advanced corporate culture by creating an environment

in which employees:

• strive to understand the needs of the business and

solve problems at a pace faster than the Company’s

competitors;

• are fully engaged to achieve the best results and are

able to develop their talents in various aspects of the

Company’s business;

• engage with partners to increase product value and

satisfy customer needs;

• are incentivised to work as a team towards minimising

environmental impact and creating a sustainable

business.

Severstal believes that these strategic priorities drive

operational and organisational excellence, promote

a safety-conscious culture and collegiate working

environment and improve customer satisfaction.

Severstal's priorities for advancing its corporate culture

include:

• Speed – solve any problem faster than competitors;

• High level of engagement – create an attractive

environment in which people achieve better results

faster;

• Partnership – work with partners for joint excellence;

• Sustainability – create a sustainable environment

together;

• Talent development.

Annual Report 2021 19Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Annual Report 202120 Strategic Report

Market

Environment

The steel market and the global economy

In 2021 GDP increased by 5.9% after falling by 3.1% in

2020, according to the IMF, due to the effect of a low base

and the significant recovery of economic activity due

to easing and lifting pandemic lockdowns. The spread

of COVID variants led to a new wave of the pandemic.

This had a particularly negative impact on the economic

performance of developing countries.

Inflation increased substantially in many countries

including the U.S. due to pandemic related supply-

demand imbalances, transport shortages following the

rapid recovery of global trade volumes and increased

commodity prices driven both by a fundamental demand

recovery and high liquidity inflows to financial markets.

Governments increased deficits in order to support the

economy and households during the pandemic, leading

to increasing final demand and consumer prices.

Global manufacturing activity continued to increase the

negative impact of raw materials deficits and value chains

disruptions. Automotive output has been particularly

affected by shortages of semiconductors.

Global GDP is expected to deaccelerate in 2022 to 4.4%

(IMF projection) as recovery potential is used up and

increased inflation negatively impacts economic activity.

The most significant risk for growth is that new variants

of COVID-19 might emerge, forcing governments to

introduce new economic restrictions.

Steel prices, $/t

400

200

600

800

1000

1200

HRC FOB Black Sea

Source: Metal Expert

Jan ’19

Mar ’19

May ’19

Jul ’19

Sep ’19

Nov ’19

Jan ’20

Mar ’20

May ’20

Jul ’20

Sep ’20

Nov ’20

Jan ’21

Feb ’19

Apr ’19

Jun ’19

Aug ’19

Oct ’19

Dec ’19

Feb ’20

Apr ’20

Jun ’20

Aug ’20

Oct ’20

Mar ’21

May ’21

Jul ’21

Sep ’21

Nov ’21

Feb ’21

Apr ’21

Jun ’21

Aug ’21

Oct ’21

Dec ’20

Dec ’21

Global steel demand increased by 4.6% in 2021 driven by

a recovery of 16.5% in ex-China regions. Ex-China steel

demand in 2021 exceeded the pre-crisis level of 2019 and

was slightly lower than the peak level of 2018 (World Steel

Research).

Chinese steel consumption decreased by 4.2% in 2021

as fiscal stimulus waned and residential construction

started to cool down reflecting the financial difficulties

experienced by some developers (World Steel Research).

Global steel demand is expected to increase by 0.4%

in 2022 thanks to a further 4.7% growth in ex-China

countries. Global automotive production is expected to

pick up as the shortage of semiconductors eases (World

Steel Research).

Chinese steel consumption is expected to decrease

by 3.5% versus 2021. There are risks of a weak steel

demand in China in 2022 due to the construction industry

crisis and low infrastructure investment (World Steel

Research).

Steel prices

The Russian export HRC price (FOB Black Sea) increased

by 84% in 2021 from $475/t to $876/t. A fast recovery of

global steel demand in H2’2021 led to a deficit in the

market and rapid depletion of steel inventories. As a

result, inventory levels in 2021 were extremely low in a

number of regions, stimulating high buying activity.

Annual Report 2021 21Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

At the same time, steel production capabilities were

restricted as a number of producers idled capacities

during the lockdown period in Q2 2020.

In the second half of 2021, steel prices started to

fall due to supply response, gradual replenishment

of inventories, some weakness in demand due to

semiconductor shortages, the residential market

slowdown in China and a new wave of the pandemic.

The Chinese government aimed to limit steel output in

2021 to the level of the previous year by discouraging

exports and direct regulations on output volumes at steel

mills. Therefore, falling demand combined with reduced

output should mean that the steel market in China

remains balanced.

Iron ore

The average iron ore price increased in 2021 by 48% from

$108/t in 2020 to $160/t CFR China. Prices were very

volatile, exceeding $200/t in July and collapsing below

Hard coking coal

Hard coking coal prices increased by 84% in 2021 from

$122/t to $224/t FOB Australia on average. Increasing

steel output and the restarting of blast furnace

capacities boosted demand for metallurgical coal in

2021. China introduced a ban on Australian coal imports

in October 2020 which depressed coal prices from

Australia and fuelled a rise in coal prices from other

exporting countries. However, in the second half of 2021

restrictions on Mongolian imports and safety checks

at Chinese coal mines caused a significant shortage in

China which led to skyrocketing Chinese domestic and

import prices. Australian benchmarks also responded

with significant growth.

$100/t in November. In the first half of 2021 iron ore

prices were supported by high steel production in China

and recovering steel output ex-China. However, in the

second half of the year Chinese steel production started

to fall, dragging down demand for iron ore.

100

150

200

250

300

350

400

450

Source: Metal Expert

Hard coking coal, FOB, Australian export, $/t

Jan ’19

Mar ’19

May ’19

Jul ’19

Sep ’19

Nov ’19

Jan ’20

Mar ’20

May ’20

Jul ’20

Sep ’20

Nov ’20

Jan ’21

Feb ’19

Apr ’19

Jun ’19

Aug ’19

Oct ’19

Dec ’19

Feb ’20

Apr ’20

Jun ’20

Aug ’20

Oct ’20

Mar ’21

May ’21

Jul ’21

Sep ’21

Nov ’21

Feb ’21

Apr ’21

Jun ’21

Aug ’21

Oct ’21

Dec ’20

Dec ’21

100

200

150

250

Source: Metal Expert

Iron ore (62% Fe fines), CFR, Chinese import, $/t

Jan ’19

Mar ’19

May ’19

Jul ’19

Sep ’19

Nov ’19

Jan ’20

Mar ’20

May ’20

Jul ’20

Sep ’20

Nov ’20

Jan ’21

Feb ’19

Apr ’19

Jun ’19

Aug ’19

Oct ’19

Dec ’19

Feb ’20

Apr ’20

Jun ’20

Aug ’20

Oct ’20

Mar ’21

May ’21

Jul ’21

Sep ’21

Nov ’21

Feb ’21

Apr ’21

Jun ’21

Aug ’21

Oct ’21

Dec ’20

Dec ’21

Annual Report 202122 Strategic Report

The Russian economy and steel demand

Russian GDP contracted by 2.7%

in 2020 and recovered

by 4.5% in 2021. The growth rate is expected to slow

in 2022, to 2.8%, with the recovery potential already

exhausted.

Consumer price inflation accelerated in 2021 to 8.4%

due to the effects of global food price growth, rouble

depreciation, which took place in 2020, and increasing

global raw material prices, and energy prices in particular.

The Central Bank of Russia increased its key policy rate

from 4.3% to 8.5%.

Steel demand in 2021 increased by 4.2%

after a decline

of 2.8%

in 2020. Growth in 2021 was below expectations

due to a weak performance in the second half of the

year. We saw a demand slump in the 2H 2021 against

the backdrop of high prices in the middle of the year.

Simultaneously, the introduction of duties on steel

exports starting in August 2021 led to destocking in the

domestic market.

Source: IMF

Source: Rosstat

Source: Metal Expert

Annual Report 2021 23Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Annual Report 202124 Strategic Report

Dear Shareholders,

In 2021, steel prices reached record highs, driven by

the economic rebound from the COVID-19 pandemic,

record demand and constrained supply. Our growth

strategy enabled Severstal to increase sales and

expand our share of premium product sales, pushing

our financial performance to new record highs.

CFO’s

Review

We also increased our export sales to take advantage of

attractive pricing conditions − with 47% of revenue in 2021

directed to export markets. The strength of our vertically

integrated business model continued to demonstrate

its advantages in a volatile pricing environment for raw

materials, hedging us against inflationary pressures, and

we maintained the lowest position on the global cost

curve. Severstal’s integrated cash cost of slab amounted

to $208 per tonne.

Severstal generated an impressive free cash flow of

$3,539 million and we achieved an industry-leading net

debt/ EBITDA ratio of 0.2, well within our target of below

1.0 and based on our solid financial position we have

continued to deliver compelling shareholder returns.

We remain committed to:

• The transparent principles of core capital allocation;

• Industry-leading EBITDA margins through improved

efficiency and cost management;

• Positive free cash flow through the cycle;

• Smart CAPEX – requiring a minimum 25% IRR for every

investment project;

• A strong balance sheet with the aim of not exceeding

the net debt/EBITDA ratio target level of 1.0;

• Returning value to shareholders in the form of

dividends.

Leading EBITDA margins

Severstal’s revenue for 2021 was $11,638 million. Steel

prices trended much higher during the year, and we

were able to obtain premiums on both the European and

the Russian markets, expanding our product range and

maintaining a high level of higher margin, high value-

added (HVA) products in our portfolio mix. We generated

a high EBITDA of $5,978million, and successfully

delivered against our target of delivering 10−15% of

EBITDA growth.

Despite high and volatile raw materials prices over

the year, we continued to demonstrate superior cost

management, building on the strength of our low-cost

profile and vertically-integrated business model, which

gives us greater control over the value chain.

As a result of Severstal’s continued operational

excellence, including strong equipment, labour and

cost efficiencies, we successfully maintained our

leading profitability position, with an EBITDA margin of

51%.

Annual Report 2021 25Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Robust balance sheet

We maintained a strong financial position during the

year, with low levels of debt (net debt/ EBITDA 0.2). Our

business performance is underpinned by the continued

strength of our balance sheet as we continue to invest in

high-return projects to support our business while paying

attractive dividends.

CAPEX

In 2021 our CAPEX of $1,157 million at our Russian Steel

and Resources divisions focused on the key areas of

the Company's growth strategy – providing an excellent

customer experience, maintaining cost leadership

and embracing new business opportunities during a

favourable market.

We maintain a strict internal rate of return (IRR) target

of at least 25% for development CAPEX projects, and as

we continued to transform our business, the majority of

our investment was focused on development projects

that will help us achieve a significant and long-term cost

advantage over our peers. We increased our focus on

business innovation, allocating $100 million towards

IT and digital project investments, developing our

e-commerce offering, and continuing to automate our

production and supply chain management. An additional

focus for our capital investment programme was the

sustainable development of our business, and we

increased our investments in improving individual safety

systems, labour protection, and environmental projects

in 2021.

In 2022 we will continue to invest in our key focus areas,

as well as on initiatives to reduce our carbon emissions

and enhance our safety performance and injury

prevention, as we continue to deliver on our long-term

strategic objective to lead the steel industry of the future.

Outlook

In 2021, following a sharp increase in steel prices, the

Russian government revised its policies to support

sectors such as construction and the automotive

industry, which were greatly impacted by price inflation.

As a result, the government introduced additional duties

on steel for domestic steel and mining companies, which

expired at the end of the year. In 2021, new taxes were

introduced, including an excise tax on steel and changes

in the methodology for calculating the mineral extraction

tax, effective from 2022. Overall, we expect the increase

of cost of these taxes to amount to around $273 million.

On 14 July 2021, the European Commission presented a

draft climate legislation package as part of an initiative

to reduce greenhouse gas emissions and reach net-zero

carbon emission levels by 2050. The package included

both new proposals and proposals for amendments to

existing laws. Among the proposed initiatives is the plan

to introduce a Carbon Border Adjustment Mechanism

(CBAM), which proposes a levy on imports of specific

carbon-intensive products to be paid by EU importers of

non-EU products. As a result, from 2023, manufacturers

will be required to report on the carbon footprint of

Alexey Kulichenko

Chief Financial Officer

their products and, following a three-year transition

period, from 2026 pay a levy calculated based on the

carbon footprint. Severstal has already adopted all the

mechanisms needed to gather and submit all relevant

information regarding our carbon footprint. We believe

that achieving our targets to reduce CO

emissions by

2030 will allow us to continue to be a leading player in the

EU market, despite the introduction of the CBAM.

Severstal is well-positioned to withstand these global

challenges. We remain confident in the strength of our

business model and our market, our leading position on

the global cost curve and our robust balance sheet. In

addition, we remain committed to our near and medium-

term emissions reduction goals, and to implementing our

broader decarbonisation strategy.

Shareholder returns

We continue to return maximum value to our

shareholders while maintaining a comfortable level of

debt.

Our dividend policy provides for the payment to

shareholders of 100% of the Group's free cash flow,

provided that the ratio of net debt to EBITDA remains

between 1.0 and 0.5, and if it exceeds 1.0, the amount

of dividends will equal 50% of the free cash flow for the

corresponding reporting period. If the ratio of net debt to

EBITDA is below 0.5, the dividend payment may exceed

100% of free cash flow.

With Severstal’s strong financial position in 2021, and

net debt/EBITDA of 0.2, the total accumulated dividend

returned to shareholders amounted to $2.9 billion.

Annual Report 202126 Strategic Report

Severstal’s Material

Matters and Sustainability

Performance

Understanding what is important to our stakeholders and

our business is vital to ensuring our success. By engaging

with our stakeholders, we become more aware of what

is important to them and by understanding the risks we

face, we are better placed to make informed decisions

that help us deliver on our strategy.

The Board published its view of Severstal’s Material

Matters and its Principal Risks on 15 October 2021, and

invited comments from investors and stakeholders. After

considering and incorporating the feedback received, it

was published on 18 February 2022.

Stakeholder engagement

Details of how we engage with our key stakeholder groups

are set out in detail on pp. 38–45 of Severstal’s 2020

Sustainability Report. The key stakeholder groups are:

shareholders and investors; employees; Government;

customers; partners/suppliers and our communities.

Our approach to materiality assessment

Identifying matters that are of material common interest

to our stakeholders and our business, and understanding

how they may affect our ability to create value over time,

are fundamental to the delivery of our strategy. The

topics identified through this process were wide-ranging.

They were analysed, prioritised and discussed by the

Board.

Each material matter covers a number of topics and

issues, and some are classed as principal risks facing the

Company. The matters we have identified as material to

our stakeholders and our business are identified below,

along with clarification of whether we consider these

to be principal risks. Principal risks are defined as risks,

or combination of risks, that would threaten Severstal’s

business model, future performance, solvency or

liquidity. Further information on principal risks is

provided in the section on Effective Risk Management.

Material matter Comment

Health and Safety Severstal is committed to eliminating 100% of fatalities and accidents across the business and

constantly improving health and safety standards at all our assets. Whilst protecting our

employees and contractors from harm is morally right, ensuring a safe workplace is also a direct

investment in the productivity of the business. Safety is considered a principal risk.

Workforce culture and capability Severstal relies on a capable and engaged workforce that behaves in accordance with Severstal’s

values and Code of Conduct to be able to deliver its strategy.

Cost leadership Maintaining Severstal’s cost leadership position is essential for us to operate profitably and be

able to invest in the future.

Politics and regulation Severstal operates in an unstable global environment that has an increasing risk of government

intervention through changes in legislation, taxation and protectionism. Politics and regulation

risk is considered a principal risk.

Customer experience Severstal’s customers have a need for ever more sophisticated products, and expect shorter lead

times and constantly increasing quality.

Market environment Steel is a global commodity that can be subject to rapid changes in demand with a significant

amount of unutilised capacity to meet that demand. Fluctuations in raw material prices can also

significantly affect finished product prices. The market environment is considered a principal risk.

Environmental impacts Severstal is constantly trying to reduce its environmental footprint, conserving energy and using

natural resources in a responsible manner. Environmental impacts are considered principal risks.

Climate change Understanding the effects of climate change on our business is important as we try to maximise

the opportunities associated with the transition to a lower carbon future. Climate change is

considered a principal risk.

The well-being of the city

of Cherepovets and other

communities of presence

Severstal needs Cherepovets to be a successful city with engaged citizens to provide an

environment with a qualified, skilled and engaged workforce, in order to achieve success.

Maximising shareholder returns Severstal’s investors expect Severstal to continue to provide superior shareholder returns.

Annual Report 2021 27Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

* LTIFR refers to Lost Time Injury Frequency Rate of Severstal staff, the number of lost

time injuries occurring in the workplace per one million hours worked.

Health and Safety

Severstal endeavours to ensure that the Company’s

health and safety practices are in line with the highest

global standards. Lost Time Injury Frequency Rate

(LTIFR*) is a key metric against which performance

is measured. Severstal invests heavily every year in

improving health and safety procedures, upgrading

equipment and increasingly uses operating machinery to

reduce the risks that are inevitably associated with heavy

industry.

The Company aims to achieve its long-term goals for

improving health and safety set in 2018:

• By 2025, reduce LTIFR by 50% compared with 2017 and

eliminate all work-related fatalities;

• By 2025, ensure all businesses achieve ISO 45001

certification.

In 2021, the Izhora Pipe Mill, Severstal SMC Vsevolozhsk,

Severstal lifting technologies, and UniFence successfully

achieved certification for compliance with the ISO 45001

international standard for occupational health and safety.

The total percentage of certified employees at Severstal

is 84%. Severstal Distribution (Cherepovets) and Severstal

Steel Solutions are scheduled for certification in 2022.

LTIFR for 2021 was 0.69, which is a slight increase in

comparison with 0.65 last year. This compares with 0.96

in 2017.

To the Company's deep regret there were three staff

and two contractor fatalities during the year. Two of the

accidents occurred as a result of a rock mass falling,

one worker trapped by a combine belt conveyor, two

incidents with contractors were due to a fall from a

height at a construction site and acute poisoning with

carbon monoxide. This is fewer than last year, when there

were 14 fatalities (four Severstal employees and 10 of

contractors).

Severstal has conducted an investigation into each case

to prevent a recurrence of such situations.

The Company is implementing a Fatal Injury Elimination

project aimed at preventing fatal accidents. Shop and

site managers have worked with risk managers to identify

critical technical, procedural and behavioural controls

that helps improve the effectiveness of employee

protection measures in the workplace. By assessing

the state of the controls in more than 36,000locations,

using checklists and operational information about the

identified issues, we can quickly respond and restore

the operation of the controls. The ongoing project helps

workers and managers to focus on fatal risks and prevent

fatal accidents.

In order to raise safety levels in contractor organisations,

the following measures have been taken:

• The procedure to prequalify contractors was

introduced and contractors were divided into groups

depending on the risks of the work performed;

• We introduced matrices for the distribution of

responsibility for labour protection (investment

facilities, outsourcing, repairs);

• We carry out a monthly rating of organisations;

• A procedure has been developed to incentivise

contractors based on the results of the rating;

• We introduced a methodology for assessing risks

before performing higher risk and non-routine work;

• Audits are carried out to assess the development of

the production safety management system;

• Development of plans for organisations with lower

results have been put into practice.

In 2021, Severstal invested over 1.4 bn RUB in health and

safety programmes that include the following initiatives:

• Modernisation of the air-gas control system and

expansion of the scope of the Strata security system at

the Vorkutinskaya, Zapolyarnaya, Komsomolskaya and

Vorgashorskaya mines (Vorkutaugol);

• Acquisition of an explosion suppression system

(Vorkutaugol);

• Installation / replacement of fire-fighting automation

systems (Cherepovets Steel Mill);

• The use of robotic systems that eliminate the need for

human intervention in hazardous areas (Cherepovets

Steel Mill);

• Ensuring the safe operation of the fleet of lifting

facilities (Severstal-Metiz);

• Collision avoidance systems for large vehicles

(“Antinaezd”) and control of personnel access to the

equipment (Karelsky Okatysh);

• Installation of fire alarm and automatic fire

extinguishing systems (Olcon);

• Expansion of the water level control system to prevent

flooding of mine workings (Yakovlevskiy Mine).

Workforce culture and capability

Severstal's people are key to its success and the

Company continues to invest in developing the skills

and careers of all of its team. Personnel development

is a constant area of focus and vital to supporting our

corporate culture. It is essential for the continued

progress of the business that each employee has the

opportunity to reach their full potential and take their

careers at Severstal to the highest level.

Talent development is focused on a number of areas:

• Attracting talent and support for young professionals;

• Staff development;

• Raising motivation and engagement.

Recruiting and developing talented graduates allows the

Company to meet its long- term need for professionals.

In 2021 we attracted the most experienced professionals

and most talanted graduates from the labour market via

the Severstal Leadership programme and also launched

two new trainee programmes – IT Hub for Severstal-

Infocom and Steel Hub for R&D functions. In the last

fiveyears, 96young professionals have passed through

the Leadership programme. 15 of the programme's

graduates have been evaluated as being ready to

fill the next available management positions in the

Company. We continue to promote our brand in targeted

universities and colleges – more than 1,800 students

passed an internship at different Severstal business

units in 2021.

Annual Report 202128 Strategic Report

We increased our position in the HeadHunter ranking

of Best Employers and jumped to 17th place compared

with 21st last year. We continue increasing the awareness

and attractiveness of our Employer brand through social

media campaigns: vacancies in social media, video and

Severstal Habr blog promotion.

In 2021, for the first time we launched an Employee

Experience research initiative for our main target

audiences and business units, to understand our

strengths and weaknesses of our offer to our current

employees. Based on the findings, we will implement

positive changes in 2022.

Severstal traditionally pays great attention to the

development of corporate culture, especially such

aspects as the culture of open dialogue – the opportunity

for employees to get answers to their questions, as well

as provide feedback on the work of various departments.

Since 2012, the Hotline has been actively operating in

Severstal, and its demand became especially relevant in

2021. The number of calls from employees amounted to

774 (2020 – 590 calls). It is important that 90% of requests

are processed within the agreed timeframe, 78% of those

who apply receive a response in seven days.

In 2021, the employees took an active part in the

“functional assessment” process. The feedback on

their work was received by 17 functional departments

of the Company, including such important services

for all employees as HR, IT, seсurity service and

communications. The total number of marks for all

functions in 2021 was 91,299 (41,048 in 2020). The

average assessment of the usefulness of processes by

company employees was 81%, which indicates good

contact between the functions and the employees,

creating value in the interaction.

Environmental impacts

In the reporting year, a number of initiatives were

introduced to reduce Severstal's environmental

footprint.

In 2021, Severstal continued implementing activities in

accordance with the Ecology National Project and the

Clean Air federal initiative. At Cherepovets Steel Mill,

the technical re-equipment of the solid fuel preparation

department in sinter shop #3 is in progress. Within the

framework of the project, a scheme for crushing solid

fuels using four-roll crushers will be implemented,

reducing the output of 0–0.5 mm sized particles. The

separation of these particles reduces fuel consumption

for the sintering process, thereby lowering carbon

monoxide emissions. The expected environmental

effect is 5,846 tonnes. We also continued with, the

reconstruction of electrostatic precipitators #2 and #9

of the aspiration air purification system of the sinter shop

#3, which is planned to be completed in 2022.

The expected decrease in pollutant emissions of

pollutants under the federal Clean Air project by 2025,

taking into account the measures already completed,

is 66,800 tonnes (representing 22.5% of the actual

emissions in 2017).

We continue to implement our Plan for the reduction

of discharges into the water body at Cherepovets Steel

Mill. In 2021, we completed the modernisation of the

circulating water purification system in sheet rolling

shop #2 as well as work on the technical reorganisation

of the wastewater disposal system AGTs-3. We

began to construct a wastewater treatment plant at

pumping station #8, as well as a fan cooling tower and

a stormwater treatment plant for coke oven and blast

furnace production.

Severstal continued to dispose of sovtol-containing

equipment: in 2021, 79 tonnes of transformers

and 10.7tonnes of capacitors were transferred for

neutralisation.

Karelsky Okatysh is implementing a comprehensive

programme to reduce sulphur dioxide emissions

from concentrate and pellet production (purification

of exhaust gases from roasting machines from

sulphur dioxide). In 2021, we commissioned a pilot

desulphurisation unit. Also in 2021, work continued

on the formation of a closed loop for a new tailing

dump compartment, the construction of a site for

processing, utilisation and disposal of industrial waste

and we completed two sites for waste accumulation. To

increase the efficiency of wastewater treatment at the

Korpangskoye deposit, the area of the phyto-treatment

system was increased to 450 m

We continued work on the construction of treatment

facilities in a stowing sand quarry at the Yakovlevskiy

Mine. The construction of 14 waste storage sites was

completed.

Olcon continued work on the construction of a

wastewater outlet with treatment facilities for the

quarry named after the 15th anniversary of the

October Revolution and completed the construction

of a wastewater outlet with treatment facilities for the

Komsomolsk open pit and two waste accumulation sites.

In addition, Severstal implemented a complex annual

investment programme for the Group. The 2022

programme includes 66 investment projects to reduce

the Group's overall environmental footprint. Total

investment amounts to 3,044 million roubles, which is

66% higher than in 2021.

When implementing environmental initiatives, Severstal

is led by its Environmental Policy and the principles of the

UN Global Compact, while at the same time contributing

to the achievement of its sustainable development goals.

In 2021, the Yakovlevskiy Mine and Olcon were certified

for compliance with the international standard ISO

14000: 2015 for the first time.

Total emissions of air pollutants grew by 5% to

468,000tonnes in 2021 due to the introduction of a new

ventilation trunk to Vorkutaugol and a corresponding

increase in the volume of degassed methane.

At Severstal Russian Steel atmospheric emissions

of pollutants increased by 1.1% in 2021, which was

caused by the launch of BF #3 and Coke Battery #11 at

Cherepovets Steel Mill.

Annual Report 2021 29Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

The growth of emissions of pollutants at the Severstal

Resource division (by 11.3%) in 2021 is associated with:

• an increase in the emission of sulphur dioxide

at the Karelsky Okatysh due to an increase in the

production of iron ore pellets by 7.3%, an increase in

the mass fraction of sulphur in the produced iron ore

concentrate by 16%.

• an increase in the volume of degassing methane in

Vorkutaugol in connection with the commissioning of

the modular degassing plant of the ventilation shaft #4

at the Zapolyarnaya-2 mine (the Vorkutinskaya and the

Zapolyarnaya mines).

More detailed information on atmospheric emissions is

presented in the Appendix.

Climate change

As a global steel industry leader Severstal is committed

to ensuring transparency and action in relation to

climate-related risks and opportunities, and supports

the voluntary recommendations of the Financial

Stability Board’s Task Force on Climate-related Financial

Disclosures (TCFD).

Climate change and energy efficiency, as well as reducing

negative impact on the environment, are among one of

the key priorities when developing steel technologies and

equipment. These objectives are naturally connected.

Despite technological advances, the steel industry

generates harmful emissions (7% to 9% of the world's

direct greenhouse gas (GHG) emissions), and is a large

consumer of energy resources.

Severstal was one of the first companies to join

Worldsteel’s ‘Step up’ programme, which aims to reduce

GHG emissions by the global steel industry through

the introduction of a new methodology. Launched in

Cherepovets, a study is ongoing, using the Worldsteel

benchmarking system to identify opportunities to reduce

GHG emissions from steel production, in the short-term.

In addition to the Worldsteel's project, Severstal

participates in the Net Zero Steel Initiative at the World

Economic Forum Mission Possible platform; cooperates

with an investors’ initiative Climate Action 100+; supports

the Net Zero Steel Pathway Methodology Project

(development of methodological approaches to achieve

Science-based targets); and is a member of the Climate

Committee of the Russian Union of Industrialists and

Entrepreneurs, and the Russian Steel association.

In 2021, Severstal became the first company in Russia to

join ResponsibleSteel, the first global multi-stakeholder

standard and certification initiative with a mission

to maximise steel’s contributions to a sustainable

society. As a member of ResponsibleSteel, Severstal

will collaborate with organisations from across the steel

supply chain, exchanging experience and contributing to

the development of new standards aimed at improving

the sustainability of the global steel sector.

ResponsibleSteel members comprise over 100 global

business and civil society organisations representing

the whole steel supply chain from mining through steel

production to buyers of steel from the automotive and

construction sectors, as well as civil society organisations

focused on human rights, biodiversity, climate change

and other key issues.

In 2021, The Russian Federation adopted a long-term

strategy for social and economic development with

low greenhouse gas emissions, expected to achieve

carbon neutrality by 2060. Severstal supports the goals

of the Paris Agreement, therefore the Board of Directors

adopted a medium-term goal to reduce the intensity of

greenhouse gas emissions by 10% by 2030 compared

with 2020, the Company began to develop a long-term

decarbonisation strategy until 2050/2060.

In support of global efforts, preventing further

climate change, Severstal has developed the Climate

Memorandum ACHIEVING A LOW CARBON FUTURE

TOGETHER. In this regard, Severstal comes up with a

proposal to the business community on cooperation

within the framework of the Climate Memorandum.

Schneider Electric, Air Liquide, Peikko, Specta, Sveza

became the first partners to join the initiative for a

sustainable low-carbon future.

Governance

Severstal's Board of Directors recognises climate change

as a significant factor and a principal risk affecting the

Company, therefore it carefully reviews climate risks,

implements measures to minimise them and strives to

seize opportunities associated with the development

of low-carbon technologies. The Board of Directors

discusses how climate change affects Severstal on

a quarterly basis, assesses the effectiveness of the

corporate governance system in relation to climate-

related factors, and develops strategic and tactical

measures to ensure the Company's sustainable

development in the face of climate change.

Issues related to climate change are supervised by

the Safety and Sustainability Committee, chaired

by an independent director, Philip Dayer. The Audit

Committee is responsible for overseeing Severstal's

public reporting, including climate change reporting, to

comply with transparency best practices, including the

recommendations of the Task Force on Climate-related

Financial Disclosures (TCFD).

In order to increase incentives to help the Company

address climate change issues, GHG reduction targets

were included in the 11 top managers’ KPIs. The weight of

the 2021 GHG reduction target was 5%. In addition, carbon

intensity and energy efficiency KPIs were established

for the CEO of Severstal, as well as the HSE Director and

Chief power engineer. Benefits are also provided to other

Company employees directly involved in projects related

to climate and reducing GHG emissions.

Strategy

The continuing demand for steel for infrastructure in

Russia and the developing world means that, despite

steel being the most recyclable construction material,

demand for steel cannot be met for some considerable

time by recycling end-of-life steel products alone. This

Annual Report 202130 Strategic Report

Risk Opportunity

Short-term (one to two years) Short-term (one to two years)

Legislative and regulatory changes mean that climate change could

become a new form of trade barrier. For example, it is highly likely

that the EU, currently Severstal’s largest export market, introduces

a cross-border carbon tax.

More focused work, possible by setting common targets for

mining and metals companies, should lead to GHG emissions

reduction, as new opportunities arise to produce iron ore

pellets and coking coal in ways that reduce the overall

greenhouse gas emissions from steel production. New

commercial opportunities emerge in Russia as demand for

renewable energy, such as wind energy, is growing. In2021,

Severstal increased its stake from 24.5% to 49% inajoint

venture for the production of wind turbines – Windar-

Severstal.

Medium-term (three to ten years) Medium-term (three to ten years)

The demand for steel produced directly from iron ore and coking

coal reduces as pressure from governments and consumers

means that recycling steel in electric arc furnaces, particularly with

electricity from non-carbon sources, is seen as environmentally

more attractive from an environmental viewpoint.

The principal areas producing iron ore and coking coal for

the global steel market (Australia and Brazil) are forecast to

be much more affected by the weather related aspects of

climate change, leading to more regular supply disruption,

compared with Severstal’s Russian-based production.

Longer-term (over ten years) Longer-term (over ten years)

Customers demand carbon free or significantly carbon-reduced

steel. Physical risks, including extreme temperatures, increased

intensity and duration of extreme weather events.

Carbon-capture technology or replacing coking coal with

hydrogen becomes more commercially viable.

is exacerbated in Russia by the relative immaturity

of the recycling industry. In order to meet demand,

it will be necessary to continue to produce primary

steel for the foreseeable future. The major source of

Severstal's GHG emissions is the use of coking coal

in the reduction process, for which there is currently

no effective substitute. Severstal believes that, in the

future, breakthrough technologies will be successfully

developed and the Company welcomes all research and

development efforts.

The metallurgy of the future is increasingly referred to

hydrogen metallurgy. Currently, hydrogen is expensive,

and its production, storage and transportation are

complicated by many technical problems. However,

there are more and more developments aimed at

obtaining hydrogen at a low cost.

However, while the issues of creating an efficient and

cost-effective technology of producing and using

"green" hydrogen have not been resolved, the prospects

for carbon taxation are challenging for full-cycle steel

companies to ensure the sustainability of their assets

and achieve maximum efficiency in the transition period

from traditional "coal" metallurgy to carbon neutral.

Such a set of tasks is not trivial, but can be solved through

a systematic movement towards the lowest intensity of

greenhouse gas emissions in the technological chain of

the BF-BOF chain. So, according to the report of the World

Steel Association dated September 2021, for the most

effective companies with the BF-BOF process chain, CO

emissions for the TOP-15% amount to 1.87 CO

per tonne of

steel, and for the TOP-5% amount to 1.69 per tonne of steel.

The completion of the sale of Vorkutaugol during 2022

will allow Severstal to focus on its strategy to develop

its steel and iron ore assets to be the leader of the

future steel industry and to reduce our carbon footprint

consistently. The coal asset contributed 14.3% of

Severstal’s greenhouse gas emissions (scope 1 and 2)

per annum. Reducing the consumption of coking coal

through the use of the latest technologies is part of the

Company's ambitious decarbonisation programme,

which includes the use of hydrogen fuel and an increase

in natural gas consumption.

In 2021, we continued our cooperation with the

GreenTech Startup Booster, Russia's first accelerator for

environmental startups. The project is coordinated by the

SKOLKOVO Foundation in Moscow, and is aimed at finding

and implementing innovative solutions within the areas of

ecology, industrial safety and sustainable development.

Severstal supports venture technologies of

decarbonisation through a department, working

with venture projects and focusing is on hydrogen

technologies, carbon capture and storage technologies.

Severstal is strongly interested in the development of

production technology of low-carbon hydrogen.

Until emerging technologies become established on

an industrial scale, which could take over a decade,

Severstal’s focus will be on identifying opportunities

to reduce the carbon intensity of steel production by

improving raw material quality, energy efficiency, process

yield and process reliability.

Severstal is also looking at decarbonisation strategies.

In 2021, the Company introduced a corporate standard

for managing greenhouse gas emissions, on the basis of

which an Action Plan is formed to reduce greenhouse gas

emissions for the short-term (until 2023) and medium-

term (until 2030) period.

We understand that our current initiatives will still not

be enough to meet the global climate challenge and it

is important to keep an eye on the long-term as well.

We are currently developing our long-term climate

strategy, which will be designed to work towards the

Paris Agreement goals . We intend to form a long-term

corporate decarbonisation strategy in 2022.

An analysis of the risks and opportunities of climate

change to Severstal is set out below:

Annual Report 2021 31Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Additional detailed supporting information is available in Severstal’s Climate Report.

Risk management

Given the Company’s need to adapt to the adverse

effects of climate change, Severstal analyses physical

climatic risks. On a regular basis, the state of buildings

and the state of permafrost soils are monitored on

the territory of assets located in the Arctic zone of the

Russian Federation. In addition, an analysis of transitional

risks is carried out, including regulatory, technological,

market and reputational risks.

The Company also identifies opportunities to develop

and grow its business further as part of its sustainability

journey:

• cost reduction resulting from climate projects,

production modernisation and energy efficiency

improvement;

• creating new markets for low-carbon products and

increasing revenues from the organic sales;

• commercialisation and roll-out of low-carbon

technologies.

Metrics and targets

Severstal GHG emissions

The Company has implemented a corporate system for

monitoring greenhouse gas emissions in accordance

with international methods and guidelines GHG Protocol

and IPCC 2006 Guidelines. The results for 2019–2021

were subject to assurance of Deloitte. The independent

assurance report for 2021 is included on page 108.

Severstal

GHG emissions, mln tonnes CO

2019 2020 2021

Scope 1 26.47 26.4 28.8

Scope 2 1.64 1.46 1.83

Scopes 1 and 2

28.11

27.86 30.63

* Scope 3 emissions will be published in Severstal's Sustainability Report 2021 after

completion of an independent review.

Cherepo-

vets

Steel Mill

GHG emissions, mln tonnes CO

2019 2020 2021

Scope 1 21.58 22.09 24.29

Scope 2 0.77 0.61

0.96

Scopes 1 and 2 22.35 22.7 25.25

* Scope 3 emissions will be published in Severstal's Sustainability Report 2021 after

completion of an independent review.

In 2021, total GHG emissions went up by 2.77 mln tonnes

e (9.9%) due to increased production volumes, and

the launch of Coke Battery #11 and Blast Furnace #3.

Whilst our performance ranks highly amongst our

global peers (ranking in the first quartile of companies

with the lowest GHG emissions according to the World

Steel Association), we appreciate that we can do better

as a business. As a result, Severstal is focused on

decarbonisation and in 2021 we set a new target of 10%

reduction in carbon intensity by 2030 compared with

2020 level in addition to near-term target of 3% reduction

by 2023.

Indicator

Carbon intensity per tonne of crude steel

2019 2020 2021*

emission

intensity

2.084 2.063 2.093

* The intensity indicator for 2021 will be updated based on the results of a planned

independent review and published in Severstal’s 2021 Sustainability Report.

In 2021, there was an increase in the intensity indicator

due to the ongoing reconstruction of Cherepovets

Steel Mill and the commissioning of new production

facilities. Despite this, the goal of reducing greenhouse

gas emissions by 3% by 2023 will be achieved through

planned activities to reduce greenhouse gas emissions.

Priority areas for reducing greenhouse gas emissions at

Severstal include:

• Modernisation and improvement of the energy

efficiency of process equipment;

• Increasing the completeness of the use of secondary

energy resources (blast-furnace gas, coke oven gas

and excess heat);

• Improvement of steel production technology;

• Improving the quality of raw materials and fuel;

• Using of secondary resources raw materials and waste.

The well-being of the city of Cherepovets and other

communities of presence

To improve the long-term sustainability of our regions,

Severstal implements a range of projects focused on

diversifying their economies and reducing monotown

dependencies, environmental protection, improving the

quality of life, creating a comfortable urban environment,

and developing the social and cultural potential of the

territories. Severstal is confident that sustainable social

and economic development is a crucial component of

the successful functioning of an enterprise. In 2021,

Severstal invested about US$ 44 million in social and

charitable programmes.

Severstal contributes to the development of the support

infrastructure for small and medium businesses,

social entrepreneurs and investor organisations, using

dedicated institutions, supporting local infrastructure

development, education, culture and sports.

During the COVID-19 pandemic, Severstal took

measures to prevent the disease from spreading at

all of its sites and offices, and provided financial and

wellbeing support to our employees. The Company

started a large-scale support programme for the

population of the regions where we are present in

partnership with local authorities and public structures.

Severstal businesses helped secure the supply of

medical and protective equipment and ventilators to

the healthcare institutions of Cherepovets, Vorkuta,

Olenegorsk, Kostomuksha, and the Belgorod region, as

well as several other cities, and financed the purchase

of personal protective equipment and disinfectants

for health care workers and other municipal response

teams as well as volunteers. In Vorkuta, in addition to

social partnership measures, the Company provided

financial support to the healthcare sector approximately

fourmillion roubles. In 2021, a computed tomography

Annual Report 202132 Strategic Report

scanner was installed in the Olenegorsk city hospital

thanks to the financial and organisational support of the

Olenegorsk GOK and Severstal. Prior to that, residents

had to travel to the regional centre for these kinds of

tests.

In total, Severstal allocated over 20 million RUB towards

supporting the local population and employees in

relation to the COVID-19 pandemic.

Despite the new challenges, Severstal continued to

implement its long-term projects to develop local

communities and social infrastructure, provide support

to vulnerable people, and deliver educational, cultural

and sport support programmes. The Road Home

programme, a comprehensive child neglect, juvenile

delinquency and social orphanhood prevention

programme. In 2021, the programme continued to

prevent social orphanhood in families with children

in which parents are affected by alcohol addiction.

The Healthy Family project of the Road Home charity

programme aims to work with families in which the

well-being of children is threatened by parental alcohol

dependence. In 2021, thanks to the work of project

specialists, 378 children from 199families affected

by alcoholism were given a safe and secure living

environment. The Healthy Family project has twice won

Presidential Grants aimed for the development of civil

society. The project is being actively implemented in

eight regions in Russia, including four regions where

Severstal operates.

The Agency for Urban Development supports small and

medium enterprises and is creating a cluster of creative

industries in Cherepovets and forming an integral system

for the development of the territory through the revival of

cultural historical traditions, folk trades and crafts.

In October 2021, Cherepovets opened a Pharmacy

Museum. The main exhibition is a the "green shop", an

assistant's room for classes. Severstal also supported

the “Leningrad Rock Club in Photos” exhibition, in

collaboration with the Russian Museum, in Cherepovets.

A new long-term project ‘Youth Parking’ was launched in

Cherepovets. It targets schoolchildren in grades from 5

to 7 from industrial areas, and is designed to create social

mobility opportunities for teenagers and to help develop

their personal qualities, to help them be successful in

their futures.

Annual Report 2021 33Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Annual Report 202134 Strategic Report

Severstal’s operations are subject to certain risks.

Effective risk management is an essential element of

our operations and strategy. The accurate and timely

identification, assessment and management of risks

supports decision making at all management levels and

ensures that the Company achieves its strategic goals

and meets its KPIs.

Risk Management Framework

Severstal’s risk management framework is designed to

identify, manage and mitigate the risk of any failure to

achieve its business objectives. Executive management,

managers and employees at all levels are part of the

risk management process on an ongoing basis, and

perform duties assigned to them within this. The Board

of Directors and all Severstal employees are obliged to

adhere to the Company’s risk policies and standards at all

times during their work.

Severstal has a formalised management structure in

place, with clear delineation of roles, responsibilities

and accountabilities for the Board, Audit Committee,

Executive Committee and risk management function.

The Board of Directors is ultimately responsible for

maintaining a sound risk management and internal

control system. The Board regularly discusses the

risks facing the business. The Audit Committee closely

monitors the effectiveness of the risk management

system, obtains regular risk reports from management,

is responsible for overseeing internal controls on

behalf of the Board and agrees with internal audit the

areas in which it requires assurance. Further details

on the oversight and management of risk are set out in

Severstal’s Audit and Assurance Policy, which is subject

to consultation with investors and stakeholders on an

annual basis.

Risk identification and assessment

Severstal’s risk landscape covers all risks that could

affect the business, customers, supply chain and

communities. There is a formal risk identification and

management process to ensure that risks from day-to-

day operations, the general economy, the steel sector

and the changing climate are continually identified,

evaluated and where possible mitigated throughout

Severstal’s operations.

Emerging risks

The Board carries out an assessment of emerging

risks in the market environment and the Russian and

global economy at each meeting. The management

presents its assessment of the market environment, the

trends and disruptive threats, and these are discussed

and challenged. Professors Auzan and Mau are able

to provide unparalleled insight into the current and

future state of the Russian economy and the effect that

international macroeconomic and political changes

could have on Severstal’s business. Between meetings

the Board is regularly briefed by management on the

views of analysts and management’s view of the market

environment and any changes to the current and future

legislative and regulatory landscape.

Risk appetite

Overall, Severstal takes a balanced approach to risk

taking, although the Board seeks to minimise safety,

health and reputational risks. The Board recognises that it

is not possible or necessarily desirable to eliminate some

of the risks inherent in Severstal’s activities.

In addition to this some of the risks facing the business

are not within the Company's active control, particularly

as far as market risk is concerned.

Assessment of principal risks

The Group's risk management system works effectively

and has supported a robust assessment by the Directors

of the principal risks facing the Group. The principal risks

are reviewed throughout the year and discussed formally

by the Board at least twice a year.

Principal risks

Severstal’s principal risk categories have been defined

as: health, safety and environmental; strategic; market;

legislative and regulatory; and cyber risk. The table below

lists the principal risks that could affect the Group as

determined by the Board, provides an assessment of

the current status of the risk and outlines how the Group

mitigates the risk.

The contents of the table, however, is not intended to be

an exhaustive list of all the risks and uncertainties that

may arise.

Effective risk

Management

Annual Report 2021 35Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Key

Relative severity Change since the last report

Speed at which the risk could

impact

Included in the Resilience

Statement

High

Medium

Increasing risk

Decreasing risk

Stable / No change

 Within three months

 Within a year

 Over a year

Principal risks Nature of the risk Mitigating activities

Overall change since the

last report

Health, safety and

environmental risks–

safety



Severstal operates in hazardous industries

and risks include the potential danger of fire

and explosions, as well as risks specific to

individual operations such as high levels of

methane or rock falls in mines; potential foot

traffic accidents and higher risk of accidents

during maintenance of steel operations.

Rigorously enforced,

comprehensive health and

safety policies;

Regular polygraphic screening

of all employees on health

and safety risk awareness;

Rigorous root cause analysis

of any safety issues and

implementation of appropriate

remedial action;

Continuous training,

communication and

behavioural learning;

Enhanced control over

contractors.

No change

Constant management

focus on improving safety

is reflected in improved

behaviour, LTIFR and

other safety metrics.

Health, safety and

environmental risks–

climate change



Climate risk has been a focus for the Board of

Directors for a number of years and is viewed

as a principal risk, especiaily as a result of the

potential impact that government action and

changing consumer behaviour could have on

its business model.

Severstal has committed to

an investment plan to support

its carbon intensity reduction

target;

Severstal is constantly

exploring ways to further

reduce its energy consumption

and the make-up of its raw

materials to reduce carbon

intensity further.

Increased risk

Climate issues continue to

rise up the global agenda.

Market risk – changes

in demand for steel



Domestic demand depends on the state of

the national economy. Investments in fixed

capital, construction and industrial production

in Russia are still exposed to the risks of

contraction from a fall in oil prices and a high

degree of uncertainty. Continued reduction

in domestic demand requires Severstal to

endeavour to increase its export sales, which

are less profitable.

Focus on customer

orientation; Optimisation of

sales geography; Search for

new sales markets; Focus on

the more stable,

higher value segments.

Stable

The Russian and global

economies appear to

be returning to a more

balanced position.

Market risk –

fluctuations in price

of steel



Export prices and profitability have increased

due to the COVID-19 pandemic; however,

high prices will inevitably lead to a return

of overcapacity issues. The increasing

introduction of protectionism measures is

likely to continue and the global economic

outlook remains unstable. Domestic prices

are driven by the premium over export

prices, which may reduce further if domestic

demand shrinks.

Customer orientation;

Use of longer-term contracts;

Engagement with anti-

dumping and tariff authorities.

Increased risk

Continuing COVID-19

uncertainty and risk of

countries imposing tariffs

to protect their steel

industries as a result of

the economic affects of

COVID-19.

Annual Report 202136 Strategic Report

Strategic

risk– potential

government action



The level of uncertainty in the global political

scene could result in a significant disruption

in “normal” economic activity.

The Russian government demonstrated

during 2021 that it can intervene at short

notice by imposing additional taxes and

export tariffs to achieve its economic aims.

There is also the risk of further sanctions

against Russian individuals and businesses,

which could lead to a reduced ability to deal

with a wide range of counterparties.

Business interruption and

business continuity plans;

Compliance procedures.

No change

Although largely outside

Severstal’s control,

procedures are in

place to ensure the

Company is compliant with

all sanction requirements.

Legislative and

regulatory risks – tax



Despite almost complete codification, the

provisions of Russian tax laws constantly

change. A whole range of new tax provisions

and amendments to previous regulations are

enacted every year, some of which

are favourable to the taxpayer, and some

unfavourable.

Severstal is compliant in

all material respects with

applicable tax, customs,

foreign currency and other

regulations, responding in a

timely manner to all changes

and endeavouring to maintain

a productive discussion with

regulatory authorities on

matters of the interpretation

of law. Severstal also ensures

that the government, where

appropriate, understands the

Company's position and the

effect of certain actions.

Increased risk

The proposed changes

to the tax regime for

metals and mining

companies, are currently

being implemented,

although their impact is

understood.

Market risk –

competition risks



Low capacity utilisation across the world

creates a highly competitive environment.

The global market has in the past been

positively affected by planned reductions

to steelmaking capacity by the Chinese

Government, primarily driven by

environmental considerations. However, the

balance between supply and demand within

China is changing, particularly as a result of

the COVID-19 pandemic, and it is possible

that the Chinese steel industry could become

more active in international markets as

Chinese production could outstrip supply.

Cost management and

product quality improvement

initiatives.

Stable

Although currently stable,

historic experience

indicates that the situation

can change quickly.

Market risk –

fluctuations in

the prices of raw

materials, energy

and services



Global raw material prices typically fluctuate

in line with stock replenishment cycles in

China, but are intensified by seasonal peaks

and troughs in the construction industry.

Due to a number of factors, including natural

disasters, supply issues and more recently

the COVID-19 pandemic, prices for raw

materials have fluctuated significantly and

this fluctuation trend is expected to continue.

Streamlined planning and

purchasing of raw materials,

including scrap;

More efficient use of raw

materials.

Increased risk

The pricing and supply

of raw materials remains

volatile.

Health, safety and

environmental risks –

environmental



Severstal operates industrial facilities that

hold heavy metals or hazardous substances

which could present significant risks to the

health and safety of local communities and

the environment.

The relevant authorities have imposed, are

imposing and could in the future impose

specific requirements for Severstal to reduce

its environmental footprint.

Severstal has a unified Health,

Safety and Environment Policy.

Severstal’s environmental

commitments are integrated in

the Corporate Environmental

Protection Policy of Severstal;

Severstal has implemented

several mechanisms to try

and ensure this type of risk is

below the average level for the

industry.

No change

The amount of legislation

and the expectations

of society in Russia and

beyond in relation to this

type of risk have remained

relatively stable since the

last report.

Cyber risk



As Severstal expands its digital footprint and

engages increasingly with its customers and

suppliers through the internet, and increases

interconnectivity within its operations, the

exposure to attack from malicious third

parties and the extent of potential damage to

Severstal is increasing.

Severstal continues to be

vigilant as far as cyber risk is

concerned and satisfactorily

completed a comprehensive

programme of staff education

and training during the year.

Increased risk

The risk of external cyber-

attacks continues to

increase.

Annual Report 2021 37Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

RESILIENCE STATEMENT

In preparing this Resilience Statement the directors

have made an assessment of the Group’s prospects

and carried out this assessment over the following time

periods:

• short term resilience - a twelve month period from

the date of approval of the financial statements - the

“going concern” assessment;

• medium term resilience - a period of between one and

three years;

• longer term resilience – a three to 15 year time horizon.

Assessment of the Group’s prospects

Severstal operates in an industry that requires a long-

term view. Severstal makes investments that will protect

its business model in the long term, for example:

the refurbishment of blast furnaces, investments in

improving the life of its mines and investments needed to

reduce Severstal’s greenhouse gas emissions.

Russia, Severstal’s core market, has significant

infrastructure needs and the Russian Government has

investment plans over the next five years to endeavour

to meet this need. The requirement for steel in Russia is

expected to continue to grow for the foreseeable future.

The rest of the world’s requirement for steel is also

expected to continue to grow, and Severstal expects,

subject to continuing free trade, to be able to continue to

participate in the global steel market, supported by the

Company's cost leadership position.

Our integrated model means Severstal is not as exposed

to volatility in the supply and prices of iron ore and coking

coal as some of its competitors. In addition to this,

Severstal’s proximity to export markets means sales can

be switched relatively quickly from domestic to export

markets and vice-versa.

Severstal operates an annual planning process which

includes short-term (one year) and longer-term (five

year) financial forecasts, based on inputs from each of its

businesses. These plans and risks to their achievement

are reviewed by the Board as part of its strategy review

and budget approval processes. The processes for

identifying and managing the Principal Risks are

described above.

Short-term resilience - going concern assessment

The going concern assessment considers whether

it is appropriate to prepare the Company's financial

statements on a going concern basis.

The Directors have reviewed the Group’s budgeted cash

flows and related assumptions, including appropriate

stress testing of risks (primarily steel demand and prices)

and taken into account undrawn credit facilities and debt

maturities. As a result, the Directors have a reasonable

expectation that the Group has adequate resources to

continue its operational existence for the foreseeable

future. For this reason, they continue to adopt the going

concern basis in preparing the consolidated financial

statements (in accordance with the ‘Guidance on Risk

Management, Internal Control and Related Financial

and Business Reporting’ issued by the UK’s Financial

Reporting Council).

Medium-term resilience

The Audit Committee has consulted with investors

and stakeholders on the scenarios to be used in the

preparation of the medium-term resilience in the

Resilience Statements and have agreed to use the

following scenarios:

• a prolonged downturn in the price of steel;

• a scenario where Severstal is unable to export steel

(this could arise for a number of reasons such as:

protectionist measures imposed by key export

markets; a significant rise in Russian taxation applied

to exports (as seen during 2021); imposition of a high

levy carbon border adjustment mechanism by, for

example, the European Union;

• a scenario which replicates the global slowdown in

steel production experienced in 2014, that lasts for

three years.

At its Board meeting in December 2021 the Board

reviewed the scenarios prepared by management,

which assume that Severstal will continue to have

access to global debt markets. The Board considered

the sensitivities included in the scenarios, and also

discussed the principal risks facing Severstal and the

mitigations in place to address these principal risks.

Based on the above, the Board confirms that it has a

reasonable expectation that the Group will be able to

continue in operation and meet its liabilities as they fall

due in the period to 31 December 2025.

Longer term resilience

The directors have also assessed the threats to

Severstal’s longer-term resilience, threats such as the

following:

• the development of a cost-effective alternative

technology to the production of steel by blast

furnaces;

• pandemics become a regular feature of the global

scene.

The challenge of climate change is discussed in other

sections of this Annual Report, as is how Severstal has

responded to the evolving COVID-19 pandemic, and the

directors are confident that the lessons learnt will serve

Severstal in addressing and overcoming other similar

challenges.

Annual Report 202138 Strategic Report

Divisional

Review

Severstal

Resources Division

Key assets

1. Karelsky Okatysh

Located in Karelia, north-western Russia, Karelsky

Okatysh is one of the country’s leading and most modern

iron ore mining complexes. It produces high-quality iron

ore pellets with an iron concentration of up to 67%. Its

three major deposits, Kostomuksha, Korpanga and South

Korpanga, have an estimated supply of some one billion

tonnes.

2. Olcon

Located in the Murmansk region, Olcon is Russia’s most

northerly iron ore complex. Olcon mines magnetite-

hematite quartzite ores from six open pits and

Olenegorsk underground mine, and produces high-

quality iron ore concentrate (c. 69%) and crushed stones.

The reserves of Olcon mines amount to 381 million

tonnes.

3. Yakovlevskiy Mine

The Yakovlevskiy deposit, with a total resource base

of over nine billion tonnes, is located 40km north of

Belgorod. The resources are unique in iron content, the

concentration of which reaches a minimum of 60%. From

2017 to 2023, the Yakovlevskiy deposit has implemented

a phased programme to increase production. It is

planned to increase ore production by five times – up to

five million tonnes per annum.

Performance overview

The market environment for steel-related commodities

in 2021 was influenced by the COVID-19 pandemic.

Nevertheless, iron ore prices demonstrated rapid growth

from April because of strong demand in China and

declined as demand softened caused by limits on Chinese

steel output. Coking coal prices increased significantly

from August 2021 as a result of deficit in China. In 2021, the

average headcount at Severstal Resources was 14,304,

compared with 14,175 in the prior year.

Olcon

Murmansk Region

Izhora Pipe Mill

Saint-Petersburg

Cherepovets Steel Mill

Vologda Region

Karelsky Okatysh

Republic of Karelia

Yakovlevskiy Mine

Belgorod Region

Rostov Region

Severstal-Metiz

Cherepovets, Orel, Volgograd

LLC WRS Towers (JV of Severstal,

Windar Renovables S.L., RUSNANO)

Murmansk

St.Petersburg

Vologda

Orel

Belgorod

Rostov

Volgograd

Annual Report 2021 39Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Olcon

Third party sales

(million tonnes)

Internal sales

(million tonnes)

20212020

4.2

0.0

4.3

0.1

Iron ore concentrate (Olcon)

Cost per tonne

(US$/t)

Average selling price

(US$/t)

20212020

132

• Average selling price for iron ore concentrate

increased by $60/tonne.

• Severstal managed to maintain a low cash cost in 2021.

Karelsky Okatysh

Third party sales

(million tonnes)

Internal sales

(million tonnes)

20212020

9.1

2.3

10.8

0.1

Iron ore pellets (Karelsky Okatysh)

Cost per tonne

(US$/t)

Average selling price

(US$/t)

20212020

184

• Average selling prices for iron ore pellets increased

by $94/tonne due to strong demand in China and the

recovery of pig iron production outside China.

• The improved cost dynamics reflect the operational

efficiency programme and cost-saving initiatives

despite cost inflation year-on-year.

Materials Energy

17%

25%

24%

34%

Labour

costs

Other

costs

Cost of sales structure 2021

Key developments

in 2021

Karelsky Okatysh

In 2021, the Company worked to increase production

of finished products, including imported materials, to

reduce costs and modernise equipment. The plant's

specialists carried out industrial tests for the production

of iron ore pellets with the addition of iron ore from

Yakovlevskiy Mine and concentrates from Olcon and

Kovdorskiy GOK. Through the efforts of the Upstream

cross-functional team, the Company organised the

production of a trial batch of iron ore pellets with a

basicity of 0.9. The pulp receiving unit at the concentrate

and pellets production department was modernised

during a planned shutdown of the plant. A project was

launched to implement a private corporate network of

LTE standard in quarries and on an industrial site. The

Company also organised the construction of sites for

treating industrial waste, which will help reduce the

complex's impact on the environment.

Olcon

In 2021, Olcon implemented significant investment

projects in line with the Company's long-term strategy.

These are projects to improve the quality of concentrate

and increase the volume of finished products.

Accordingly, the first trenchless mill in Russia was

installed at the crushing and processing plant, and a

screw separation project was implemented. As a result

of preliminary tests of these installations in November

Annual Report 202140 Strategic Report

the Company managed to achieve a historic record in

iron ore concentrate quality of 69.17%. During the year,

preparation works for the construction of a quarry were

carried out at the new Pechegubskoye deposit; and the

electrification and road construction were completed.

Yakovlevskiy Mine

Iron ore production in 2021 amounted to 2.5 million

tonnes. Major investment projects to the surface units'

infrastructure were completed in 2021, in preparation

for the mine reaching an annual production of five

million tonnes. These included the construction of

a loading and storage complex that aims to exclude

vehicles from the transport and shipment of ore, making

a completely closed process. In addition, the technical

re-equipment of the first stowing complex and the raw

material enrichment plant stem lifts were completed.

An important step towards the development was the

introduction of mine dispatching.

In the underground mine, more than 12 km of fibre optic

lines were laid, more than 100 autonomous marking

points were installed, more than 200 Wi-Fi access

points were installed, and about 70 units of underground

equipment were equipped. The project will increase

operational control of the production process and the

speed of reaction to technological or technical downtime

of equipment, in addition to reducing safety risks.

Strategic priorities

for 2022

Karelsky Okatysh

In 2022, Karelsky Okatysh will continue to invest in

production optimisation, safety and environmental

protection initiatives. The main objectives of the

enterprise are to reduce costs, meet targets for the

volume of extraction and quality of iron ore, and to

modernise the plant. The enterprise will continue to work

on major strategic projects including the construction of

a cyclic-flow technology complex in the Central quarry

and reconstruction of the MAERZ furnance.

Olcon

Mining of ore at the Pechegubskoye deposit will start

in 2022, allowing Olcon to maintain current production

volumes. Additional exploration of the Aivar and Lead

tundra deposits, scheduled for 2022, will help to achieve

the Company's strategic goal of producing five million

tonnes of iron ore concentrate per year. In addition,

a project will be launched to develop a technogenic

deposit of an emergency tailings facility. This should

increase concentrate production by 166,000 tonnes per

year. Also in 2022, design and survey works will be carried

out for the construction of a coarse crushing building

at the Olenegorsk quarry and pre-design work for the

construction of a railway to the Aivar and Lead tundra

deposits.

Yakovlevskiy Mine

Production at Yakovlevskiy Mine is projected to increase

to 3.7 million tonnes in 2022. The priority is capital mining

operations in the underground mine, which will expand

iron ore mining and the construction of a dry magnetic

separator, enabling the separation of an ore fraction

with a high iron content (66% or more). Safety remains

an important area, which is the focus of a number

of investment projects and training programmes for

personnel.

Severstal Russian

Steel Division

Severstal Russian Steel is a leading Russian steel

producer, with a broad product mix and an extensive

distribution network. The division focuses on high

value-added flat steel products and the production of

long products for construction and downstream sales.

Severstal’s downstream assets include producers of

large diameter pipes and metalware, as well as service

centres and stamping facilities for weatherproof

automotive parts. The division has the highest share of

high value-added products among its domestic peers,

while Severstal’s flagship Cherepovets Steel Mill is one of

the most cost-efficient steel mills in the world.

Located in north-west Russia, the division’s steel

operations benefit from convenient rail access to the

Company’s mining operations and low-cost direct river

access to the Baltic ports. It is also well positioned to serve

the industrial hubs around St. Petersburg and Moscow.

In 2021, the average headcount at Severstal Russian Steel

was 39,528, compared with 38,046, in 2020.

Key assets

1. Cherepovets Steel Mill

One of the world’s largest stand-alone integrated steel

works by capacity as well as an excellently located,

low-cost steel producer. It produces a wide range of flat

and long-rolled products, including hot and cold-rolled

flat products, galvanised and colour-coated products

and long-steel applications. Rolling Mill 5000, located in

Kolpino, near St. Petersburg, produces strips for large

diameter pipes, as well as thick plates for ship and bridge

building, nuclear and other industries.

2. Izhora Pipe Mill

The mill in Kolpino specialises in manufacturing large

diameter pipes from plate, which are produced at the

nearby Kolpino Mill 5000. It has a production capacity of

600,000 tonnes of pipes per year, most of which are used

in oil and gas pipeline projects.

3. Severstal-Metiz

Manufacturer of more than 100,000 product types,

including cold-drawn steel, steel shapes, railway

Annual Report 2021 41Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

fasteners, low carbon and high carbon wire, nails, steel

fibre, steel wire ropes, wire strands, steel meshes,

fasteners and carbonyl iron powders. Severstal-Metiz

comprises several subsidiaries: the Cherepovets site

in north-west Russia, the Orel site in central Russia, the

Volgograd site in the Povolzhye region and the Dzerzhinsk

site in Nizhny Novgorod Region.

4. Downstream production assets

• The distribution network of PAO Severstal supplies

steel products to small and medium businesses in

Russia and the European Union. In 2021, its sales

volumes exceeded 3.2 million tonnes of rolled metal,

an increase of 16% compared with 2020. Severstal

Distribution consists of a network of warehouses and

sales offices in 15 cities of the European part of Russia

and 12 countries of Northern, Central and Western

Europe, and also offers the services of its own and

partner metal service centres. The main advantages of

steel consumers working with Severstal Distribution

companies are the purchase of rolled metal products

directly from the manufacturer with a full distributor

service, including processing in steel service centres,

warehouse and logistics services, technical support

and financial solutions. PAO Severstal carries out

export deliveries to remote markets through Severstal

Export GmbH.

• Severstal-Gonvarri-Kaluga service centre is a Russian-

Spanish joint venture of two global steel manufacturing

and processing leaders. Providing a link between

a rolled-metal manufacturer and the final user, the

enterprise provides a whole range of services related

to longitudinal and transverse cutting of rolled metal,

and blanking for further processing. It has a design

capacity of 160,000 tonnes of rolled metal products

per year, produced for the automotive, electrical and

machinery industries.

• Gestamp-Severstal-Kaluga Stamping Facility is a joint

venture between Severstal and international group

Gestamp. It is equipped with a number of press lines

and produces the full range of rolled steel products,

from coils to car components for international car

manufacturers. It has an annual output of 13million

stamped parts and has potential to expand

production.

• Severstal-SMC-Vsevolozhsk service centre is a joint

venture with Japanese company Mitsui. It provides

a wide range of services, from longitudinal and

transverse cutting of rolled metal, blanking for further

stamping to forming unique client-oriented storage,

packaging, logistics and financial programmes. The

enterprise has the first production line in Russia and

CIS countries for welding blanks for the automotive

industry. Severstal was the first among Russian steel

companies to enter the market of parts that combine

the highest requirements for safety and economy of

light vehicle structures. These products are in demand

by manufacturers who assemble cars in Russia and

the CIS countries. The service centre’s capacity is

150,000 tonnes.

• Gestamp-Severstal-Vsevolozhsk is a joint venture

of Severstal and Gestamp group. It is equipped

with press line and welding assembly equipment

and produces car components for international car

manufacturers. Annual output is some 600,000 parts –

press and assembly – with the potential to increase up

to two million parts.

Production of crude steel increased to 11.6 million tonnes

due to implementation of investment and technological

measures at the site of the Cherepovets Steel Mill. The

weighted average steel selling price for 2021 rose by

70%, due to a lack of supply in the markets and increased

demand. The share of HVA products amounted to 46% in

2021.

20202019 2021

Hot-rolled strip

and plate

Cold-rolled flat

products

Long

products

521

618

469

844

962

688

454

537

425

Average selling price ($/t)

Severstal has the broadest product mix among Russian

metallurgical enterprises. The Company’s product

portfolio is constantly expanding, and its focus is on

the development of high-tech products with high

value-added, with clients’ requests actively taken into

consideration. Severstal’s key domestic customers

include construction companies and pipe mills,

machinery and automotive clients. Severstal Russian

Steel benefits from its proximity to export routes. Its

export share depends on the health of the Russian

market and the attractiveness of international sales

options as an alternative. In 2021, exports comprised

48% of the division's total sales volumes. Sales and

cost of sales figures in the charts below are presented

as a percentage of the total sales or cost of sales of the

Severstal Russian Steel division.

Annual Report 202142 Strategic Report

Russia Europe

America

CIS

OtherMiddle East

Revenue by regions 2021

31%

55%

Materials Energy Labour Other

Cost of sales structure 2021

83%

Construction Machinery and automotive

13%

22%

60%

Energy Other

Revenue by industries 2021

Russia Europe

Other

25%

62%

CIS

AsiaMiddle East

Revenue by regions 2020

Materials Energy

10%

72%

Labour Other

Cost of sales structure 2020

Construction Machinery and automotive

11%

26%

57%

Energy Other

Revenue by industries 2020

Annual Report 2021 43Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Key developments

in 2021

• Ramp-up of blast furnace #3. The total investments in

the project amounted to over 34billion roubles. The

design capacity of blast furnace #3 exceeds three

million tonnes of pig iron per year. Blast furnace #3

allows Severstal to increase iron and steel production

volumes. The set of engineering solutions of the unit

increases flexibility by varying the composition of

the loaded raw materials, depending on the current

market situation. At the same time, the project uses

the best available technologies and leading global

practices to improve the environmental parameters

of production. The key environmental technology of

BF #3 is the aspiration system, which cleans dust

from the air and workplaces. Residual dust content in

the air will not exceed 8mg/m

, which corresponds

to the level of the cleanest steel mill in the world. The

efficiency of blast furnace gas purification will be

99.99%.

• Launch of the electric arc furnace #1 (EAF #1). The

flexible technology of the new unit makes it possible

to significantly reduce the consumption of electricity

and graphite electrodes. This helps to decrease the

cost of steel production, minimise the Company's

dependence on a volatile market and improve energy

efficiency. The EAF #1 is an example of how green

technologies can be implemented in metallurgy.

• Completion of the construction of the second block

of the new coke oven battery #11 with the coal stamp

charging unit. The volume of investments in the

project has exceeded 35 billion roubles. The new

unit will make it possible to increase the volume of

coke production in line with increasing volumes of

iron and steel production. The key feature of the new

unit is stamp charging technology, which gives high

economic efficiency of production through the use

of low-value coals without loss of product quality. The

environmental component of the project is extremely

important. For example, a dust-free coke discharge

system will reduce the concentration of dust in the air

to 10 mg / m³, which corresponds to the best available

technologies in the steel industry. The battery complex

is equipped with smokeless charging systems for

coke ovens. At the same time, new capacities in the

technological chain make it possible to decommission

old coke batteries which are less environmentally

friendly and safe.

• Completion of the investment programme aimed at

developing wide range of products. The volume of

investments in the complex of projects amounted to

11 billion roubles. The technical re-equipment gives

Severstal the opportunity to produce high-quality steel

products up to 1,850 mm wide. The key project was

the construction of a new continuous pickling unit

#4, the construction of which accounted for 60% of

the investments within the re-equipment. The new

capacities allow us to strengthen our positions in hot-

rolled pickled steel, cold-rolled steel, including coated

steel. Increased volumes of products with improved

surface quality and an expanded product range will

be in demand in such segments as the automotive

industry, household appliances, industrial packaging

and construction. At the same time, Severstal has

completely switched to etching with hydrochloric acid

instead of sulphuric acid, which will have a positive

effect on the environment.

• The reconstruction of the automatic control system

for metal annealing in bell furnaces in the production

of flat rolled products of Cherepovets Steel Mill has

been completed. As a result, a complex of automation

systems for 112 hydrogen bell furnaces was replaced,

servers at the control station were installed, in addition

to a new database, controllers were replaced and

a mathematical model was updated to calculate

temperatures, heat treatment time and other

parameters of the units' operation. The capacity of

new system after modernisation is 1.3 million tonnes.

Strategic priorities

for 2022 and beyond

• Implementation of an investment programme aimed

at improving the efficiency and environmental

friendliness of the first element of the Cherepovets

Steel Mill technological chain.

• Launch of long-range wire mill 170, a unique project

for the global metallurgy industry. Due to the unit,

the Company expects to expand its product line

and improve the quality of long products, increase

the share of premium products and enter new sales

markets. These improvements are directly aligned

with Severstal's strategy. In addition, the long-range

wire mill 170 will increase its output of long products

and improve the energy efficiency of production by

reducing the consumption of gas, electricity and

process water.

• Increase steel production to 12 million tonnes by 2023

due to increased operational efficiency.

• Enhance profitability by ensuring a higher share of

value-added products, new products and unique sales

models and commercial initiatives.

Corporate

Governance

46 Annual Report 2021 Corporate Governance

Board of Directors

Role: Chairman of the Board of Directors, Member of the

Safety and Sustainability Committee

Experience: Born in 1965. Alexey Mordashov has been

working for Severstal since 1988. He started his career as

a Senior Economist, becoming Chief Financial Officer in

1992. In December 1996, he was appointed as Severstal’s

Chief Executive Officer. Between 2002 and 2006 he

served as CEO of Severstal Group and was Chairman of

Severstal’s Board of Directors. From December 2006

to December 2014, Alexey was CEO of Severstal. From

December 2014 until May 2015, Alexey Mordashov served

as CEO of AO Severstal Management – the managing

company of PAO Severstal. Alexey was elected Chairman

of the Board of Directors of PAO Severstal in May 2015.

External appointments:

• Member of the Supervisory Board (since June 2010) of

the Non-Profit Partnership Consortium “Russian Steel”

(currently – Association “Russian Steel”), President

of the Consortium (from 2013 to 2015), from 2016 to

2017 – Chair of the Supervisory Board; since 2021 –

President;

• Member of the Executive Committee of the World

Steel Association, headquartered in Brussels, Belgium.

Prior to that Chairman (from 2012 to 2013) and Vice-

Chairman (from 2013 to 2015);

Alexey

Mordashov

• Chairman of the Russian Union of Industrialists and

Entrepreneurs’ (RSPP) Committee on Integration,

Trade and Customs Policy and WTO;

• Co-Chairman of the Northern Dimension Business

Council;

• Vice-President of Russian-German chamber of

commerce, member of the Russian-German

workgroup responsible for strategic economic and

finance issues;

• Member of the Board of Directors of Nordgold S.E.;

• Member of the Board of Directors of TUI AG;

• Member of the Strategic Council for Investments in

New Industries under the direction of the Minister for

Trade & Industry of the Russian Federation;

• Chairman of the Board of Directors of Lenta Ltd;

• Member of the Supervisory Board of the Federal

State Budgetary Institution “National research center

“Kurchatov Institute”.

Education: Alexey earned his undergraduate degree from

the Leningrad Institute of Engineering and Economics.

He also holds an MBA degree from the Business School

of Northumbria University (Newcastle, UK). Alexey was

granted an honorary doctorate from the Saint-Petersburg

State University of Engineering and Economics in 2001

and from the University of Northumbria, UK in 2003.

47Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Role: CEO of AO Severstal Management, Member of the

Safety and Sustainability Committee

Experience: Born in 1974, Alexander Shevelev started

his career at Cherepovets Steel Mill as a repairman

in the repair-tool shop in 1997. Later he worked as a

shift foreman, lead economist and deputy head of

strategic planning department, and head of production

development department in OAO “Cherepovets Steel

Mill”. From 2002 to 2004 he worked as Technical

Support Director of OAO“Cherepovets Steel Mill”. In

2012 Alexander Shevelev became executive director of

OAO “Cherepovets Steel Mill” (currently OAO “Severstal-

metiz”). From 1 July 2012 he was appointed First

Deputy Mayor of Cherepovets, and in June 2013 he was

appointed Deputy Governor of the Vologda region. From

July 2013 to March 2016 he was CEO of OAO “Severstal-

metiz”. From April 2016 to December 2016 he was CEO

of SVEZA Group. In December 2016 Alexander was

appointed CEO of and elected to the Board of Directors of

AO Severstal Management.

External appointments: none.

Education: Alexander Shevelev graduated from the

Vologda State Dairy Farming Academy with a degree in

Mechanical Engineering and from the State Technical

University in St. Petersburg where he received a Masters

degree in economics and management. Alexander also

holds an MBA degree from the Northumbria Business

School (Newcastle, UK).

Company shareholdings: Alexander Shevelev holds

0.0007% or 5,880 Severstal ordinary registered shares.

Role: CFO of AO Severstal Management

Experience: Born in 1974. Between 1996 and 2003 Alexey

worked for Sun Interbrew, starting his career there as

a cash flow economist at the Rosar plant in Omsk and

ending it as Efficiency Planning and Managing Director of

Sun Interbrew. Between 2003 and 2005 Alexey worked

as CFO at Unimilk. From December 2005 to July 2009 he

worked as CFO of ZAO Severstal Resource. In July 2009

Alexey Kulichenko was appointed CFO of OAO Severstal.

From 8 November 2016 till 11 December 2016 he was

CEO of AO Severstal Management.

External appointments: Non-Executive Director of Lenta

Ltd.

Education: Alexey graduated from the Omsk Institute of

World Economy with a degree in Economics.

Company shareholdings: Alexey Kulichenko holds

0.01432% Severstal shares represented by 120,000

Global Depository Receipts.

Alexey

Kulichenko

Alexander

Shevelev

48 Annual Report 2021 Corporate Governance

Role: HR Director of Severgroup, LLC

Experience: Born in 1978. Prior to Severstal Anna Lvova

worked in leading international FMCG companies for 10

years. Anna joined Severstal in 2010. For seven years,

she hold positions of Senior Manager and Head of the

Department for recruitment and development. In 2017,

she was appointed as the HR Director at Power Machines.

Anna currently holds the position of HR Director of

Severgroup. She coordinates the development of the HR

services of the Group's companies, focuses on finding

and sharing best HR practices, as well as working with top

management and members of the future management

talent pool.

External appointments: none.

Education: Anna graduated from the Kurgan State

University, faculty of Roman-German philology (principal

higher teacher education) and London Business School

(advanced training in strategic HR management).

Company shareholdings: none.

Anna

Lvova

Role: Chief Technical Officer of АО Severstal

Management, Member of the Safety and Sustainability

Committee

Experience: Born in 1982. Before joining Severstal,

Agnes Ritter worked as a consultant for The Boston

Consulting Group (BCG) and worked in operational and

organisational efficiency in the heavy and oil industries.

Agnes Ritter joined Severstal in 2010. From 2011 to 2016

she was Head of Production at Severstal Resources. In

April 2016, she was appointed Director of Production in

AO Severstal Management. In September 2018 she was

elected to the Board of Directors of PAO Severstal.

External appointments: none.

Education: Agnes graduated in Vienna, Austria with a

degree in sales and marketing, and then furthered her

studies at the College of Europe. In 2013, she studied

TGM (transition to general management) at INSEAD

business school, Fontainebleau and Singapore.

Company shareholdings: none.

Agnes Anna

Ritter

49Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Sakari

Tamminen

Role: Senior Independent Director, Chairman of the

Remuneration and Nomination Committee, Member of

the Audit Committee

Experience: Born in 1953. Sakari Tamminen has extensive

relevant experience at operational and Board level

within steel and metals companies as well as industrial

companies, including being the President and CEO

of the Finnish steel and metal construction company

Rautaruukki Corporation from 2003 to 2014. Sakari is

currently a member of the Board at steel company Ovako

Ab. Sakari was the member of the Board of Directors

of World Steel Association from 2003 to 2014; the Vice

Chairman of the Board of Sanoma Corporation from

2002 to 2013; member of the Board of Lemminkäinen

constructing company from 2002 to 2009; Chairman of

the Confederation of Finnish Industries from 2009 to

2010 and held a directorship of Danske Bank Plc from

2014 to 2017. He is Chairman of the Board of Directors of

Versowood Oy and M.J.Paasikivi Oy. He also held roles as

Executive Vice President and CFO of Metso Corporation

(1999–2003) and Rauma Corporation Plc (1991–1999).

External appointments:

• Member of the Board of Directors of Ovako Ab;

• Chairman of the Board of Directors of Versowood Oy;

• Chairman of the Board of Directors of M.J.Paasikivi Oy.

Education: Sakari Tamminen studied in Tampere

University. He holds a degree of Master of Science

(Economics).

Company shareholdings: Sakari Tamminen holds

0.00084% Severstal shares represented by 7,000 Global

Depository Receipts.

Role: Independent Non-Executive Director, Chairman of

the Audit Committee, Member of the Remuneration and

Nomination Committee

Experience: Born in 1955. Alun Bowen spent almost

37 years working for KPMG in London, Sydney, Cardiff,

Hong Kong and Kazakhstan. Alun has extensive

relevant experience both at Board level and in advisory

roles. Between 2001 and 2005 he led KPMG’s global

sustainability practice and was personally involved

in providing assurance on BP’s and Chevron’s global

greenhouse gas emissions and Anglo American’s Report

to Society. He also was the Managing Partner of KPMG

Kazakhstan from 2008 to 2013. He has been a member

of the audit committees of The Institute of Chartered

Accountants in England and Wales, Business in the

Community and The Prince’s Trust.

External appointments:

• Non-Executive Director, Chair of the Audit and Risk

Committee and a member of the Major Change

Projects Committee of Transport for Wales,

• Non-Executive Director, Chair of the Audit Committee,

member of the Health, Safety and Sustainability

Committee and the Project Assurance Committee of

KAZ Minerals limited,

• Non-Executive Director and Chair of Pullman Rail

Limited.

Education: Alun Bowen holds a Master of Arts degree

from Trinity College, Cambridge, where he studied

Metallurgy and Materials Science, and he is a Fellow of

the Institute of Chartered Accountants in England and

Wales.

Company shareholdings: Alun Bowen’s wife holds

0.00050% Severstal shares represented by 4,225 Global

Depositary Receipts.

Alun

Bowen

50 Annual Report 2021 Corporate Governance

Role: Independent Non-Executive Director, Chairman of

the Safety and Sustainability Committee, Member of the

Remuneration and Nomination Committee

Experience: Born in 1951. Philip Dayer has extensive

experience of advising international companies,

including in the CIS. Philip has sat on the Boards of

several listed companies in the energy, software and

financial services sectors. Philip qualified as a Chartered

Accountant and pursued a corporate finance career in

investment banking providing capital markets advice,

including on M&A transactions and flotations. Over

the past five years he has also held Non-Executive

Directorships at Hurricane Exploration plc, Cadogan

Petroleum plc, Dana Petroleum plc, Arden Partners plc,

Navigators Underwriting Agency Limited, IP Plus plc,

AVEVA Group plc, JSC “National Company KazMunayGas”

and The Parkmead Group plc.

External appointments:

• Non-Executive Director, Chair of the Audit Committee

and member of the Remuneration Committee of JSC

VTB Capital Holding;

• Chair of the Board of Directors, member of the

Remuneration Committee, member of the Risk

Committee of VTB Capital plc.

Education: Philip graduated from King’s College (London)

in Law and he is a Fellow of the Institute of Chartered

Accountants in England and Wales.

Company shareholdings: Philip Dayer holds 0.00054%

Severstal shares represented by 4,500 Global Depository

Receipts.

Philip

Dayer

Alexander

Auzan

Role: Independent Non-Executive Director, Member of

the Safety and Sustainability Committee

Experience: Born in 1954. Alexander Auzan is Dean of

the Faculty of Economics at Lomonosov Moscow State

University, a professor, founder of the National Projects

Institute, and one of Russia’s leading economists. In

the late 1980s, he was involved in the establishment of

consumer protection associations and was a Member

of the Executive Bureau of the Council of Consumers

International (worldwide consumers association).

In 2005–2011 he was a President of Association of

Russian Economic Think Tanks (ARETT). Alexander

was also a member of the President’s Commission

for Modernisation and Technological Development

of Russian Economy and President’s Council for

Development of Civil Society and Human Rights. He

is currently a member of the Presidential Economic

Council. He has written numerous papers on the

modernisation of Russia, national values, and the

dynamics of a social contract. His applied work involves

economic and development consulting for national

and regional governments, including participation in

development of “Strategy-2020” for Russia in 2011-2012.

In 2015 he headed the working group on preparation of

proposals for structure, directions, resources provision

and plan for the social and economic development

strategy of Russia up to 2030.

External appointments:

• Independent Director and member of the Strategic

Planning Committee of AO RVK;

• Member of the Board of Directors of OOO VEB

Innovations;

• Chairman of the Consultative Board for the

Development of Ecosystem of OOO Yandex.

Education: Alexander Auzan graduated from Moscow

State University and holds a PhD in Economics.

Company shareholdings: none.

51Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Role: Independent Non-Executive Director, Member of

the Audit Committee

Experience: Born in 1959. Vladimir Mau is an honoured

Russian economist. Since 1991 he has participated in

Russia's economic reform, including working as Advisor

to the Chairman of the Russian Government from 1992

to 1993. From 1997 through 2002 Vladimir was Head

of the Working Center for Economic Reforms of the

Russian Government. In 2002 he became the Rector

of the Academy of National Economy of the Russian

Government (ANE), and since September 2010 the

Rector of the Russian Presidential Academy of National

Economy and Public Administration (RANEPA).

External appointments:

• Member of the Trustees Board of Yegor Gaidar

Foundation;

• Member of the Board of Directors, member of the

Audit Committee, member of the Nomination and

Remuneration Committee of PAO Gazprom;

• Member of the Board of Directors, member of the

Committee for corporate governance, nominations

and remunerations of PAO TRANSCAPITALBANK;

• Member of the Management Board of Foundation for

Social and Economic Research and Education;

• Member of the Board in the “Centre for Strategic

Development” Foundation;

• Chairman of the Trustees Board in the Non-Profit

Foundation Analytical Centre “Forum”;

• Member of the Supervisory Board of the Analytical

Center for the Government of the Russian Federation;

• Member of the Board of Trustees of the Federal State

Budgetary Institution “Russian Academy of Education”;

• Editor-in-Chief, member of the Editorial Board of the

"Economic Policy" journal.

Vladimir

Mau

Education: Vladimir Mau is a Doctor of Economics,

Professor, PhD (Universite Pierre Mendes France),

Honored Economist of the Russian Federation. Vladimir

graduated from the Moscow Institute of National

Economy in 1981.

Company shareholdings: none.

52 Annual Report 2021 Corporate Governance

Corporate

Governance

This section sets out how Severstal has applied the

principles of good governance during the year.

Corporate governance model

Severstal has a "Level One" listing on MICEX and has

a "Standard Listing" for its depository receipts on the

London Stock Exchange. Accordingly, Severstal complies

with the:

1. Recommendations from the Corporate Governance

Code (2014) approved by the Central Bank of Russia

and recommended for application by the joint stock

companies with listed securities – available on CBR

website, and

2. UK Corporate Governance Code (2018) available on the

FRC website.

Severstal’s Corporate Governance Code has been

prepared in line with the above codes and is based on the

following main principles:

• the Company implements efficient and transparent

mechanisms to guarantee the rights and interests

of its shareholders conferred by law, the Company’s

Charter and other regulatory documents, and also

those recommended by international corporate

governance standards;

• the Company maintains a policy of equal treatment

of all shareholders, irrespective of the size of their

shareholding, their nationality or jurisdiction;

• the Company intends to support the application of its

shareholders’ rights to participate in the Company’s

governance by inviting shareholders to participate

in shareholder meetings, vote on meeting agendas

and obtain timely information about the Company’s

operations, its management bodies and supervisory/

auditing bodies;

• the Company intends to maintain high quality

engagement with all our stakeholders, including

customers, suppliers, employees and local

communities;

• the Company regards increasing the market value of its

shares (capitalisation) as one of its principal goals.

In addition to Severstal’s Corporate Governance Code

and the Company's Charter (both available on the

Corporate Governance section of Severstal's website),

the activities of Severstal’s management and supervisory

bodies, as well as other internal activities, are governed

by a set of internal corporate documents, which are also

available at Severstal/Company Documents.

Severstal is a member of the Russian Institute of

Directors, the leading expert and resource centre

for corporate governance, established by the largest

Russian companies to develop, incorporate and monitor

standards of corporate governance in Russia.

Severstal is committed to continuing to develop and

evolve its corporate governance practices. For example,

although the minimum requirements for compliance for

a "Standard Listing" for its depository receipts on the

London Stock Exchange are relatively limited, Severstal

monitors the requirements for those companies that

have a "Premium Listing" closely, and adopts those

requirements that it believes will enhance transparency

in its reporting.

Compliance Statement

Throughout the year, Severstal complied with the

requirements of a "Level One" listing on MICEX and a

"Standard Listing" for depository receipts on the London

Stock Exchange. Severstal does not comply with the

provisions of the UK Corporate Governance Code in two

respects: Severstal has not entered into a relationship

agreement with Alexey Mordashov, its majority

shareholder; and the Chair of the Company's Board is not

independent.

The Board seeks to ensure that the interests of the

Company's minority shareholders are properly respected

by and aligned with those of the majority shareholder.

The Board has carefully considered whether there

would be any benefit to the minority shareholders of

the Company entering into a relationship agreement

with the majority shareholder; however, the Board has

decided that the existing arrangements and regulations,

which endeavour to ensure that Severstal is capable

of conducting its business independently of the major

shareholder and his related companies, are satisfactory

and that transactions with the controlling shareholder

and his related companies are at an arm’s length and on

fair commercial terms. The principal safeguards may be

summarised as follows:

• Half of the Board consists of Independent Non-

Executive Directors and the Audit Committee and the

Remuneration and Nomination Committee are made

up of and chaired by Independent Non-Executive

Directors.

• The majority shareholder exercises his voting rights,

including those related to amending Severstal’s

53Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Charter, in a way that would not be prejudicial to the

interests of minority shareholders.

• The majority shareholder does not vote on any

resolution to approve a “related party transaction”.

Severstal has established a process whereby,

whenever required, individual related party

transactions are voted on by other members of

the Board, who have no involvement with those

transactions, having been reviewed by the internal

audit function to ensure that they have been recorded

and valued appropriately. All related party transactions

are also reviewed by the Audit Committee and

disclosed in the audited IFRS financial statements.

• Shareholders have direct access to members of the

Board and executive management at Severstal’s

Capital Markets Days and its Annual General Meetings

of Shareholders, when held in person. The majority

shareholder, as the Chairman of Severstal, will ensure

that the interests of all shareholders continue to be

aligned.

The Code has a requirement that the Chair of the

Board should be independent, which means that the

Chair should only serve for nine years, including time

as a member of the Board. Alexey Mordashov is not

independent as he is the majority shareholder, and he has

also served more than nine years on Severstal’s Board.

The Independent Non-Executive Directors have

considered the position in light of the safeguards set out

above, in addition to:

• Alexey Mordashov’s performance and practice as

Chair since his appointment in 2015, when he has

always clearly distinguished his role as Chair with that

of majority shareholder;

• his active and regular communication with the

Independent Non-Executive Directors;

• his independence from management;

• his demonstrable wish that the Company is managed

for the benefit of all stakeholders.

The Independent Non-Executive Directors are

satisfied that it is in the best interests of the Company,

the shareholders and other stakeholders, that Mr.

Mordashov continues in his role as Chair of the Company,

as opposed to considering the appointment of an

independent Chair.

Responsibility Statements

Each of the directors who is a director at the date of the

approval of this Annual Report confirms that, to the best

of their knowledge:

1. The assets, liabilities, financial position and profit of

the Group set out in the financial statements, prepared

in accordance with IFRS, are fairly presented in all

material respects;

2. The Strategic Report includes a fair view of the

development of the business and the position of the

Group, together with a description of the principal risks

and uncertainties that it faces;

3. The Annual Report, taken as a whole, is fair, balanced

and understandable, and provides the information

necessary for shareholders to assess the Group’s

position and performance, business model and

strategy.

This Annual Report was approved by the Board of

Directors on 17 February 2022.

General Meeting of Shareholders and supervisory

bodies

The General Meeting of Shareholders (“GMS”) sits at the

top of Severstal’s governance structure. Full information

on the responsibilities of the GMS is available online at

Severstal/GMS, in addition to details of when the GMS is

held and how shareholders are informed of an upcoming

GMS, and information on resolutions at GMS, including

those resolutions of the GMS that were taken during

2021.

Three General Meetings of Shareholders were held in

2021: one annual and two extraordinary meetings.

The agenda of the Annual General Meeting of

Shareholders (“AGM”) dated 21 May 2021 covered the

following items:

1. Election of members of the Board of Directors of PAO

Severstal.

2. Allocation of profit of PAO Severstal for 2020 results.

Payment (announcement) of dividends for 2020

results.

3. Payment of dividends for the first three months of

2021.

4. Approval of the Auditor of PAO Severstal.

Payment of dividends for the first six months and nine

months of 2021 were approved at the Extraordinary

General Meetings of Shareholders which were held on

20August and 3 December 2021 respectively.

An external auditor is appointed annually by the GMS.

The auditor's fee is subject to approval by the Board.

Details of Severstal’s external auditor are available in the

Auditor’s Report of this Annual Report.

Starting from the AGM the Company provided its

shareholders with an option to vote remotely throughout

2021 by way of filling out an electronic voting ballot via

an online E-voting service designed by the National

Settlement Depository.

The Board of Directors

Severstal’s Board of Directors is responsible for the

review and approval of its strategy and business model,

and closely monitoring its financial and business

operations both by segment and as a whole. The Board is

also responsible for the approval of annual, half-year and

quarterly results, the issue of any securities, establishing

the dividend policy and the recommendation of

dividends. It is also responsible for establishing

Severstal’s risk appetite, system of internal control,

governance, monitoring of executive performance and

succession planning. The Board reviews standards

of ethics and policy in relation to health, safety,

environment, social and community obligations. Full

information on the responsibilities of the Board of

Directors is available on Severstal/Board of Directors.

54 Annual Report 2021 Corporate Governance

The Board’s activities are regulated by Russian law, the

Company’s Charter (2018) and Regulations for the Board

of Directors (2018).

Composition of the Board of Directors

According to the Company’s Charter, Severstal’s Board

comprises ten members. Severstal believes that

maintaining a balance on the Board is a prerequisite for

good decision-making and corporate governance, and

ensuring equal regard for the interests of all shareholders.

Details of our Directors can be found in their biographies.

Board composition

Executives and Non-Executives 50 %

Independent Non-Executives 50 %

Male 80 %

Female 20 %

Board diversity

Nationality

Russia (6)

UK (2)

Finland (1)

Austria (1)

Professional experience

Number of Board

members

Steel 6

Mining 6

Finance 6

Oil & Gas 2

Academia 2

The Board reviews the independence of all Independent

Non-Executive Directors annually, and has determined

that all such directors are independent, in line with the

UK Corporate Governance Code, and have no cross-

directorships or significant links, that could materially

interfere with them exercising their independent

judgment. The Company’s Independent Non-Executive

Directors play a leading role in corporate accountability

and governance through their membership and

participation in the Board’s committees.

New directors to the Board participate in an induction

programme when they take office. This includes details

of the Company’s operations and procedures, as well

as information on what is required from them in their

role according to the Compny’s internal corporate

documents. This includes Severstal’s Charter, Corporate

Governance Code and other internal corporate

documents, applicable corporate governance law, and

descriptions of best practice to help ensure their early

effective contribution to the Company.

The authority of Severstal’s Sole Executive Body is

exercised by the CEO of the Company.

Following the resolution of the Company’s shareholders,

dated 10 September 2014, the powers of Severstal’s CEO

were transferred to the managing company, Severstal

Management, with effect from 1 January 2015. This

change was in line with the Company’s stated strategic

focus of optimising its management structure and further

enhancing management efficiency and transparency.

Severstal Management achieved this by reducing

management layers, centralising certain administrative

functions and removing duplication. The managing

company has authority for managing all issues in the

Company’s current operations, except for those issues

specifically reserved for the Company’s GMS and the

Board of Directors.

Alexander Shevelev was appointed CEO of Severstal

Management with effect from 12 December 2016.

More details about PAO Severstal’s managing company

are available on Severstal/Sole Executive Body.

Board activity in 2021

In 2021, Severstal’s Board of Directors held six meetings,

including five remote meetings held by video call and one

meeting held in absentia by means of correspondence

Severstal’s Board and its

committees

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Board v v v v v

Audit Committee v v v v v

Remuneration and

Nomination Committee

v v v

Safety and Sustainability

Committee

v v v v

Governance calendar for 2021

The calendar of Board and its committees’ meetings held via video call is shown below:

55Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

The attendance of the Company’s members of the Board of Directors at in-person meetings of the Board and its

committees during 2021

Member of the Board

of Directors

Number of Board

meetings held via

video call possible

Number of Board

meetings attended

Audit Committee

meetings attended

(out of 5 meetings)

Safety and

Sustainability

Committee

meetings attended

(out of 4 meetings)

Remuneration

and Nomination

Committee

meetings attended

(out of 3 meetings)

Alexey Mordashov 5 5 - - 3*

Alexander Shevelev 5 5 - 4 3*

Alexey Kulichenko 5 5 5* - -

Andrey Mityukov 2 1 - - 1*

Anna Lvova 3 3 - - 1*

Agnes Ritter 5 5 4* 4 -

Alun Bowen 5 5 5 4* 3

Philip Dayer 5 5 5* 4 3

Sakari Tamminen 5 5 5 4* 3

Alexander Auzan 5 4 - - -

Vladimir Mau 5 4 3 - -

* Means that the specified director is not a member of the Committee, although he attended the meeting.

Board internal evaluation results for 2021

The Board carries out an annual self-evaluation of its

performance based on the individual contribution of

each Board member and has an external evaluation once

every three years in accordance with the best corporate

governance practice.

An independent review of the effectiveness of the Board

was carried out in 2019. Accordingly, the Board carried

out a self-assessment of its effectiveness in 2020 and

2021.

The independent review confirmed that the Board was

operating in accordance with the recommendations

within the Russian Corporate Governance Code and the

UK Corporate Governance Code with certain exceptions,

which are commented upon in this report. The outcome

of the self-assessment in late 2021 was consistent with

that carried out in 2020. The recommendations for

improvement from the independent assessment have

now largely been implemented or incorporated into the

work programmes of the Board and its committees.

Senior Independent Director

Sakari Tamminen is Severstal’s Senior Independent

Director and Chairman of the Remuneration and

Nomination Committee.

The Senior Independent Director’s role is to:

• coordinate communication of Independent Non-

Executive Directors;

• liaise with the Chairman of the Board;

• act as an advisor for the Chairman to ensure efficient

activity of the Board;

• ensure that appropriate succession planning

procedures are in place in relation to the Chairman’s

succession;

voting. The absence of in-person meetings during 2021 is

attributed to the global COVID-19 pandemic restrictions.

The Board spent a considerable amount of time

during 2021 discussing safety. In particular, the Board

continues to review safety throughout the business

and its continuing initiatives to improve Severstal’s

safety performance. Inevitably, the Board was involved

in discussion regarding the impact of COVID-19 on the

business and its people. It also discussed regularly

the changing dynamics of steel prices, progress on

Severstal’s transformation process and environmental

and climate change strategy.

In addition to the matters outlined above, the Board

reviewed the following key matters:

• Annual Report and Financial Statements under IFRS

and RAS;

• New Regulations for Board Committees and new

Regulations for the Internal Audit;

• New editions of Information policy, Whistleblowing

policy and Anticorruption policy, Employee Code of

Conduct, Code of Business Conduct;

• Audit and Assurance Policy for the three years ending

31 December 2023;

• New vision and strategic priorities;

• Severstal’s financial plan, financial performance and

reporting;

• Risk and risk mitigation matters;

• Results of the internal assessment for the Board and

its committees’ performance;

• The composition of the Board and its committees and

succession planning;

• External auditor's fee;

• Budget for 2022;

• Issues related to the General Meeting of Shareholders;

• Supplement to the share register administration

agreement with the registrar;

• Related party transactions, etc.

56 Annual Report 2021 Corporate Governance

• meet annually with independent directors to appraise

the Chairman’s performance, taking into account the

views of Executive Directors, and on other occasions

as are deemed appropriate; and

• be available to shareholders if they have concerns that

have not or cannot be resolved through contact with

the Chairman or the Company’s executive body.

Investor relations

The Board makes considerable efforts to establish and

maintain good relationships with shareholders and the

wider investment community. The Company engages in

regular dialogue with institutional investors during the

year, primarily though the Head of Communications and

Investor Relations and his team.

Corporate Secretary

The Corporate Secretary ensures Severstal’s compliance

with the requirements of applicable law, the Company’s

Charter and internal documents regulating the needs and

interests of the Company’s shareholders. The Corporate

Secretary is responsible for safeguarding the rights

and interests of shareholders, as well as establishing

transparent and effective regulations to secure the rights

of shareholders. Full information on the responsibilities

of the Corporate Secretary is available online at Severstal

Corporate Secretary.

Artem Bobulich has been the Corporate Secretary of

Severstal since 20 January 2014. Artem Bobulich (born in

1983) has worked in the Company’s Corporate Secretary

Team of the Legal Affairs Directorate since 2007. He

graduated from the Cherepovets State University with

foreign philology specialisation and from the Moscow

State Law Academy.

Share capital

Severstal share capital comprises ordinary shares with

a nominal value of RUB 0.01 each. The authorised share

capital of Severstal as at 31 December 2021 comprises

837,718,660 issued and fully paid shares.

All Severstal shares carry equal voting and distribution

rights. There are no restrictions or limitations on voting

rights for holders of Severstal shares and GDRs.

Equity capital structure as at

31 December 2021

Share, % Shareholders’

equity capital

Alexey Mordashov* 77.03%

Institutional investors

andemployees

22.97%

Total 100%

* Through participating in Severstal’s privatisation auctions and other purchases,

Alexey Mordashov had purchased shares in Severstal such that as at

31December 2021 he controlled indirectly 77.03% of Severstal’s share capital.

Whistleblowing procedures

Severstal operates a whistleblowing policy for employees

to confidentially report concerns about any unethical

business practices to senior management in strict

confidence, and without fear of recrimination, through

several routes. Severstal’s Ethics Committee is the

executive body which oversees the firm’s whistleblowing

activities and the Audit Committee receives details of

whistleblowing reports.

Anti-bribery and anti-corruption measures

Severstal Anti-corruption policy, is supported by the

Employee Code of Conduct and the Code of Business

Conduct, which incorporate appropriate provisions to

meet Severstal’s obligations under Russian legislation

and the UK Bribery Act.

All individuals applying for employment with Severstal

are screened for their attitude to corruption and risk. The

applications of those employees who do not meet the

expected standard are not proceeded with. A training and

communications programme is in place for all employees

to ensure that they understand Severstal’s requirements

and related reporting procedures. Regular screening

checks are also carried out among existing employees.

Arrangements with contractors and suppliers have been

and continue to be reviewed to ensure full compliance

with Severstal’s anti-corruption policy. Oversight of the

programme is the responsibility of the Ethics Committee,

which reports regularly to the Audit Committee.

According to the result of the annual RSPP Anti-

Corruption rating, Severstal rose to the highest class A1

rating, improving its position compared to the previous

year. The A1 rating class includes companies operating

according to the highest levels of anti-corruption and the

minimum level of corruption risks. As a result, Severstal

has once again confirmed the effectiveness of its anti-

corruption management system.

In 2021, Severstal also successfully confirmed

compliance with ISO 37001:2016 as part of its first

supervisory audit. The certification for compliance with

the best international anti-corruption practices once

again confirms Severstal's commitment to combating

bribery, demonstrates to a high level of corporate

responsibility and business ethics to investors and

regulators, and illustrates the absolute transparency of

concluded transactions and agreements to our clients

and business partners.

Payments to Governments

Severstal’s payments to governments disclosure in the

year ended 31 December 2021 can be found at Severstal

Payments to Governments.

57Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

58 Annual Report 2021 Corporate Governance

Severstal’s Board of Directors has the following

committees:

– Audit Committee;

– Remuneration and Nomination Committee;

– Safety and Sustainability Committee.

The Board Committees serve as consultative and

advisory bodies that deal with issues raised by the Board

of Directors. Committees may not act on behalf of the

Board and are not considered to be management bodies

of the Company. They have no powers in relation to

managing the Company.

Committee meetings are held as and when necessary,

but must take place at least three times a year. They

are held separately from Board meetings so that extra

attention can be given to discussing issues that require

preliminary Board consideration prior to approval by

the Board of Directors members, and to determine the

necessity of the Board’s approval for a specific issue.

Decisions at each Committee are taken by a majority vote

of all Committee members taking part in the meeting.

Each member has one vote and the Committee Chair has

no casting vote in the event of a tie.

The activity of Severstal’s Committees is regulated by the

Regulation for the Board Committees, which is available

at Severstal/ Board Regulations.

The Audit Committee

The Audit Committee comprises three Independent Non-

Executive Directors. Currently they are:

1. Alun Bowen (Chair)

2. Sakari Tamminen

3. Vladimir Mau

Report by Alun Bowen, Chair of the Audit Committee

In my report last year I highlighted a couple of areas

that the Audit Committee would be focusing on in 2022,

the main one being finalising the corporate auditor

selection process and I comment on this further below.

I also commented that we would be monitoring closely

developments in financial and non-financial reporting,

and it was pleasing to see the announcement of the

launch of the International Sustainability Standards

Board (“ISSB”) last October and Severstal will embrace

this exciting development.

Board Committees and

Reports from Their Chairs

We remain, however, focused on our primary

responsibility of providing oversight over Severstal’s

system of internal control and ensuring that

information presented by Severstal is fair, balanced and

understandable.

Financial reporting

The Audit Committee continues to debate and challenge

the judgements made by management and their use

of estimates in the preparation of Severstal’s financial

statements.

One of the more significant accounting judgements in

the year was in relation to the disposal of the Vorkutaugol

coal operations, announced on 2 December 2021, which

is expected to be completed shortly after the issue of this

Annual Report. Management has determined that the

Vorkutaugol assets and liabilities be carried in balance

sheet as “held for sale” at the value agreed with the buyer,

less costs to complete the sale, as this is lower than

the carrying value of the assets and liabilities. The Audit

Committee was satisfied that this was an appropriate

classification, as all the conditions set out in the relevant

accounting standard had been met.

There were no changes in the Alternative Performance

Measures (APMs) used and presented during the year.

The Audit Committee is satisfied that the APMs, which are

widely used in the steel industry, and are included in the

audited financial statements, provide useful insight into

Severstal’s financial performance and also aid investors

to understand more easily how the directors have taken

dividend decisions in the context of Severstal’s published

dividend policy and that the use of the APMs does not

distract from Severstal’s IFRS measures.

The Committee carried out a similar process to previous

years in relation to the production of the Annual Report

to ensure that the Annual Report taken as a whole is fair,

balanced and understandable.

The Audit Committee was also satisfied that: the

information presented in Severstal’s Annual Report is

consistent with that included in the financial statements

and that the assessment of Severstal’s prospects,

medium-term resilience and the going concern

assessment were appropriately reflected in the Annual

Report.

This Annual Report contains Severstal’s first Resilience

Statement. The sensitivities that were used in the

59Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

preparation of the Resilience Report were all consulted

on and agreed with investors as part of the Audit and

Assurance Policy consultation process. The Audit

Committee has reviewed the work carried out by

management in the various scenarios it has run, which

have also been discussed at the Board, and the Audit

Committee is satisfied that the conclusions reached are

appropriate.

The Audit Committee, as in previous years, reviewed a

paper prepared by management on the potential impact

of climate change on Severstal’s financial statements. A

paper was presented to the most recent Audit Committee

which set out an analysis of the IFRS standards applicable

to Severstal that might be affected. The analysis

determined that the most material impact would likely

to be in relation to the potential impairment of assets in

accordance with IAS36. Based on the cash flow model

built for the purposes of assessing whether the cash

generating unit requires impairment, the assets in the

balance sheet for the respective cash generating unit most

likely to be affected would be recovered within five years.

Accordingly, the Audit Committee concurred with

management that no disclosure was required in the

financial statements at 31 December 2021 under

International Accounting Standard 1 to enable investors

to understand the impact of climate-related matters on

Severstal’s financial position and financial performance,

as the relevant amounts are immaterial.

Non-financial reporting

During the consultation with investors and stakeholders

on the Audit and Assurance Policy it was again agreed

that safety, airborne emissions and climate change were

the matters that investors and stakeholders were most

concerned about, a view also shared by the Safety and

Sustainability Committee and the Board.

The programme of external assurance on these matters

commenced with a limited assurance report issued by

Deloitte on Scope 1 and 2 greenhouse gas emissions

which was issued in Severstal’s Sustainability Report.

Included in this Annual Report is the first assurance

report by Deloitte on fatalities and long-term injury

frequency rate. It is planned that Deloitte will issue an

assurance report on airborne emissions and greenhouse

intensity per tonne of steel in Severstal’s 2021

Sustainability Report. As commented above, I welcome

the launch of the ISSB and Severstal is developing plans

to ensure that its reporting, if as is anticipated that the

standards published by the International Sustainability

Standards Board become the global standard, in the

transition period, is aligned as closely as possible to

ISSB’s emerging standards and in accordance with the

direction it is setting. For example, plans have been

agreed for Severstal’s Finance Department, given its

expertise in IFRS, to take a more active involvement in

non-financial reporting.

Audit and Assurance Policy

Severstal issued its Audit and Assurance Policy for

consultation in October 2021 and this was again a

valuable exercise for the Audit Committee and the Board,

giving the Audit Committee the opportunity to engage

directly with investors and a variety of stakeholders and

obtain focused feedback.

The Audit and Assurance Policy for the three years

ended 31 December 2023 was approved by the Audit

Committee and the board and was published at the same

time as this Annual Report and is available here.

Risk management framework

As part of the Audit and Assurance Policy consultation

process, in October 2021, the Board published a draft of

Severstal’s Principal Risks. Feedback from investors and

stakeholders did not require any significant changes,

which gave the Audit Committee confidence that the

directors’ assessment of Severstal’s Principal Risks is

appropriate. Section 8 of the Audit and Assurance Policy

sets out the principal sources of assurance received

by Severstal’s Board and its committees in relation to:

the information used to assess the management of

Severstal’s Principal Risks; the relevant key performance

indicators; the nature of the assurance received by the

Board; and the nature and extent of external assurance,

if any. This exercise has assisted the Audit Committee

and the Board in ensuring that it has appropriate sources

of assurance for each of Severstal’s Principal Risks and

that there is alignment with Severstal’s risk management

framework.

Control environment

The Audit Committee has continued to support

management’s efforts to improve the control

environment during the year and a lot of effort has gone

into ensuring that the controls in place when the

S4/HANA implementation was completed in late 2021

were of the highest standard. The slight delay in the

finalisation of the S4/HANA implementation has meant

that the internal audit function will not fully complete

its review of the effectiveness of the internal controls in

practice until the second quarter of 2022, although no

particular issues have been identified in their work to

date.

Whistleblowing, ethics, crime, fraud and corruption

The whistleblowing procedures and other

communication channels continue to operate effectively,

and no issues of major concern were raised during the

year.

The Audit Committee has also received regular reports

from the Ethics Committee with no particular issues

raised.

The Corporate Security Report has continued its

excellent work in ensuring that: Severstal’s cybersecurity

defences are as good as they can be; that Severstal’s

anti-corruption policy is implemented in practice; and the

health and safety security of employees is of the highest

standard.

In relation to its work on Severstal’s anti-corruption

some statistics are helpful to understand the depth

and breadth of its work. In 2021: almost 10,000

counterparties were subject to review by the service

60 Annual Report 2021 Corporate Governance

and over 500 counterparties were identified as being

“unreliable”; 80 contractor organisations and almost

20,000 participants were involved in the continuing

implementation of the preventative system for work

with contractors; over 500 presentations were made

to employees on the anti-corruption policy; and almost

1,500 polygraph tests and over 10,000 individual

automated risk assessments were carried out.

Internal audit

The annual Internal Audit Plan is developed from a

consideration of the Principal Risks facing Severstal, a

cycle of audit testing and management requests. The

Audit Committee provides its input at an off-site meeting

with Nikolay Lavrov, the Chief Audit Executive. The Audit

Committee meets on its own with Nikolay Lavrov, in

addition to the off-site session, at least four times a year.

At the most recent Audit Committee the Chief Audit

Executive reported that, in Internal Audit’s opinion,

the control environment as a whole is appropriate to

establish and maintain an effective internal control

system by management and employees.

An external review of the performance of internal audit

was carried out in 2020 and accordingly this year an

internal review was carried out. The Audit Committee

continues to be impressed with the way that the internal

audit function is evolving especially in the field of

data analytics and non-financial performance, whilst

maintaining a continuing focus on internal controls and

fraud risk, which is a fundamental part of all of its work.

External audit

As I commented last year, the Audit Committee

commenced an audit tender in 2020 to the timetable and

format agreed as part of Severstal’s Audit and Assurance

Policy.

The short-listed firms presented to the Audit Committee

in July 2021 and the Audit Committee recommended

and the Board approved that Deloitte be appointed as

Severstal’s auditor for a five year period starting with the

audit for the year ending 31 December 2022. Deloitte

will also provide assurance reports on the non-financial

performance indicators included in Severstal’s Audit and

Assurance Policy.

George Pataraya is the current Lead Audit Engagement

Partner and the Audit Committee met with him, by

videoconference, without management present,

each quarter and at the year-end, before each Audit

Committee, to discuss audit issues.

The Audit Committee reviewed the list of uncorrected

misstatements reported by KPMG and concluded that

none were material, individually or in aggregate, to the

financial statements. Accordingly, the Audit Committee

did not require any adjustment to be made to the

financial statements as a result of the audit differences

reported by KPMG.

Andrei Shvetsov, the audit partner of Deloitte, has

attended all the Audit Committee meetings since his

firm was notified that they would be the auditor and

the transition between KPMG and Deloitte has gone

smoothly. Deloitte will be providing a review report on the

financial statements for the quarter ended 31 March 2022.

KPMG’s audit fees for the year ended 31 December 2021

were US$ 0.9 million (2020: US$ 0.9 million). Non-audit

fees were US$ 0.2 million (2020: US$ 0.1 million).

Looking ahead

In 2022, in addition to its regular work, the Audit

Committee will be:

• Finalising its review of the enhanced internal controls

resulting from the implementation of S4/HANA.

• Reviewing the progress being made by the ISSB.

• Reviewing European developments in the reporting of

controls over financial reporting.

The Remuneration and Nomination Committee

The Remuneration and Nomination Committee consists

of three Independent Non-Executive Directors:

1. Sakari Tamminen (Chair);

2. Philip Dayer;

3. Alun Bowen.

Role

The role of the Remuneration and Nomination

Committee is to assist the Company in engaging qualified

talent, creating the incentives necessary to ensure

they are successful within the Company, ensuring

there is an appropriate talent pool and overseeing

succession planning within Severstal. It also reviews

the remuneration and compensation of the Company’s

senior managers and Board members.

Report by Sakari Tamminen, Chairman of the

Remuneration and Nomination Committee

In 2021 the Remuneration and Nomination Committee

maintained its focus on three key areas:

• Corporate culture and employee engagement;

• Succession planning and Severstal’s talent pool;

• Executive remuneration structure the long-term

incentive plan (LTIP)

Superior corporate culture

At Severstal, our corporate culture puts our people at

the core of our ability to grow through innovation and

continuous improvement. This is just one element of our

business that sets us apart from our peers, and enables

us to introduce value-accretive initiatives with speed and

efficiency.

We have undergone a major transformation and

corporate repositioning to turn our business into a client-

centric company, restructuring all of our activities so

that each of our processes will ultimately contribute to

increasing our customers' own efficiency.

Our advanced corporate culture has built a team of

highly motivated people to help deliver our vision. With

the corporate repositioning of our business, our culture

remains crucial to our strategy and transformation,

creating an attractive and sustainable working

61Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

environment where the customer is at the centre. This

culture supports the development of our employees,

nurturing skills in our priority areas of customer service,

sales and innovation.

First introduced in 2010, our Business System remains

central to maintaining a superior corporate culture

based on the systematic implementation of initiatives

to optimise production and standardise our internal

processes. These enable us to maximise energy and

equipment efficiency, create a customer-centric model

and focus on employee safety.

There are four main aspects to our Business System:

• Safety;

• Customer care;

• People engagement;

• Continuous improvement of operational performance.

We do not tolerate bullying or corruption at any level of

the business, and our Anti-Corruption Policy ensures

compliance with both Russian and international

anticorruption laws. This policy ensures that we have

standard requirements for all our businesses, as

well as in our partnerships, acquisition of corporate

securities, establishment of joint ventures, mergers and

acquisitions, conflict of interest evaluation procedures,

sponsorships and charities, gifts and entertainment.

Our enhanced Severstal Employee Code of Conduct

and Code of Business Partnership ensure that anti-

corruption requirements are fully integrated into our

supply chain. We also have an Ethics Committee in place

and a 24/7 anonymous telephone/SMS hotline for any

whistleblowing and grievance concerns.

In 2021, Severstal engaged the services of EY to conduct

an audit of compliance with ethical norms and standards.

This is part of our comprehensive programme to improve

corporate processes to comply with global best ESG

practices.

The first stage involves an audit of existing corporate

policies and regulations, whistleblowing and grievance

procedures, along with an analysis of the results of

investigations conducted around reported incidents of

the breach of the Employee Code of Ethics, as well as

the effectiveness of relevant training programmes and

ethical standards compliance monitoring.

This year, we also implemented a Clawbacks & Malus

policy. The Policy has been developed to eliminate the

risk of any intentional financial misstatements or other

exceptional circumstances arising from the actions of

key managers. The Remuneration сommittee may adjust

LTI payments downwards to reflect a director’s actions,

including the misstatement of results, misconduct or

reputational damage.

Our HR policy includes a strong commitment to training

to ensure best practice is shared and encouraged

across the Company. Our industry-leading employee

development and training schemes, from foundation

programmes through to senior professional development

programmes, have created a workforce fit for the future,

enabling us to recruit and retain the brightest and best

talent to support our business’ future success.

Our mission to lead the steel industry of the future has

created a platform that attracts talent and provides

a compelling point of differentiation from our peers.

By ensuring our position as a trusted and attractive

employer we are confident that we have a workforce that

will support us in our efforts to achieve our targets and

beyond.

Employee engagement

Severstal traditionally pays great attention to the

development of corporate culture, especially such

aspects as the culture of open dialogue - the opportunity

for employees to get answers to their questions, as well

as provide feedback on the work of various departments.

Since 2012, the Hotline has been actively operating

in Severstal, and its demand has become especially

relevant in 2021.

In 2021, we launched our first Employee Experience

research programme for our main target audiences and

business units to better understand our strengths and

weaknesses and based on the results of this we will

implement changes for improving the experience of our

existing employees in 2022.

Succession planning and Severstal’s talent pool

Severstal is comitted to growing our talent pool and

ensuring there are suitable remuneration policies in

place to motivate management to deliver on KPIs and

objectives that benefit all of the Company's stakeholders.

To support this, we have a 360-degree feedback system

in place, as well as other forms of assessment, including

biannual reviews of the senior management team by the

CEO and the Board of Directors, and Staff Committee

reviewsl.

When it comes to succession planning, we maintain an

established talent pool of potential successors for all

of the directors' positions and, where possible, seek to

recruit internally for these roles; this enables us to offer our

employees suitable opportunities for development and

progression within Severstal. The Committee is deeply

involved in this process, and committed to finding the best

candidates from within the Company, regularly reviewing

our corporate talent pool to determine a potential

succession plan for each senior management role.

The Remuneration and Nomination Committee plays

an active role in reviewing changes to the senior

management team, and in 2021 appointed Natalia

Maleeva as Severstal’s Director for Human Resources.

Before joining Severstal, Natalya led the personnel

management divisions of a number of large Russian and

international corporations. The Board of Directors has

also nominated Anna Lvova, Head of HR at Severgroup to

PAO Severstal’s Board of Directors. Anna replaces Andrey

Mityukov, who will now fully focus on his activities as CEO

of TalentTech (a part of Severgroup).

To ensure the effective development of our talent pool

and staff allocation, we offer flexible staffing and take

steps to encourage a business development mindset

among our employees. This is supported by the close

involvement of employees in transformational changes

62 Annual Report 2021 Corporate Governance

to our culture, including offering additional bonuses for

achieving ambitious goals.

The Committee is regularly updated on the senior

management team's capabilities, due to its close

involvement with Severstal’s Second Opinion

programme, a review process in which talented

employees are interviewed by a person unknown to

them, independently of the executive management.

Executive remuneration structure

The Group’s executive remuneration structure is designed

to ensure a balance between engaging and retaining

highly qualified managers and the interests of Severstal’s

shareholders. Though the established remuneration

policy has variable long-term pillars, such as LTIPs and

KPIs, the fixed salary element is reviewed on an annual

basis involving a benchmark using external data.

The KPIs used to determine rewards for senior

management are related to financial and operating

performance and are intrinsically linked to shareholder

value. They include operational performance, social

responsibility, occupational safety, and organisational

development indicators. KPIs for the CEO include annual

financial indicators, as well as long-term indicators

of strategy implementation, such as the Company’s

sustainable development targets and safety metrics.

This ensures that the Company’s management

compensation is fair and in line with the market. We

target remuneration for our executives in the range of

between the 50th and 75th percentile of the market

average, as defined by external benchmarks. We regularly

review these external benchmarks, which are provided

by one of the Big 4 accountancy firms, to ensure that they

are relevant and appropriate to our business.

Annual Remuneration consists of the following two parts:

the fixed salary mentioned above, and a variable portion

known as a bonus.

The bonus’ percentage of an individual’s annual salary

varies for various executive levels. However, in general

the bonus consists of two parts – an individual element

and a corporate one:

• The first 50% is based on performance against

individual targets. The individual targets for executive

Board members are set by the Company CEO; targets

for the CEO are determined by the Remuneration and

Nomination Committee and recommended to the

Board;

• The remaining 50% of the bonus is based on

performance compared with the Company’s financial

and operational KPIs set by the CEO at the start of

the year and approved by the Remuneration and

Nomination Committee. The set of KPIs includes

financial targets such as operating cash flow, EBITDA

and Total Shareholder Return. Consideration is also

given to Severstal’s safety, environmental and climate

change performance.

Board of Directors’ remuneration and compensation policy

By the decision of the General Meeting of Shareholders

(GMS), Board members may be paid a remuneration

during the execution of their duties and reimbursed

for expenses incurred in connection with their

responsibilities as Board members. The amount of such

remuneration or compensation is subject to approval by

the GMS only. In the event that a Board member resigns

before the term of his/her office expires, they will be paid

pro rata in proportion to the term of office that expired

prior to resignation.

Severstal reimburses the expenses that may be incurred

by Board members’ in connection with the performance

of their duties as Board members, including transport,

accommodation and mailing costs, as well as costs

relating to the translation of company documents or

materials that they are provided with.

Long-term incentive programme (LTIP)

To support the long-term retention of top management

and alignment of their interests with those of the

shareholders, Severstal has an LTIP programme in place.

The LTIP covers a period of three years and is based on a

“phantom” stock plan.

This type of stock plan pays a cash award to an employee

that equals a set number of Severstal shares multiplied

by the current share price.

Phantom stock plans contain vesting schedules that

are based on tenure. The vesting period for the whole

LTIP starts only after the end of the third year of the

executive’s participation in the programme. The

number of phantom shares attributed to an executive is

determined by a proportion of the executive’s salary in

the first year of the programme. Each year, the Committee

reviews the awards made under the LTIP programme and

the individuals who are eligible to receive awards.

The fundamental principles for participation in the LTIP

are that:

• The job plays a critical role in the transformation of the

Company;

• The job plays a critical role in the delivery of the

financial ambitions of the Company;

• A recognition that retaining talent is critical for the

sustainability, growth and success of the Company.

The Committee has determined that the main goals of

the LTIP are the retention of key employees by providing

a strong remuneration position competitive to Severstal’s

peer group, combined with a focus on the Company’s

performance.

The Committee has agreed a simple and transparent plan

to incentivise and drive the behaviour of employees in

both operational roles and those implementing strategic

change to deliver increased shareholder value.

Measurements of success are 50% based on the price

of Global Depositary Receipts (GDR) and 50% on the

Group’s improvement in EBITDA.

Compensation of Senior Managers, Executive Officers

and Directors

Key management’s remuneration for the year ended

31 December 2021, consisting of salaries and bonuses,

amounted to US$ 12 million (2020: US$ 9 million).

63Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Additionally, in 2021, a provision for their long-term cash-

settled share-based incentive programmes of US$ 3

million was accrued (2020: US$ 3 million). This provision

is subject to further adjustments, depending on a range

of the Group’s financial and non-financial indicators.

Loans are not made by Severstal to Senior Managers,

Executive Officers and Directors.

The remuneration paid to members of the Board of

Directors of PAO Severstal deemed to be Independent

Directors as provided for by the Corporate Governance

Code of PAO Severstal for the execution of functions

of the Board members of PAO Severstal are as follows

starting from 1 May 2019:

• to an Independent Director approved by the Board

resolution as a Chairman of any Committee of the

Board of Directors of PAO Severstal – 11,700 Euro (or an

equivalent in any other currency) per month;

• to any other Independent or Non-Independent

Director – 5,900 Euro (or an equivalent in any other

currency) per month.

Looking ahead

In 2022, the Committee will continue to focus on culture

and engagement at Severstal, in addition to ensuring our

considerable pool of talent is correctly incentivised for

the benefit of all stakeholders. These are key elements

of Severstal’s strategy and I look forward to providing an

update on our progress.

The Safety and Sustainability Committee

The Safety and Sustainability Committee currently

consists of:

1. Philip Dayer (Chair),

2. Alexey Mordashov,

3. Alexander Shevelev,

4. Alexander Auzan,

5. Agnes Ritter.

Role

The Safety and Sustainability Committee assists the

Board in obtaining assurance that appropriate systems

are in place to deal with the management of safety and

sustainability risks.

Report by Philip Dayer Chair of the Safety and

Sustainability Committee

In 2021, the COVID-19 pandemic continued to pose

unprecedented challenges for the global business

community. During this time, we took heightened

measures to manage the health and safety of our

employees, contractors and local residents.

Protecting our employees during the pandemic

Throughout the COVID-19 pandemic, the Company has

operated in full compliance with recommendations

issued by the Government of the Russian Federation

and the regional authorities to help reduce the impact

of the virus and keep our employees safe. The Safety

and Sustainability Committee monitored management's

actions to contain and minimise the impact of the

pandemic at Severstal’s operations and adapt to

changing conditions and external regulations during the

year. A special committee undertook the responsibility

for the day-to-day response to the latest developments

in the global spread of the virus. We acted swiftly and

prudently, and the fact that we had no major outbreaks

throughout 2021 is a significant achievement and

testament to the immense effort of our people given

the complex range of heightened safety measures our

teams had to introduce, reflecting the varied working

environments across Severstal’s vertically integrated

operations.

Regular sanitation and disinfection of all workplaces was

mandatory and we conducted temperature-checking

for all employees on their arrival at work. We switched to

a hybrid office system and all employees who could do

so were asked to work from home. While the extent of

measures taken varied during the year reflecting changing

local risk levels, we remained highly vigilant at all times.

Although the Company reported a number of positive

cases during the year, strict quarantine measures

ensured the overwhelming majority of our workforce

was unaffected by the virus. We have a vaccination

programme in place for our employees and provide

benefits to incentivise vaccination, and all vaccinated

employees are offered a full day of paid leave following

vaccination. In 2021, we reached a vaccination rate of 81%

among our employees.

The success of the measures we took was partly

due to a major focus on ensuring effective internal

communications on managing the epidemiological

situation with our employees and contractors.

Health and safety performance

Against the backdrop of these unprecedented

circumstances, I would like to provide an update on

our usual safety indicators. In 2018 the Company set

long-term health and safety improvement targets to:

reduce LTIFR by 50% by 2025, compared with 2017, and

eliminate all work-related fatalities; and, by 2025, ensure

all businesses achieve ISO 45001 certification.

While it gives me some comfort to report that Severstal

achieved an LTIFR of 0.69 in 2021, which is quite an

achievement given the momentous pressure the

pandemic put on our safety processes, we are deeply

disappointed and saddened to report that we had five

deaths on Severstal sites in 2021.

Every death is a tragedy and each case has been

individually investigated and reviewed by myself and the

Safety and Sustainability Committee. Despite specific

efforts we have taken to improve contractor safety, two of

the fatalities were contractor staff, who fell from a height

at a construction site and acute poisoning with carbon

monoxide. This is fewer than last year, when there were

14 fatalities (four cases among Severstal employees

and 10 among contractors). Severstal conducted an

investigation into each case to prevent a recurrence of

such situations.

64 Annual Report 2021 Corporate Governance

Strengthened health and safety team and enhanced

approach

In 2021, we implemented a renewed Health and Safety

Strategy. The strategy is based on five pillars: managing

fatal risks, contractors’ safety, managing divergences,

developing skills and a management system. Before

updating the strategy, a comprehensive diagnostics

of the Health and Safety management system was

carried out and key weaknesses were identified. The

new strategy addresses fatal risks and establishing safe

behavioural patterns among employees.

Our goal is zero fatalities across the business. Our track

record of LTIFR is of little relevance until we are confident

we have a safe environment for everyone.

Environmental protection

2021 has been a very active year in terms of

demonstrating Severstal’s commitment to protecting the

natural environment. The Company made good progress

against its targets to reduce atmospheric emissions,

waste disposal and discharged wastewater.

The Safety and Sustainability Committee also oversees

the Company’s environmental performance, including

atmospheric emissions reduction, waste disposal and

discharged wastewater. In 2021, the regulations for the

committees of the Board of Directors of Severstal were

reviewed. In particular, the scope of the Committee was

supplemented with functions related to water stress and

water management.

This year Severstal has set a more ambitious goal for toxic

emissions’ reduction for Cherepovets Steel Mill. Specific

emissions of dust, sulphur dioxide and nitrogen oxides

should decrease in 2026 to 4.28 kg / t of steel from 5.39 kg

/ t of steel in 2017, or by 20%.

The Safety and Sustainability Committee is also

responsible for overseeing Severstal’s Climate Change

Strategy and this is a standing item at every Safety and

Sustainability Committee meeting. The Safety and

Sustainability Committee and I are very excited about the

progress on this important area and the management is

highly motivated to reduce Severstal’s climate impact

and play our role in helping to meet the goals set by the

Paris Climate Agreement.

We have set a new ambitious mid-term GHG reduction

goal – to decrease specific GHG emission by 10% by

2030, compared with 2020. Our communications

approach around our decarbonisation strategy is to only

make public commitments that the Company knows are

ambitious but achievable and which are backed up by a

roadmap of actions and investments.

In accordance with the agreements made at the COP26

climate conference in 2021, Severstal sees a number of

risks and opportunities connected with climate change.

Firstly, we will strive to increase the ambition of measures

to minimise climate risks in the next decade to bridge

the gap to meeting the Paris agreement goals. We will

also focus on developing ecosystems which have a role

in absorbing greenhouse gases, reducing vulnerability

and building resilience. In addition, we will support the

development of sectoral measures to meet national

decarbonisation goals.

Reducing our consumption of coking coal through the

use of the latest technologies is part of our ambitious

decarbonisation programme, and in 2021 Severstal

agreed to sell Vorkutaugol to Russkaya Energiya. The

deal is expected to be closed during 2022, once the

relevant permits have been received from the Federal

Antimonopoly Service of the Russian Federation and a

number of other conditions have been fulfilled. The sale

of Vorkutaugol will allow us to focus on delivering our

strategy to reduce our carbon footprint consistently.

The Safety and Sustainability Committee in turn

will continue to take every action to enhance the

Company’s environmental performance and reduce its

environmental footprint.

External recognition

In 2021 our overall environmental progress has once

again been recognised by ESG ratings agencies and

awards.

Severstal’s MSCI ESG rating remained at ‘B’, but reached

the upper threshold of this level. Severstal held 15th

place in the global ESG rankings of steel-producing

companies in the SAM Corporate Sustainability

Assessment.

Severstal’s CDP Climate change rating was upgraded

to ‘B’. This is a significant improvement since earlier the

Company’s rating was ‘D’. Now Severstal is ranked the

second highest Russian company across all sectors

according to this rating.

Our FTSE4Good Index score also was 3.4 points out of a

possible 5, and our Sustainability Report received first

prize in the Best Corporate Social Responsibility and

Sustainable Development Report category at the XXIV

annual competition.

Looking forward

First and foremost, ensuring the Company is doing

everything in its power to keep its employees and

contractors safe will continue to be our number one

priority. We will closely monitor the situation with the

COVID-19 pandemic, as well as investing in the right

measures to ensure our contractor safety procedures

are fit for purpose. I know we have an incredibly strong

and committed team in place to support this and I am

confident we can take transformative action.

We also remain committed to advancing our Climate

Change Strategy whilst ensuring the integrity of our

reporting and the long-term positive impact of our

actions.

65Annual Report 2021Strategic Report Corporate Governance Financial Statements and non-financial Appendix

key performance indicators

Financial Statements

and non-financial key

performance indicators

PAO Severstal

and subsidiaries

Consolidated financial statements

for the years ended 31 December 2021, 2020 and 2019

PAO Severstal and subsidiaries

Consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

Contents

Page

Independent Auditors’ Report………………………………………………….…………………………………………….1

Consolidated income statements……………………………………………………………………………………………5

Consolidated statements of comprehensive income…………………..…………………………………………….……6

Consolidated statements of financial position…………………..………………………………………………………….7

Consolidated statements of cash flows………..…………………………………………………………………….….….8

Consolidated statements of changes in equity………..………………………………………………………….….…….9

Notes to the consolidated financial statements…………………………………………………………………….….10-37

1. Operations ................................................................................................................................................... 10

2. Basis for preparation of the consolidated financial statements .................................................................... 11

3. Summary of the material accounting policies information ............................................................................ 12

4. Revenue ....................................................................................................................................................... 14

5. Staff costs .................................................................................................................................................... 14

6. Foreign exchange (loss)/gain ....................................................................................................................... 15

7. (Impairment)/reversal of impairment of non-current assets .......................................................................... 15

8. Net other non-operating expenses ............................................................................................................... 16

9. Taxation ....................................................................................................................................................... 16

10. Related party transactions ........................................................................................................................... 18

11. Related party balances ................................................................................................................................ 19

12. Cash and cash equivalents .......................................................................................................................... 19

13. Trade accounts receivable ........................................................................................................................... 19

14. Inventories ................................................................................................................................................... 19

15. Long-term financial investments .................................................................................................................. 19

16. Property, plant and equipment ..................................................................................................................... 20

17. Intangible assets .......................................................................................................................................... 21

18. Debt finance ................................................................................................................................................. 22

19. Other current liabilities ................................................................................................................................. 23

20. Retirement benefit liabilities ......................................................................................................................... 24

21. Other non-current liabilities .......................................................................................................................... 24

22. Shareholders’ equity .................................................................................................................................... 25

23. Disposal group held for sale ......................................................................................................................... 27

24. Subsidiaries, associates and joint ventures ................................................................................................. 28

25. Segmental analysis ...................................................................................................................................... 30

26. Alternative performance measures .............................................................................................................. 30

27. Financial instruments ................................................................................................................................... 32

28. Commitments and contingencies ................................................................................................................. 37

Audited entity:

PAO Severstal.

Registration

number in the Unified State Register of Legal Entities:

No.

1023501236901.

Independent auditor: JSC “KPMG”, a company incorporated under the Laws of

the Russian Federation and a member firm of the KPMG global organization of

independent member firms. For more detail about the structure of the KPMG

global organization please visit

home.kpmg/governance

Independent Auditors’ Report

To the Shareholders of PAO Severstal and Board of Directors

Opinion

We have audited the consolidated financial statements of PAO Severstal (the “Company”)

and its subsidiaries (the “Group”), which comprise the consolidated statements

of financial

position as at 31 December 2021, 2020 and 2019, the

consolidated income statements, the

consolidated statements of comprehensive income

, changes in equity and cash flows for

the years

then ended, and notes, comprising significant accounting policies and other

explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all

material respects, the consolidated financial position of the Group as at 31 December 2021

2020 and 2019, and its consolidated financial performance and its consolid

ated cash flows

for the years

then ended in accordance with International Financial Reporting Standards

(IFRS).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the

Auditors’ Responsibilities

for the Audit of the Consolidated Financial Statements section of our report.

We are

independent of the

Group in accordance with the independence requirements that are

relevant to our audit of the consolidated financial statements in the Russian Federation and

with the International Ethics Standards Board for

Accountants International Code of Ethics

for Professional Accountants (including International Independence Standards)

(IESBA

Code)

, and we have fulfilled our other ethical responsibilities in accordance with the

requirements in the Russian Federation and the IESBA Code. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most

significance in our audit of the consolidated financial statements

of the current period. These

matters were addressed in the context of our audit of the consolidated financial statements

as a whole, and in forming our opinion thereon, and we do not provide a separate opinion

on these matters.

Audited entity:

PAO Severstal.

Registration

number in the Unified State Register of Legal Entities:

No.

1023501236901.

Independent auditor: JSC “KPMG”, a company incorporated under the Laws of

the Russian Federation and a member firm of the KPMG global organization of

independent member firms. For more detail about the structure of the KPMG

global organization please visit

home.kpmg/governance

Independent Auditors’ Report

To the Shareholders of PAO Severstal and Board of Directors

Opinion

We have audited the consolidated financial statements of PAO Severstal (the “Company”)

and its subsidiaries (the “Group”), which comprise the consolidated statements

of financial

position as at 31 December 2021, 2020 and 2019, the

consolidated income statements, the

consolidated statements of comprehensive income

, changes in equity and cash flows for

the years

then ended, and notes, comprising significant accounting policies and other

explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all

material respects, the consolidated financial position of the Group as at 31 December 2021

2020 and 2019, and its consolidated financial performance and its consolid

ated cash flows

for the years

then ended in accordance with International Financial Reporting Standards

(IFRS).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the

Auditors’ Responsibilities

for the Audit of the Consolidated Financial Statements section of our report.

We are

independent of the

Group in accordance with the independence requirements that are

relevant to our audit of the consolidated financial statements in the Russian Federation and

with the International Ethics Standards Board for

Accountants International Code of Ethics

for Professional Accountants (including International Independence Standards)

(IESBA

Code)

, and we have fulfilled our other ethical responsibilities in accordance with the

requirements in the Russian Federation and the IESBA Code. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most

significance in our audit of the consolidated financial statements

of the current period. These

matters were addressed in the context of our audit of the consolidated financial statements

as a whole, and in forming our opinion thereon, and we do not provide a separate opinion

on these matters.

PAO Severstal

Independent Auditors’ Report

Page 2

Transition to SAP S4/HANA

The key audit matter

How the matter was addressed in our audit

On 1 November 2021 the Group

transitioned to SAP S4/HANA,

which replaced the previous SAP

ERP

platform used for initiating,

authorising and recording business

transactions across the Group. The

SAP ERP system

was integrated

with certain other applications used

in the financial reporting process,

which had to be re-

connected to

SAP S4/HANA. Certain data were

re-organised in SAP S4/HANA

requiring a revision to the approach

for computation of relevant

consolidation entries.

Given the magnitude of the project,

the increased data integrity risks

inherent to migration of financial

information as at 1 November 2021

and risks of material misstatements

that may arise in case of the new

system malfunction, we consider the

trans

ition to SAP S4/HANA in

relation to the financial reporting

process to be a key audit matter.

We obtained an understanding and evaluated the

SAP S4/HANA implementation project governance

and data migration plan. We involved KPMG IT

specialists to assist us in evaluating the design,

implementation and operating effectiveness of

relevant IT general controls over system

implementation and data

migration as at

1 November 2021. In addition, we tested

substantively completeness and accuracy of

migrated data as at 1 November 2021 by comparing

to respective information as at 31 October 2021 in

the SAP ERP system. The

se substantive

procedures covered

balances of general ledgers

and certain sub-ledgers, their mapping to the

captions in the consolidated

financial statements

and certain selected key data elements.

In relation to the period under operation of the new

SAP S4/HANA platform, we tested system access,

change management,

backup process and certain

other general IT controls; we re-

performed

walkthrough analysis for significant financial

accounting processes; and tested the design,

implementation and operating effective

ness of the

relevant process level controls.

For the purposes of our substantive testing after

SAP S4/HANA was implemented: we increased the

extent of our procedures in relation to certain

movements of significant accounts

starting from

1 November 2021 to 31 December 2021; performed

analytical procedures to check whether financial

data produced by the new system is consistent with

those produced by the previous system; re-

calculated certain entries made at the consolidated

level.

Other Information

Management is responsible for the other information. The other information comprises the

Annual Report but does not

include the consolidated financial statements and our auditors’

report thereon.

Our opinion on the consolidated financial statements does no

t cover the other information

and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to

read the other information and, in doing so, consider whether the other information is

PAO Severstal

Independent Auditors’ Report

Page 3

materially inconsistent with the consolidated financial statements or our knowledge obtained

in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement

of this other information, we are required to report that fact. We have nothing t

o report in

this regard.

Responsibilities of Management and Those Charged with Governance for the

Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated

financial statements in accordance with IFRS, and for such internal control as management

determines is necessary to enable the preparation of consolidated financial st

atements that

are free from material misstatement, whether due to fraud or error.

In preparing the

consolidated financial statements, management is responsible for

assessing the Group’s ability to continue as a going concern, disclosing, as applicable,

mat

ters related to going concern and using the going concern basis of accounting unless

management either intends to liquidate the Group

or to cease operations, or has no realistic

alternative but to do so.

Those charged with governance are responsible for ov

erseeing the Group’s financial

reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

statements as a whole are free from material misstatement, whether due to fraud or error,

and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high

level of assurance, but is not a guarantee that an a

udit conducted in accordance with ISAs

will always detect a material misstatement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually or in the aggregate, they could

reasonably be expected to influence t

he economic decisions of users taken on the basis of

these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and

maintain professional scepticism throughout the audit. We also:

— Identify and assess the risks of material misstatement of the

consolidated financial

statements, whether due to fraud or error, design and perform audit procedures

responsive to those risks, and obtain audit evidence that is sufficient and appropriate to

provide a basis

for our opinion. The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal

control.

— O

btain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the Group’s internal control.

— Evaluate

the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

—

Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty

PAO Severstal

Independent Auditors’ Report

Page 3

materially inconsistent with the consolidated financial statements or our knowledge obtained

in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement

of this other information, we are required to report that fact. We have nothing t

o report in

this regard.

Responsibilities of Management and Those Charged with Governance for the

Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated

financial statements in accordance with IFRS, and for such internal control as management

determines is necessary to enable the preparation of consolidated financial st

atements that

are free from material misstatement, whether due to fraud or error.

In preparing the

consolidated financial statements, management is responsible for

assessing the Group’s ability to continue as a going concern, disclosing, as applicable,

mat

ters related to going concern and using the going concern basis of accounting unless

management either intends to liquidate the Group

or to cease operations, or has no realistic

alternative but to do so.

Those charged with governance are responsible for ov

erseeing the Group’s financial

reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

statements as a whole are free from material misstatement, whether due to fraud or error,

and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high

level of assurance, but is not a guarantee that an a

udit conducted in accordance with ISAs

will always detect a material misstatement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually or in the aggregate, they could

reasonably be expected to influence t

he economic decisions of users taken on the basis of

these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and

maintain professional scepticism throughout the audit. We also:

— Identify and assess the risks of material misstatement of the

consolidated financial

statements, whether due to fraud or error, design and perform audit procedures

responsive to those risks, and obtain audit evidence that is sufficient and appropriate to

provide a basis

for our opinion. The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal

control.

— O

btain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the Group’s internal control.

— Evaluate

the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

—

Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty

PAO Severstal

Independent Auditors’ Report

Page 4

exists related to events or conditions that may cast significant doubt on the Group’s

ability to continue as a going concern. If we conclude that a material uncertainty exists,

we are required to draw attention in our auditors’ report to

the related disclosures in the

consolidated financial statements or, if such disclosures are inadequate, to modify our

opinion. Our conclusions are based on the audit evidence obtained up to the date of

our auditors’ report. However, future events or conditions may cause the

Group to cease

to continue as a going concern.

— Evaluate the overall presentation, structure and content of the consolidated

financial

statements, including the disclosures, and whether the

consolidated financial

statements represent the underlying transactions and events in a manner

that achieves

fair presentation.

—

Obtain sufficient appropriate audit evidence regarding the financial information of the

entities

or business activities within the Group to express an opinion on the consolidated

financial statements. We are responsible for the direction, supervision and performance

of the group audit. We remain solely responsible for our audit opinion.

We communica

te with those charged with governance regarding, among other matters, the

planned scope and timing of the audit and significant audit findings, including any significant

deficiencies in internal control that we identify during our audit.

We also provide th

ose charged with governance with a statement that we have complied

with relevant ethical requirements regarding independence, and communicate with them all

relationships and other matters that may reasonably be thought to bear on our

independence, and where applicable, actions taken to eliminate threats or

safeguards

applied.

From the matters communicated with those charged with governance, we determine those

matters that were of most significance in the audit of the

consolidated financial statements

of the current period and are therefore the key audit matters. We describe these matters in

our auditors’ report unless law or regulation precludes public disclosure about the matter or

when, in extremely rare circumstance

s, we determine that a matter should not be

communicated in our report because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is:

Pataraya G.E.

Principal registration number of the entry in the Register of Auditors and Audit organizations

21906100631, acts on behalf of the audit organization based on the power of attorney No.

108/21 as of 25 May 2021

JSC “KPMG”

Principal registration number of the entry in the Register of Auditors and Audit Organizations

No. 12006020351

Moscow, Russia

17 February 2022

PAO Severstal and subsidiaries

Consolidated income statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Note 2021 2020* 2019*

Revenue

Revenue - third parties 11,364 6,744 8,002

Revenue - related parties 10 274 126 155

4 11,638 6,870 8,157

Cost of sales (4,920) (3,952) (4,908)

Gross profit 6,718 2,918 3,249

General and administrative expenses (348) (314) (323)

Distribution expenses (694) (658) (566)

Taxes, other than income tax, and contributions (309) (28) (56)

Share of associates' and joint ventures' profits 41 17 20

Loss on disposal of property, plant and equipment and intangible

assets

(22) (21) (12)

Net other operating income 5 16 15

Profit from operations 5,391 1,930 2,327

(Impairment)/reversal of impairment of non-current assets 7 (20) (11) 5

Net other non-operating expenses 8 (52) (50) (74)

Profit before financing and taxation 5,319 1,869 2,258

Finance income 8 13 5

Finance costs (139) (135) (137)

Loss on remeasurement and disposal of financial instruments (101) (77) (19)

Foreign exchange (loss)/gain 6 (60) (361) 125

Profit before income tax 5,027 1,309 2,232

Income tax expense 9 (952) (293) (465)

Profit for the period

4,075 1,016 1,767

Attributable to:

shareholders of PAO Severstal 4,074 1,016 1,766

non-controlling interests

1 - 1

Basic weighted average number of shares outstanding during the

period (millions of shares)

22 834 825 825

Basic earnings per share (US dollars) 4.88 1.23 2.14

Diluted weighted average number of shares outstanding during

the period (millions of shares)

22 840 850 849

Diluted earnings per share (US dollars) 4.88 1.23 2.08

Year ended 31 December

* These amounts include adjustments made in connection with the change in presentation described in Note 2 of these consolidated

financial statements.

These consolidated financial statements were approved by the Board of Directors on 17 February 2022.

The accompanying notes form an integral part of these consolidated financial statements.

PAO Severstal and subsidiaries

Consolidated statements of comprehensive income

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Note 2021 2020 2019

Profit for the period

4,075 1,016 1,767

Other comprehensive (loss)/income:

Items that will not be reclassified to profit or loss

Actuarial gains/(losses)

8 - (12)

Translation to presentation currency (29) (542) 364

Total items that will not be reclassified to profit or loss (21) (542) 352

Items that may be reclassified subsequently to profit or loss

Translation to presentation currency - foreign operations (4) 8 (1)

Total items that may be reclassified subsequently to profit or loss

(4) 8 (1)

Other comprehensive (loss)/income for the period

(25) (534) 351

Total comprehensive income for the period

4,050 482 2,118

Attributable to:

shareholders of PAO Severstal

4,049 482 2,117

non-controlling interests

1 - 1

Year ended 31 December

The accompanying notes form an integral part of these consolidated financial statements.

PAO Severstal and subsidiaries

Consolidated statements of financial position

31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Note 2021 2020 2019

Assets

Current assets:

Cash and cash equivalents 12

418 583 1,081

Short-term financial investments

8 6 6

Trade accounts receivable 13

493 529 582

Accounts receivable from related parties 11

61 18 21

Advances paid and prepayments

244 49 52

Other receivables

129 37 86

Inventories 14

1,412 888 1,137

VAT recoverable

44 97 97

Income tax recoverable

- - 5

Assets held for sale 23

361 - -

Other current assets

19 21 28

Total current assets 3,189 2,228 3,095

Non-current assets:

Long-term financial investments 15

44 33 26

Investments in associates and joint ventures

142 116 120

Property, plant and equipment 16

4,956 4,746 4,670

Intangible assets 17

267 252 279

Deferred tax assets 9

60 12 15

Other non-current assets

10 9 17

Total non-current assets 5,479 5,168 5,127

Total assets

8,668 7,396 8,222

Liabilities and shareholders' equity

Current liabilities:

Trade accounts payable

858 648 709

Accounts payable to related parties 11

16 9 17

Advances received

373 134 148

Short-term debt finance 18

681 610 290

Income taxes payable

35 15 19

Other taxes and social security payable

136 146 126

Dividends payable 18

11 8 7

Liabilities related to assets held for sale 23

203 - -

Other current liabilities 19

308 200 270

Total current liabilities 2,621 1,770 1,586

Non-current liabilities:

Long-term debt finance 18

1,135 2,002 2,361

Deferred tax liabilities 9

454 372 365

Retirement benefit liabilities 20

46 61 74

Other non-current liabilities 21

203 447 358

Total non-current liabilities 1,838 2,882 3,158

Equity:

Share capital 22

2,753 2,753 2,753

Treasury shares

- (104) (107)

Additional capital

308 308 308

Translation reserve

(2,549) (2,516) (1,982)

Retained earnings

3,673 2,280 2,483

Other reserves

8 8 8

Total equity attributable to shareholders of PAO Severstal 4,193 2,729 3,463

Non-controlling interests 16 15 15

Total equity 4,209 2,744 3,478

Total equity and liabilities

8,668 7,396 8,222

31 December

The accompanying notes form an integral part of these consolidated financial statements.

PAO Severstal and subsidiaries

Consolidated statements of cash flows

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Note 2021 2020 2019

Operating activities:

Profit before financing and taxation

5,319 1,869 2,258

Adjustments to reconcile profit to cash generated from operations:

Depreciation and amortisation

553 460 464

Impairment/(reversal of impairment) of non-current assets

7 20 11 (5)

Movements in provision for inventories, receivables and other provisions

22 97 (4)

Loss on disposal of property, plant and equipment and intangible assets 22 21 12

Loss on disposal of subsidiary

- - 21

Share of associates' and joint ventures' profits (41) (17) (20)

Changes in operating assets and liabilities:

Trade accounts receivable (41) (80) 17

Accounts receivable from related parties 19 (1) 1

VAT recoverable 54 (12) (24)

Inventories (576) 57 59

Trade accounts payable 231 42 8

Accounts payable to related parties 3 (3) (1)

Other taxes and social security payable 37 42 12

Other non-current liabilities 3 - (7)

Assets held for sale - - (10)

Net other changes in operating assets and liabilities 81 20 26

Cash generated from operations 5,706 2,506 2,807

Interest paid

(145) (133) (114)

Income tax paid

(885) (229) (401)

Net cash from operating activities 4,676 2,144 2,292

Investing activities:

Additions to property, plant and equipment

(1,068) (1,256) (1,157)

Additions to intangible assets

(89) (71) (61)

Additions to financial investments

(17) (20) (55)

Net cash outflow on acquisition of subsidiary

24 - (19) -

Net cash inflow from disposal of subsidiary

24 - - 215

Proceeds from disposal of property, plant and equipment and intangible assets

6 5 15

Proceeds from disposal of financial investments

9 7 21

Interest received

5 10 4

Dividends received

9 6 6

Net cash used in investing activities (1,145) (1,338) (1,012)

Financing activities:

Proceeds from debt finance

10 38 1,205

Repurchase of issued shares

(22) - -

Repayments of debt finance *

(747) (48) (58)

Repayments of lease liabilities

(9) (15) (16)

Dividends paid

(2,912) (1,228) (1,574)

Net cash used in financing activities

(3,680) (1,253) (443)

Effect of exchange rates on cash and cash equivalents

(16) (51) 16

Net (decrease)/increase in cash and cash equivalents

(165) (498) 853

Cash and cash equivalents at beginning of the period

583 1,081

228

Cash and cash equivalents at end of the period 418 583 1,081

Year ended 31 December

* These amounts include exercise of bonds' conversion rights of US$ 200 million for the year ended 31 December 2021

(2020:

_US$_43_million, 2019:_US$_50_million).

The accompanying notes form an integral part of these consolidated financial statements.

PAO Severstal and subsidiaries

Consolidated statements of changes in equity

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Attributable to the shareholders of PAO Severstal Total

Share Treasury Additional Translation Retained Other

capital shares capital reserve earnings reserves Total

Balances as at 31 December 2018 2,753 (133) 308 (2,345) 2,274 8 2,865 14 2,879

Profit for the period - - - - 1,766 - 1,766 1 1,767

Translation to presentation currency - - - 363 - - 363 - 363

Other comprehensive loss - - - - (12) - (12) - (12)

Total comprehensive income for the period 363 1,754 - 2,117 1 2,118

Dividends - - - - (1,545) - (1,545) - (1,545)

Conversion of bonds (Note 18) - 26 - - - - 26 - 26

Balances as at 31 December 2019 2,753 (107) 308 (1,982) 2,483 8 3,463 15 3,478

Profit for the period - - - - 1,016 - 1,016 - 1,016

Translation to presentation currency - - - (534) - - (534) - (534)

Total comprehensive (loss)/income for the period (534) 1,016 - 482 - 482

Dividends - - - - (1,219) - (1,219) - (1,219)

Conversion of bonds (Note 18) - 3 - - - - 3 - 3

Balances as at 31 December 2020 2,753 (104) 308 (2,516) 2,280 8 2,729 15 2,744

Profit for the period - - - - 4,074 - 4,074 1 4,075

Translation to presentation currency - - - (33) - - (33) - (33)

Other comprehensive income - - - - 8 - 8 - 8

Total comprehensive (loss)/income for the period (33) 4,082 - 4,049 1 4,050

Dividends - - - - (2,871) - (2,871) - (2,871)

Repurchase of issued shares - (22) - - - - (22) - (22)

Conversion of bonds (Note 18) - 126 - - 182 - 308 - 308

Balances as at 31 December 2021 2,753 - 308 (2,549) 3,673 8 4,193 16 4,209

Non-

controlling

interests

The accompanying notes form an integral part of these consolidated financial statements.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

1. Operations

These consolidated financial statements of PAO Severstal and subsidiaries comprise the parent company,

PAO Severstal (‘Severstal’ or ‘the Parent Company’) and its subsidiaries (collectively ‘the Group’) as listed in Note 24.

Severstal began operations on 24 August 1955 and completed the development of an integrated iron and steel mill in

Cherepovets during February 1959 when the first steel was rolled. On 24 September 1993, as part of the Russian

privatisation programme, Severstal was registered as an Open Joint Stock Company (‘OAO’) and privatised. Through

participating in Severstal’s privatisation auctions and other purchases, Alexey Mordashov (the ‘Majority Shareholder’)

purchased shares in Severstal such that as at 31 December 2021, 2020 and 2019 he controlled indirectly 77.03% of

Severstal’s share capital. In November 2014, Severstal changed its legal form from OAO to PAO (Public Joint Stock

Company) following the requirements of the amended Russian Civil Code.

Severstal’s global depositary receipts (GDRs) have been quoted on the London Stock Exchange since

November 2006. Severstal’s shares are quoted on the Moscow Exchange (‘MOEX’). Severstal’s registered office is

located at Ul. Mira 30, Cherepovets, Russia.

The Group comprises the following segments:

• Severstal Resources – this segment comprises three iron ore mining complexes, JSC Karelsky Okatysh,

JSC_Olcon in northwest Russia, Yakovlevsky GOK LTD in southwest Russia and a coal mining complex,

JSC Vorkutaugol in northwest Russia, which was classified as a disposal group held for sale as at

31 December 2021 (Note 23).

• Severstal Russian Steel – this segment consists primarily of the Group’s steel production and high-grade

automotive galvanizing facilities in Cherepovets; rolling mill 5000 and a large-diameter pipe mill in Kolpino, all

in northwest Russia; a metalware plant located in Russia; a ferrous scrap metal recycling business operating

in northwest and central Russia, as well as various supporting functions for trading, maintenance and

transportation, located in Europe.

Economic environment

In June 2021, the Government of the Russian Federation announced the imposition of combined duties on export

sales of iron and steel products outside the Eurasian Economic Union effective from 1 August 2021 and running

through to 31 December 2021. This combined export duties were fixed at 15 percent and a specific rate was

established as a minimum per tonne on the sales of exported steel products. Export customs duty expenses incurred

during the year ended 31 December 2021 are included in the line ‘Taxes, other than income tax, and contributions’ in

the consolidated income statements.

International sales of rolled steel from the Group’s Russian operations have been the subject of several anti-dumping

and safeguard investigations. The Group has taken steps to address the concerns of such investigations and

participates actively in their resolution.

In 2021 the Federal Antimonopoly Service initiated an investigation into allegations that Severstal and other Russian

steel producers sold hot-rolled flat products at monopolistically high prices, which was completed in February 2022

and an adverse decision was issued. Severstal strongly denies these allegations and will contest all adverse decisions

by the Federal Antimonopoly Service in the courts. As of the date of these financial statements no penalty claim has

been made by the Federal Antimonopoly Service against Severstal. Consequently, management is unable to assess

the final outcome of this case as of the date of these financial statements, accordingly no provision against possible

outcomes has been made.

The major part of the Group is based in the Russian Federation and is consequently exposed to the economic and

political effects of the policies adopted by the Russian government. Recent elevated tensions related to the situation

in the Ukraine have further increased the economic uncertainty and the risk of the imposition of sanctions. These

conditions and future policy changes could affect the operations of the Group and the realisation and settlement of its

assets and liabilities.

Management has assessed the possible impact of COVID-19 on these consolidated financial statements and

concluded that there is no significant effect on these consolidated financial statements. Management continues to

monitor the development of the economic conditions.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

2. Basis for preparation of the consolidated financial statements

Statement of compliance

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards

(‘IFRS’) as issued by the International Accounting Standards Board.

The Group additionally prepared IFRS consolidated financial statements presented in Russian roubles and in the

Russian language in accordance with the Federal Law No. 208 – FZ ‘On consolidated financial reporting’.

Basis of measurement

The consolidated financial statements are prepared on the historic cost basis except for financial assets and liabilities

at fair value through profit and loss (FVTPL), financial assets at fair value through other comprehensive income

(FVTOCI) and assets held for sale at fair value less costs to sell.

The material accounting policies information is disclosed in Note 3.

Critical accounting judgments, estimates and assumptions

Areas of judgement that have the most significant effect on the amounts recognised or disclosed in the consolidated

financial statements are:

Useful lives of property, plant and equipment

The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial

year-end. These estimates may have a material impact on the amount of the carrying values of property, plant and

equipment and on depreciation expense for the period.

Impairment of assets

The Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any

indication that those assets are impaired. In making the assessments for impairment, assets that do not generate

independent cash flows are allocated to an appropriate cash-generating unit. Subsequent changes to the cash-

generating unit allocation or to the timing of cash flows could impact the carrying value of the respective assets.

Taxation

The taxation system and regulatory environment of the Russian Federation are characterised by numerous taxes and

frequently changing legislation, which is often unclear, contradictory and subject to varying interpretations between

the differing regulatory authorities and jurisdictions, who can impose significant fines, penalties and interest charges.

In recent years the regulatory authorities have adopted a more assertive stance regarding the interpretation and

enforcement of legislation, which has resulted in greater tax and regulatory risk. Also, a number of new laws introducing

tax legislation changes have been recently adopted; their application in practice might influence the tax treatment of

transactions related to foreign companies and their activities, which could potentially impact the Group’s tax position

and possibly create additional tax risks in the future.

Accordingly, management has to apply considerable judgement in determining the appropriate amounts of tax payable.

Management believes that the Group has complied in all material respects with all existing, relevant legislation and

has made appropriate provision for tax payable.

Allowance for expected credit losses

The Group makes allowance for expected credit losses of trade receivables using an allowance matrix. Loss rates are

based on actual credit loss experience over the past three years. When evaluating the adequacy of an allowance for

expected credit losses, management bases its estimates on the current overall economic conditions, the ageing of

accounts receivable balances, historical write-off experience, customer creditworthiness and changes in payment

terms.

Decommissioning liabilities

The Group recognises its decommissioning liabilities provision using the best estimate of the expenditures required to

settle the present obligation based on the requirements of the current legislation of the country where the respective

operating assets are located. The risks and uncertainties that inevitably surround many events and circumstances are

taken into account in reaching the best estimate of a provision. Future events that may affect the amount required to

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

2. Basis for preparation of the consolidated financial statements

Statement of compliance

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards

(‘IFRS’) as issued by the International Accounting Standards Board.

The Group additionally prepared IFRS consolidated financial statements presented in Russian roubles and in the

Russian language in accordance with the Federal Law No. 208 – FZ ‘On consolidated financial reporting’.

Basis of measurement

The consolidated financial statements are prepared on the historic cost basis except for financial assets and liabilities

at fair value through profit and loss (FVTPL), financial assets at fair value through other comprehensive income

(FVTOCI) and assets held for sale at fair value less costs to sell.

The material accounting policies information is disclosed in Note 3.

Critical accounting judgments, estimates and assumptions

Areas of judgement that have the most significant effect on the amounts recognised or disclosed in the consolidated

financial statements are:

Useful lives of property, plant and equipment

The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial

year-end. These estimates may have a material impact on the amount of the carrying values of property, plant and

equipment and on depreciation expense for the period.

Impairment of assets

The Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any

indication that those assets are impaired. In making the assessments for impairment, assets that do not generate

independent cash flows are allocated to an appropriate cash-generating unit. Subsequent changes to the cash-

generating unit allocation or to the timing of cash flows could impact the carrying value of the respective assets.

Taxation

The taxation system and regulatory environment of the Russian Federation are characterised by numerous taxes and

frequently changing legislation, which is often unclear, contradictory and subject to varying interpretations between

the differing regulatory authorities and jurisdictions, who can impose significant fines, penalties and interest charges.

In recent years the regulatory authorities have adopted a more assertive stance regarding the interpretation and

enforcement of legislation, which has resulted in greater tax and regulatory risk. Also, a number of new laws introducing

tax legislation changes have been recently adopted; their application in practice might influence the tax treatment of

transactions related to foreign companies and their activities, which could potentially impact the Group’s tax position

and possibly create additional tax risks in the future.

Accordingly, management has to apply considerable judgement in determining the appropriate amounts of tax payable.

Management believes that the Group has complied in all material respects with all existing, relevant legislation and

has made appropriate provision for tax payable.

Allowance for expected credit losses

The Group makes allowance for expected credit losses of trade receivables using an allowance matrix. Loss rates are

based on actual credit loss experience over the past three years. When evaluating the adequacy of an allowance for

expected credit losses, management bases its estimates on the current overall economic conditions, the ageing of

accounts receivable balances, historical write-off experience, customer creditworthiness and changes in payment

terms.

Decommissioning liabilities

The Group recognises its decommissioning liabilities provision using the best estimate of the expenditures required to

settle the present obligation based on the requirements of the current legislation of the country where the respective

operating assets are located. The risks and uncertainties that inevitably surround many events and circumstances are

taken into account in reaching the best estimate of a provision. Future events that may affect the amount required to

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

settle an obligation are reflected in the amount of a provision when there is sufficient objective evidence that they will

occur.

Retirement benefit liabilities

The Group uses an actuarial valuation method for measurement of the present value of post-employment benefit

obligations and related current service cost. This involves the use of demographic assumptions about the future

characteristics of the current and former employees who are eligible for benefits (mortality, both during and after

employment, rates of employee turnover, disability and early retirement, etc.) as well as financial assumptions

(discount rate, future salary and benefit levels, etc.).

Litigation

The Group exercises judgment in measuring and recognising provisions and the exposure to contingent liabilities

related to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or

government regulation, as well as other contingent liabilities. Judgment is necessary in assessing the likelihood that a

pending claim will succeed, or liability will arise, and to quantify the possible range of the final settlement. Because of

the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated

provision. These estimates are subject to change as new information becomes available, primarily with the support of

internal specialists or with the support of outside consultants. Revisions to the estimates may significantly affect future

operating results.

Functional and presentation currency

The presentation currency of these consolidated financial statements is the US dollar.

The functional currency is determined separately for each of the Group’s entities. The functional currency of the major

part of the Group’s entities is the Russian rouble, except for entities located in Latvia and Poland; other entities and

currencies are not material to the Group.

Adoption of amendments to IFRS

The Group has early adopted Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice

Statement 2) issued in February 2021. The amendment requires to disclose the material accounting policies

information rather than the significant accounting policies; clarifies that accounting policies related to immaterial

transactions, other events or conditions are themselves immaterial and do not need to be disclosed and that not all

accounting policies that relate to material transactions, other events or conditions are themselves material. The

amendment did not have a significant effect on these consolidated financial statements.

Restatements

In the current year the Group changed the classification of certain commercial expenses to reflect more appropriately

their nature.

Accordingly the following reclassifications to the prior period were made:

2020 2019

General and administrative expenses

114 34

Distribution expenses

(114) (34)

YYeeaarr eennddeedd 3311 DDeecceemmbbeerr

3. Summary of the material accounting policies information

The following accounting policies have been consistently applied in the preparation of these consolidated financial

statements throughout the Group.

a. Property, plant and equipment

Depreciation is calculated using the straight-line basis, except for depreciation on vehicles and certain metal-rolling

equipment, which is calculated on the basis of mileage and units of production, respectively. The estimated useful

lives of assets are reviewed regularly and revised when necessary.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

The principal periods over which assets are depreciated are as follows:

Buildings 20 – 50 years

Plant and machinery 10 – 20 years

Other assets 5 – 20 years

b. Leases

The Group’s right-of-use assets include land and buildings, plant and machinery, vehicles and other productive assets.

Short-term and low value leases are accounted as leases; lease and non-lease components are treated as a single

lease item for all leased assets.

The lease liability is discounted using the Group’s incremental borrowing rates varying between 1% and 10%

depending on the lease agreement’s currency. For some specific lease agreements, the discount rate is determined

by the interest rate implicit in these lease agreements.

c. Intangible assets (excluding goodwill)

Intangible assets are amortised over their estimated useful lives using the straight-line basis and assessed for

impairment whenever there is an indication that the intangible asset may be impaired.

The table below presents the useful lives of intangible assets:

Mineral rights 12 - 25 years

Software 3 - 10 years

Other intangible assets 3 - 50 years

The major component of the software category is the SAP business system. Amortisation of intangible assets is

included in the captions ‘Cost of sales’ and ‘General and administrative expenses’ in the consolidated income

statement.

d. Inventories

The cost of inventories is based on the weighted average principle.

e. Repurchase of issued shares

When share capital recognised as equity is repurchased, the amount of the consideration paid which includes directly

attributable costs, net of any tax effects is recognised as a deduction from equity and classified as treasury shares.

When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity,

and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

f. Revenue recognition

Most of the Group’s revenue is revenue from contracts with customers.

Revenue from the sale of hot rolled strip and plate, other steel products, pellets and iron ore and most other revenue

(see Note 4) is recognised in the income statement primarily at the point in time when control over the promised goods

passes to the customer.

The amount of revenue recognised reflects the consideration to which the Group is or expects to be entitled in

exchange for those goods and is reduced for estimated customer returns, rebates and other similar allowances.

In most instances, control passes, and sales revenue is recognised when the product is delivered to the vessel or

vehicle on which it will be transported once loaded to the destination port or the customer’s premises.

The Group’s products are sold to customers under contracts which vary in tenure, but are generally less than one year

in duration (therefore, no significant effect of any financing component exists) and pricing mechanisms, including some

volumes sold in the spot market. Revenue is generally recognised at the contracted price as this reflects the stand-

alone selling price.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

The principal periods over which assets are depreciated are as follows:

Buildings 20 – 50 years

Plant and machinery 10 – 20 years

Other assets 5 – 20 years

b. Leases

The Group’s right-of-use assets include land and buildings, plant and machinery, vehicles and other productive assets.

Short-term and low value leases are accounted as leases; lease and non-lease components are treated as a single

lease item for all leased assets.

The lease liability is discounted using the Group’s incremental borrowing rates varying between 1% and 10%

depending on the lease agreement’s currency. For some specific lease agreements, the discount rate is determined

by the interest rate implicit in these lease agreements.

c. Intangible assets (excluding goodwill)

Intangible assets are amortised over their estimated useful lives using the straight-line basis and assessed for

impairment whenever there is an indication that the intangible asset may be impaired.

The table below presents the useful lives of intangible assets:

Mineral rights 12 - 25 years

Software 3 - 10 years

Other intangible assets 3 - 50 years

The major component of the software category is the SAP business system. Amortisation of intangible assets is

included in the captions ‘Cost of sales’ and ‘General and administrative expenses’ in the consolidated income

statement.

d. Inventories

The cost of inventories is based on the weighted average principle.

e. Repurchase of issued shares

When share capital recognised as equity is repurchased, the amount of the consideration paid which includes directly

attributable costs, net of any tax effects is recognised as a deduction from equity and classified as treasury shares.

When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity,

and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

f. Revenue recognition

Most of the Group’s revenue is revenue from contracts with customers.

Revenue from the sale of hot rolled strip and plate, other steel products, pellets and iron ore and most other revenue

(see Note 4) is recognised in the income statement primarily at the point in time when control over the promised goods

passes to the customer.

The amount of revenue recognised reflects the consideration to which the Group is or expects to be entitled in

exchange for those goods and is reduced for estimated customer returns, rebates and other similar allowances.

In most instances, control passes, and sales revenue is recognised when the product is delivered to the vessel or

vehicle on which it will be transported once loaded to the destination port or the customer’s premises.

The Group’s products are sold to customers under contracts which vary in tenure, but are generally less than one year

in duration (therefore, no significant effect of any financing component exists) and pricing mechanisms, including some

volumes sold in the spot market. Revenue is generally recognised at the contracted price as this reflects the stand-

alone selling price.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

g. Segment reporting

An operating segment’s results are reviewed regularly by key management to make decisions about resources to

allocated to the segment and assess its performance, and for which discrete financial information is available and is

prepared on the same basis as these consolidated financial statements.

4. Revenue

Revenue by product was as follows:

2021 2020 2019

Hot-rolled strip and plate 4,062 2,394 2,780

Galvanized and other metallic coated sheet 1,192 595 667

Cold-rolled sheet 1,050 493 604

Semi-finished products 856 183 194

Pellets and iron ore 823 569 688

Metalware products 755 502 539

Other tubes and pipes, formed shapes 657 500 447

Colour-coated sheet 546 377 397

Shipping and handling * 541 499 501

Long products 446 281 575

Large diameter pipes 274 150 376

Coal and coking coal concentrate 45 57 95

Others 391 270 294

11,638 6,870 8,157

Year ended 31 December

* For the year ended 31 December 2021 shipping and handling related to Severstal Resources and Severstal Russian Steel Divisions

amounted to US$ 52 million and US$ 502 million, respectively (2020: US$ 10 million and US$ 489 million; 2019: US$ 24 million and

US$ 477 million, respectively).

Revenue by delivery destination was as follows:

2021 2020 2019

Russian Federation 6,121 4,233 5,451

Europe 3,977 1,761 1,812

CIS 569 451 475

North America 349 15 52

The Middle East 324 171 141

Central and South America 170 63 80

Africa 62 86 128

China and Central Asia 34 30 18

South-East Asia 32 60 -

11,638 6,870 8,157

Year ended 31 December

5. Staff costs

Employment costs were as follows:

2021 2020 2019

Wages and salaries (840) (770) (794)

Social security costs (265) (241) (254)

Retirement benefit service costs (Note 20) (1) (1) (1)

(1,106) (1,012) (1,049)

Year ended 31 December

Key management personnel include the following positions within the Group:

• CEO and Deputy Directors;

• Members of the Board of Directors.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Key management’s remuneration for the year ended 31 December 2021, consisting of salaries and bonuses, totalled

US$ 12 million (2020: US$ 9 million; 2019: US$ 9 million).

Additionally, in 2021, a provision for their long-term cash-settled share-based incentive programmes of US$ 3 million

was accrued (2020: US$ 3 million; 2019: US$ 3 million). This provision is subject to further adjustments, depending

on a range of the Group’s financial and non-financial indicators.

Social security costs are included in cost of sales, distribution expenses and general and administrative expenses in

accordance with the nature of related wages and salaries.

6. Foreign exchange (loss)/gain

2021 2020 2019

Foreign exchange (loss)/gain on cash and cash equivalents

and debt finance

(51) (303) 126

Foreign exchange gain/(loss) on derivatives 27 (64) 7

Foreign exchange (loss)/gain on other assets and liabilities (36) 6 (8)

(60) (361) 125

Year ended 31 December

7. (Impairment)/reversal of impairment of non-current assets

2021 2020 2019

(Impairment)/reversal of impairment of property, plant

and equipment

(19) (11) 5

Impairment of intangible assets (1) - -

(20) (11) 5

Year ended 31 December

Key assumptions that management used in their value in use calculations are as follows:

• For all cash-generating units, apart from those included in the Severstal Resources segment, cash flow projections

cover a period of five years. Cash flows beyond the five-year period have been extrapolated taking into account

business cycles. Cash flow projections for cash-generating units of the Severstal Resources segment cover a

period which corresponds to the contractual time remaining of the respective mining licenses.

• Cash flow projections were prepared in nominal terms.

• Cash flow projections during the forecast period are based on long-term price trends for both sales prices and

material costs specific for each segment and geographic region and operating cost inflation is in line with consumer

price inflation for each country. Consumer price inflation expectations (in local currency) during the forecast period

are as follows in percentage terms:

2021 2020 2019

Russia n/a 2.4 - 3.9 n/a

Year ended 31 December

•

Discount rates for each cash-generating unit were estimated in nominal terms based on the weighted average

cost of capital. These rates, presented by segment, are as follows in percentage terms:

2021 2020 2019

Severstal Resources:

Russia (US$ rate)

n/a 9.9 - 11.8 n/a

Severstal Russian Steel:

Russia (US$ rate) n/a 8.5 - 8.7 n/a

Year ended 31 December

Values assigned to key assumptions and estimates used to measure the unit’s recoverable amount are consistent with

external sources of information and historic data for each cash-generating unit. Management believes that the values

assigned to the key assumptions and estimates represent the most realistic assessment of future trends.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Key management’s remuneration for the year ended 31 December 2021, consisting of salaries and bonuses, totalled

US$ 12 million (2020: US$ 9 million; 2019: US$ 9 million).

Additionally, in 2021, a provision for their long-term cash-settled share-based incentive programmes of US$ 3 million

was accrued (2020: US$ 3 million; 2019: US$ 3 million). This provision is subject to further adjustments, depending

on a range of the Group’s financial and non-financial indicators.

Social security costs are included in cost of sales, distribution expenses and general and administrative expenses in

accordance with the nature of related wages and salaries.

6. Foreign exchange (loss)/gain

2021 2020 2019

Foreign exchange (loss)/gain on cash and cash equivalents

and debt finance

(51) (303) 126

Foreign exchange gain/(loss) on derivatives 27 (64) 7

Foreign exchange (loss)/gain on other assets and liabilities (36) 6 (8)

(60) (361) 125

Year ended 31 December

7. (Impairment)/reversal of impairment of non-current assets

2021 2020 2019

(Impairment)/reversal of impairment of property, plant

and equipment

(19) (11) 5

Impairment of intangible assets (1) - -

(20) (11) 5

Year ended 31 December

Key assumptions that management used in their value in use calculations are as follows:

• For all cash-generating units, apart from those included in the Severstal Resources segment, cash flow projections

cover a period of five years. Cash flows beyond the five-year period have been extrapolated taking into account

business cycles. Cash flow projections for cash-generating units of the Severstal Resources segment cover a

period which corresponds to the contractual time remaining of the respective mining licenses.

• Cash flow projections were prepared in nominal terms.

• Cash flow projections during the forecast period are based on long-term price trends for both sales prices and

material costs specific for each segment and geographic region and operating cost inflation is in line with consumer

price inflation for each country. Consumer price inflation expectations (in local currency) during the forecast period

are as follows in percentage terms:

2021 2020 2019

Russia n/a 2.4 - 3.9 n/a

Year ended 31 December

•

Discount rates for each cash-generating unit were estimated in nominal terms based on the weighted average

cost of capital. These rates, presented by segment, are as follows in percentage terms:

2021 2020 2019

Severstal Resources:

Russia (US$ rate)

n/a 9.9 - 11.8 n/a

Severstal Russian Steel:

Russia (US$ rate) n/a 8.5 - 8.7 n/a

Year ended 31 December

Values assigned to key assumptions and estimates used to measure the unit’s recoverable amount are consistent with

external sources of information and historic data for each cash-generating unit. Management believes that the values

assigned to the key assumptions and estimates represent the most realistic assessment of future trends.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

Severstal Resources segment

2021

The recoverable amount of JSC Vorkutaugol in 2021 has been determined based on its fair value less costs to sell.

The Group recognised an impairment loss of US$ 20 million in relation to the non-current assets of JSC Vorkutaugol

based on its fair value less costs to sell. US$ 19 million of the loss was allocated to property, plant and equipment and

US$ 1 million to intangible assets (Note 23).

2020

An impairment loss of US$ 11 million was recognised in 2020 in relation to specific items of property, plant and

equipment.

Severstal Russian Steel segment

2019

A reversal of impairment of US$ 5 million was recognised in 2019 in relation to specific items of property, plant and

equipment.

8. Net other non-operating expenses

2021 2020 2019

Charitable donations (32) (23) (31)

Social expenditure (12) (10) (14)

Final settlement of legal claim against disposed subsidiary (Note 28) - (16) -

Net loss on disposal of subsidiary (Note 24) - - (21)

Other

(8) (1) (8)

(52) (50) (74)

Year ended 31 December

9. Taxation

The following is an analysis of the income tax expense:

2021 2020 2019

Current tax charge (913) (243) (410)

Corrections to prior year's current tax charge 3 13 9

Deferred tax expenses (42) (63) (64)

Income tax expense (952) (293) (465)

Year ended 31 December

The following table is a reconciliation of the reported net income tax expense and the amount calculated by applying

the Russian statutory tax rate of 20% to reported profit before income tax.

2021 2020 2019

Profit before income tax 5,027 1,309 2,232

Tax charge at Russian statutory rate (1,005) (262) (446)

Profit taxed at different rates 114 1 10

Corrections to prior years' current tax charge 3 4 9

Non-tax deductible expenses, net (60) (19) (40)

Reassessment of deferred tax assets and liabilities (4) (17) 2

Income tax expense (952) (293) (465)

Year ended 31 December

In 2021, the main effect on profit taxed at different rates is caused by local tax benefits from operating in the

Vologodskaya region.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

The following table sets out the composition of the net deferred tax liability and movements based on temporary

differences arising between the fiscal and reporting balance sheets:

31 December

2021

Recognised in

income

statements

Reclassified to

liabilities

related to

assets held for

sale

Translation to

presentation

currency

31 December

2020

Deferred tax assets:

Tax loss carry forwards 6 1 - - 5

Property, plant and equipment 3 - - - 3

Inventory 64 37 - - 27

Accounts receivable 12 1 - - 11

Provisions 25 14 (23) - 34

Financial investments 24 1 - - 23

Other

4 2 (1) (2) 5

Gross deferred tax assets 138 56 (24) (2) 108

Less offsetting deferred tax liabilities (78) (8) 24 2 (96)

Recognised deferred tax assets 60 48 - - 12

Deferred tax liabilities:

Property, plant and equipment (453) (73) 26 3 (409)

Intangible assets (32) (3) 2 - (31)

Inventory (15) (6) - - (9)

Accounts receivable (1) 2 - - (3)

Other (31) (18) - 3 (16)

Gross deferred tax liabilities (532) (98) 28 6 (468)

Less offsetting deferred tax assets

8 (24) (2) 96

Recognised deferred tax liabilities (454) (90) 4 4 (372)

Net deferred tax liability (394) (42) 4 4 (360)

31 December

2020

Recognised in

income

statements

Business

combination

Translation to

presentation

currency

31 December

2019

Deferred tax assets:

Tax loss carry forwards 5 (4) - (1) 10

Property, plant and equipment 3 - - - 3

Inventory 27 11 - - 16

Accounts receivable 11 (3) - (2) 16

Provisions 34 (10) - (8) 52

Financial investments 23 (2) - (6) 31

Other

5 (8) - (6) 19

Gross deferred tax assets 108 (16) - (23) 147

Less offsetting deferred tax liabilities (96) 16 - 20 (132)

Recognised deferred tax assets 12 - - (3) 15

Deferred tax liabilities:

Property, plant and equipment (409) (55) (3) 68 (419)

Intangible assets (31) (1) - 6 (36)

Inventory (9) 8 - 1 (18)

Accounts receivable (3) (3) - 1 (1)

Other (16) 4 - 3 (23)

Gross deferred tax liabilities (468) (47) (3) 79 (497)

Less offsetting deferred tax assets 96 (16) - (20) 132

Recognised deferred tax liabilities (372) (63) (3) 59 (365)

Net deferred tax liability (360) (63) (3) 56 (350)

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

The following table sets out the composition of the net deferred tax liability and movements based on temporary

differences arising between the fiscal and reporting balance sheets:

31 December

2021

Recognised in

income

statements

Reclassified to

liabilities

related to

assets held for

sale

Translation to

presentation

currency

31 December

2020

Deferred tax assets:

Tax loss carry forwards 6 1 - - 5

Property, plant and equipment 3 - - - 3

Inventory 64 37 - - 27

Accounts receivable 12 1 - - 11

Provisions 25 14 (23) - 34

Financial investments 24 1 - - 23

Other

4 2 (1) (2) 5

Gross deferred tax assets 138 56 (24) (2) 108

Less offsetting deferred tax liabilities (78) (8) 24 2 (96)

Recognised deferred tax assets 60 48 - - 12

Deferred tax liabilities:

Property, plant and equipment (453) (73) 26 3 (409)

Intangible assets (32) (3) 2 - (31)

Inventory (15) (6) - - (9)

Accounts receivable (1) 2 - - (3)

Other (31) (18) - 3 (16)

Gross deferred tax liabilities (532) (98) 28 6 (468)

Less offsetting deferred tax assets

8 (24) (2) 96

Recognised deferred tax liabilities (454) (90) 4 4 (372)

Net deferred tax liability (394) (42) 4 4 (360)

31 December

2020

Recognised in

income

statements

Business

combination

Translation to

presentation

currency

31 December

2019

Deferred tax assets:

Tax loss carry forwards 5 (4) - (1) 10

Property, plant and equipment 3 - - - 3

Inventory 27 11 - - 16

Accounts receivable 11 (3) - (2) 16

Provisions 34 (10) - (8) 52

Financial investments 23 (2) - (6) 31

Other

5 (8) - (6) 19

Gross deferred tax assets 108 (16) - (23) 147

Less offsetting deferred tax liabilities (96) 16 - 20 (132)

Recognised deferred tax assets 12 - - (3) 15

Deferred tax liabilities:

Property, plant and equipment (409) (55) (3) 68 (419)

Intangible assets (31) (1) - 6 (36)

Inventory (9) 8 - 1 (18)

Accounts receivable (3) (3) - 1 (1)

Other (16) 4 - 3 (23)

Gross deferred tax liabilities (468) (47) (3) 79 (497)

Less offsetting deferred tax assets 96 (16) - (20) 132

Recognised deferred tax liabilities (372) (63) (3) 59 (365)

Net deferred tax liability (360) (63) (3) 56 (350)

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

31 December

2019

Recognised in

income

statements

Business de-

combination

Translation to

presentation

currency

31 December

2018

Deferred tax assets:

Tax loss carry forwards 10 - - 1 9

Property, plant and equipment 3 (4) - 3 4

Inventory 16 (10) (1) 1 26

Accounts receivable 16 10 - - 6

Provisions 52 20 - 4 28

Financial investments 31 (9) - 5 35

Other

19 4 - 1 14

Gross deferred tax assets 147 11 (1) 15 122

Less offsetting deferred tax liabilities (132) (26) 1 (12) (95)

Recognised deferred tax assets 15 (15) - 3 27

Deferred tax liabilities:

Property, plant and equipment (419) (67) 17 (44) (325)

Intangible assets (36) (2) - (3) (31)

Inventory (18) 4 - (2) (20)

Accounts receivable (1) 4 - (1) (4)

Other (23) (14) - 1 (10)

Gross deferred tax liabilities

(497) (75) 17 (49) (390)

Less offsetting deferred tax assets 132

26 (1) 12 95

Recognised deferred tax liabilities (365) (49) 16 (37) (295)

Net deferred tax liability (350) (64) 16 (34) (268)

The Group has not recognised cumulative tax loss carry forwards in the following amounts and with the following expiry

dates:

2021 2020 2019

Between one and five years 18 19 18

No expiry 410 258 423

428 277 441

31 December

Taxable differences, related to investments in subsidiaries where the Group is able to control the timing of the reversal

and it is probable that the temporary difference will not reverse in the foreseeable future, amounted to US$ 178 million

as at 31 December 2021 (31 December 2020: US$ 116 million; 31 December 2019: US$ 271 million).

10. Related party transactions

2021 2020 2019

Revenue from:

Associates 138 27 29

Joint ventures 91 70 86

Other related parties 45 29 40

274 126 155

Purchases from:

Associates 61 60 63

Joint ventures 6 4 6

Other related parties 58 39 62

125 103 131

Other income from other related parties 19 12 13

Year ended 31 December

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

11. Related party balances

2021 2020 2019

Short-term accounts receivable:

Associates 36 3 4

Joint ventures 12 7 9

Other related parties 13 8 8

61 18 21

Short-term accounts payable:

Associates 8 5 6

Other related parties 8 4 11

16 9 17

Short-term loans - Joint ventures 5 2 4

Long-term loans - Joint ventures 7 6 6

31 December

The amounts outstanding are expected to be settled in cash. The Group does not hold any collateral for amounts owed

by related parties.

12. Cash and cash equivalents

2021 2020 2019

Cash at bank

297 140 875

Bank deposits

121 443 206

418 583 1,081

31 December

13. Trade accounts receivable

2021 2020 2019

Customers 594 633 653

Allowance for expected credit losses

(101) (104) (71)

493 529 582

31 December

14. Inventories

2021 2020 2019

Raw materials and supplies 499 325 472

Finished goods

487 288 323

Work-in-progress

426 275 342

1,412 888 1,137

31 December

Of the above amounts US$ 7 million (31 December 2020: US$ 5 million; 31 December 2019: US$ 2 million) were

stated at net realisable value.

During the year ended 31 December 2021, the Group recognised a US$ 16 million release and a US$ 37 million

allowance for obsolete and slow-moving inventories and reduced the carrying amount to net realisable value (2020:

US$ 21 million and US$ 37 million, respectively; 2019: US$ 19 million and US$ 16 million, respectively).

15. Long-term financial investments

2021 2020 2019

Financial assets at FVTOCI 36 26 19

Loans 8 7 7

44 33 26

31 December

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

11. Related party balances

2021 2020 2019

Short-term accounts receivable:

Associates 36 3 4

Joint ventures 12 7 9

Other related parties 13 8 8

61 18 21

Short-term accounts payable:

Associates 8 5 6

Other related parties 8 4 11

16 9 17

Short-term loans - Joint ventures 5 2 4

Long-term loans - Joint ventures 7 6 6

31 December

The amounts outstanding are expected to be settled in cash. The Group does not hold any collateral for amounts owed

by related parties.

12. Cash and cash equivalents

2021 2020 2019

Cash at bank

297 140 875

Bank deposits

121 443 206

418 583 1,081

31 December

13. Trade accounts receivable

2021 2020 2019

Customers 594 633 653

Allowance for expected credit losses

(101) (104) (71)

493 529 582

31 December

14. Inventories

2021 2020 2019

Raw materials and supplies 499 325 472

Finished goods

487 288 323

Work-in-progress

426 275 342

1,412 888 1,137

31 December

Of the above amounts US$ 7 million (31 December 2020: US$ 5 million; 31 December 2019: US$ 2 million) were

stated at net realisable value.

During the year ended 31 December 2021, the Group recognised a US$ 16 million release and a US$ 37 million

allowance for obsolete and slow-moving inventories and reduced the carrying amount to net realisable value (2020:

US$ 21 million and US$ 37 million, respectively; 2019: US$ 19 million and US$ 16 million, respectively).

15. Long-term financial investments

2021 2020 2019

Financial assets at FVTOCI 36 26 19

Loans 8 7 7

44 33 26

31 December

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

16. Property, plant and equipment

Land and

buildings

Plant and

machinery

Other

assets

Construction-

in-progress

Total

Cost:

31 December 2018 1,362 3,947 373 904 6,586

Recognition of right-of-use assets on

initial application of IFRS 16

26 21 - - 47

Reclassifications 105 71 (176) - -

Additions 14 30 - 1,281 1,325

Disposals (12) (97) - (49) (158)

Business de-combinations (166) (226) - (2) (394)

Transfers from other assets 33 26 - - 59

Transfers 85 608 205 (898) -

Translation to presentation currency 170 509 34 119 832

31 December 2019 1,617 4,889 436 1,355 8,297

Reclassifications (55) - 55 - -

Additions 6 10 - 1,279 1,295

Disposals (7) (104) - (9) (120)

Business combinations 6 13 - - 19

Transfers to other assets (9) (7) - - (16)

Transfers 385 707 154 (1,246) -

Translation to presentation currency (253) (777) (86) (232) (1,348)

31 December 2020

1,690 4,731 559 1,147 8,127

Additions 11 8 1 1,116 1,136

Disposals (5) (108) (2) (27) (142)

Reclassified to assets held for sale (254) (458) - (80) (792)

Transfers to other assets (8) (6) - - (14)

Transfers 182 720 99 (1,001) -

Translation to presentation currency (11) (38) (2) (8) (59)

31 December 2021 1,605 4,849 655 1,147 8,256

Depreciation and impairment:

31 December 2018 536 2,362 141 78 3,117

Reclassifications 56 45 (101) - -

Depreciation expense 63 337 26 - 426

Disposals (7) (87) - (46) (140)

Business de-combinations (47) (101) - - (148)

Reversal of impairment - - - (5) (5)

Translation to presentation currency 64 302 6 5 377

31 December 2019 665 2,858 72 32 3,627

Depreciation expense 56 333 26 - 415

Disposals (5) (85) - (8) (98)

Impairment - - - 11 11

Translation to presentation currency (105) (456) (13) - (574)

31 December 2020 611 2,650 85 35 3,381

Depreciation expense 73 393 38 - 504

Disposals (3) (95) (1) (13) (112)

Impairment 7 8 - 4 19

Reclassified to assets held for sale (134) (326) - (5) (465)

Translation to presentation currency (3) (21) - (3) (27)

31 December 2021 551 2,609 122 18 3,300

Net book values:

31 December 2019 952 2,031 364 1,323 4,670

31 December 2020 1,079 2,081 474 1,112 4,746

31 December 2021 1,054 2,240 533 1,129 4,956

Other assets mainly include stripping asset, mine ceiling and tools.

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

As at 31 December 2021, property, plant and equipment included right-of-use assets of US$ 121 million related to

leased assets (31 December 2020: US$ 129 million; 31 December 2019: US$ 162 million).

Of the above amounts of additions to construction-in-progress, US$ 39 million (2020: US$ 38 million, 2019:

US$_18_million) is capitalised interest.

The Group applied a weighted average capitalisation rate of 6% to determine the amount of borrowing costs eligible

for capitalisation for the year ended 31 December 2021 (2020: 5%; 2019: 6%).

17. Intangible assets

Goodwill

Mineral

rights

Software

Evaluation

and

exploration

Other

intangible

assets

Total

Cost:

31 December 2018 28 46 221 259 39 593

Reclassifications - 2 - (2) - -

Additions - 2 71 9 4 86

Disposals - - (10) (1) (1) (12)

Business de-combinations - - (2) - - (2)

Translation to presentation currency 2 4 31 6 6 49

31 December 2019 30 54 311 271 48 714

Reclassifications - 5 - (6) 1 -

Additions - 1 53 11 - 65

Disposals - - (8) (1) - (9)

Business combinations 2 - - - 2 4

Translation to presentation currency (4) (9) (50) (7) (8) (78)

31 December 2020 28 51 306 268 43 696

Reclassifications - 2 - (4) 2 -

Additions - 2 72 11 3 88

Disposals - - (6) (7) - (13)

Reclassified to assets held for sale - (29) (1) (16) (1) (47)

Translation to presentation currency - 1 (2) (1) (1) (3)

31 December 2021 28 27 369 251 46 721

Amortisation and impairment:

31 December 2018 20 30 88 222 21 381

Amortisation expense - 1 34 2 1 38

Disposals - - (3) (1) (1) (5)

Business de-combinations - - (1) - - (1)

Translation to presentation currency 2 4 11 1 4 22

31 December 2019 22 35 129 224 25 435

Amortisation expense - 1 40 2 2 45

Disposals - - (1) - - (1)

Translation to presentation currency (3) (6) (21) (1) (4) (35)

31 December 2020 19 30 147 225 23 444

Amortisation expense - 2 45 4 2 53

Disposals - - (6) (5) - (11)

Impairment - 1 - - - 1

Reclassified to assets held for sale - (28) - (5) (1) (34)

Translation to presentation currency - 1 (2) 2 - 1

31 December 2021

19 6 184 221 24 454

Net book values:

31 December 2019 8 19 182 47 23 279

31 December 2020 9 21 159 43 20 252

31 December 2021 9 21 185 30 22 267

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

As at 31 December 2021, property, plant and equipment included right-of-use assets of US$ 121 million related to

leased assets (31 December 2020: US$ 129 million; 31 December 2019: US$ 162 million).

Of the above amounts of additions to construction-in-progress, US$ 39 million (2020: US$ 38 million, 2019:

US$_18_million) is capitalised interest.

The Group applied a weighted average capitalisation rate of 6% to determine the amount of borrowing costs eligible

for capitalisation for the year ended 31 December 2021 (2020: 5%; 2019: 6%).

17. Intangible assets

Goodwill

Mineral

rights

Software

Evaluation

and

exploration

Other

intangible

assets

Total

Cost:

31 December 2018 28 46 221 259 39 593

Reclassifications - 2 - (2) - -

Additions - 2 71 9 4 86

Disposals - - (10) (1) (1) (12)

Business de-combinations - - (2) - - (2)

Translation to presentation currency 2 4 31 6 6 49

31 December 2019 30 54 311 271 48 714

Reclassifications - 5 - (6) 1 -

Additions - 1 53 11 - 65

Disposals - - (8) (1) - (9)

Business combinations 2 - - - 2 4

Translation to presentation currency (4) (9) (50) (7) (8) (78)

31 December 2020 28 51 306 268 43 696

Reclassifications - 2 - (4) 2 -

Additions - 2 72 11 3 88

Disposals - - (6) (7) - (13)

Reclassified to assets held for sale - (29) (1) (16) (1) (47)

Translation to presentation currency - 1 (2) (1) (1) (3)

31 December 2021 28 27 369 251 46 721

Amortisation and impairment:

31 December 2018 20 30 88 222 21 381

Amortisation expense - 1 34 2 1 38

Disposals - - (3) (1) (1) (5)

Business de-combinations - - (1) - - (1)

Translation to presentation currency 2 4 11 1 4 22

31 December 2019 22 35 129 224 25 435

Amortisation expense - 1 40 2 2 45

Disposals - - (1) - - (1)

Translation to presentation currency (3) (6) (21) (1) (4) (35)

31 December 2020 19 30 147 225 23 444

Amortisation expense - 2 45 4 2 53

Disposals - - (6) (5) - (11)

Impairment - 1 - - - 1

Reclassified to assets held for sale - (28) - (5) (1) (34)

Translation to presentation currency - 1 (2) 2 - 1

31 December 2021

19 6 184 221 24 454

Net book values:

31 December 2019 8 19 182 47 23 279

31 December 2020 9 21 159 43 20 252

31 December 2021 9 21 185 30 22 267

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

18. Debt finance

2021 2020 2019

Eurobonds 2021 US dollars August 3.85% - 505 505

Eurobonds 2022 US dollars October 5.9% 635 635 633

Eurobonds 2024 US dollars September 3.15% 803 802 799

Rouble bonds 2024 Roubles Marc h 8.65% 137 139 165

Rouble bonds 2026 Roubles Marc h 8.65% 206 206 247

Convertible bonds 2021 US dollars April 0.5% - 16 36

Convertible bonds 2022 US dollars February 0.0% - 240 231

Bank financing

Roubles

28 65 31

Other financing Roubles 7 4 4

1,816 2,612 2,651

31 December

Maturity

Currency

Interest rate

Total debt is contractually repayable after the reporting date as follows:

2021 2020 2019

Less than one year 681 610 290

Between one and five years 1,135 1,799 2,119

After more than five years - 203 242

1,816 2,612 2,651

31 December

Reconciliation of movements of liabilities to cash flows arising from financing activities:

Debt

financing

Lease

liabilities,

net

Dividends

payable

Derivative

financial

liabilities, net

Repurchase

of issued

Total

Balance as at 31 December 2018 1,455 73 6 85 - 1,619

Initial application of IFRS 16 - 47 - - - 47

Net cash flow changes 1,082 (23) (1,574) (19) - (534)

Equity changes (24) - 1,545 (2) - 1,519

Interest accrued and other finance costs 117 3 - - - 120

Changes in fair value and gain on disposal of

financial instruments

- - - 22 - 22

Changes in lease liabilities, net - 30 - - - 30

Foreign currency translation loss 21 13 30 - - 64

Balance as at 31 December 2019 2,651 143 7 86 - 2,887

Net cash flow changes (106) (21) (1,228) (13) - (1,368)

Equity changes (3) - 1,219 - - 1,216

Interest accrued and other finance costs 136 6 - - - 142

Changes in fair value and loss on disposal of

financial instruments

- - - 141 - 141

Changes in lease liabilities, net - 13 - - - 13

Business combinations 3 - - - 3

Foreign currency translation (gain)/loss (69) (23) 10 - - (82)

Balance as at 31 December 2020 2,612 118 8 214 - 2,952

Net cash flow changes (770) (16) (2,912) (75) (22) (3,795)

Other equity related changes (156) - 2,871 (152) 22 2,585

Interest accrued and other finance costs 131 7 - - - 138

Changes in fair value and loss on disposal of

financial instruments

- - - 69 - 69

Changes in lease liabilities, net - 9 - - - 9

Reclassified to liabilities related to assets held for

sale

- (2) - - - (2)

Foreign currency translation (gain)/loss (1) (1) 44 3 - 45

Balance as at 31 December 2021

1,816 115 11 59 - 2,001

PAO Severstal and subsidiaries

Notes to the consolidated financial statements

Years ended 31 December 2021, 2020 and 2019

(Amounts expressed in millions of US dollars, except as otherwise stated)

In April 2016, the Group issued US$ 200 million senior unsecured guaranteed convertible bonds maturing in 2021.

The conversion rights could be exercised at any time on or after 9 June 2016. The initial conversion price was set at

US$ 13.80 per GDR. The Group decided at its discretion whether to convert the bonds into GDRs or pay the cash

amount as defined in the terms of the issue. This settlement option causes the conversion feature of the bond to be

classified separately and measured at fair value through profit and loss, while the host liability is accounted for at

amortised cost using market interest rate of 5.1% per annum at the date of the issue. The bonds bear an interest rate

of 0.5% per annum, which is payable semi-annually in April and October each year, beginning in October 2016.

Holders of the bonds had an option to require an early redemption of their bonds on 29 April 2019 at the principal

amount plus accrued interest. The Group also has an option for early redemption, exercisable starting from

20 May 2019 provided the value of the GDRs deliverable on conversion of the bonds exceeds 130 per cent of the

principal amount of the bonds for a specified period of time. The proceeds from the bonds’ issuance were mainly used

for general corporate purposes. During 2018-2021 conversion rights were fully exercised. As a result, as at

31 December 2021 US$ 200 million of bonds at nominal value were redeemed (31 December 2020: US$ 183 million;

31 December 2019: US$ 161 million).

As at 31 December 2021, the value of the conversion option of the convertible bonds maturing in 2021 was nil

(31 December 2020: US$ 24 million was included in other current liabilities; 31 December 2019: US$ 34 million was

included in other non-current liabilities).

In February 2017, the Group issued US$ 250 million senior unsecured guaranteed convertible zero-coupon bonds

maturing in 2022. The conversion rights could be exercised at any time on or after 29 March 2017. The initial

conversion price was set at US$ 20.33 per GDR. The Group decided at its discretion whether to convert the bonds

into GDRs or pay the cash amount as defined in the terms of the issue. This settlement option causes the conversion

feature of the bond to be classified separately and measured at fair value through profit and loss, whilst the host liability

is accounted for at amortised cost using market interest rate at 3.9% per annum at the date of the issue. Holders of

the bonds have an option to require an early redemption of their bonds on 16 February 2020 at the principal amount.

The Group also has an option for early redemption, exercisable starting from 9 March 2020 provided the value of the

GDRs deliverable on conversion of the bonds exceeds 130 per cent of the principal amount of the bonds for a specified

period of time. The proceeds from the bonds’ issuance were mainly used for general corporate purposes. In 2021

outstanding balance of US$ 250 million senior unsecured guaranteed convertible zero-coupon bonds maturing in 2022

was settled ahead of schedule, in cash for US$ 159 million and by conversion into the Group’s shares amounting to

US$ 308 million.

As at 31 December 2021, the value of the conversion option of the convertible bonds maturing in 2022 was nil

(31 December 2020: US$ 123 million and was included in other non-current liabilities; 31 December 2019:

US$ 59 million was included in other current liabilities).

In April 2019, the Group issued two rouble denominated bonds amounting to US$ 230 million and US$ 153 million with

put-options in 2026 and 2024, respectively, both due in 2029. The bonds bear an interest rate of 8.65% per annum,

which is payable every 182 days, beginning in October 2019. The proceeds from the bonds’ issuance were used

mainly for general corporate purposes.

In September 2019, the Group issued US$ 800 million bonds denominated in US dollars maturing in 2024. These

bonds bear an interest rate of 3.15% per annum, which is payable semi-annually in September and March each year,

beginning in March 2020. The proceeds from the bonds’ issuance were mainly used for general corporate purposes.

In August 2021, the outstanding balance of US$ 500 million Eurobonds 2021 was fully repaid in accordance with the

bonds maturity schedule.

At the reporting date the Group had US$ 1,129 million (31 December 2020: US$ 1,096 million; 31 December 2019:

US$ 1,250 million) of committed unused long-term сredit lines and overdraft facilities.

19. Other current liabilities

2021 2020 2019

Amounts payable to employees 149 73 136

Factoring arrangements 75 26 -

Provisions 30 16 16

Lease liabilities 12 14 15

Retirement benefit liabilities (Note 20) 5 5 6

Derivative financial liabilities (Note 18) - 24 59

Other liabilities 37 42 38