Mechel : Financial (Accounting) Statement of Mechel PAO for 2021 with Independent Auditor`s Report

INDEPENDENT

AUDITOR’S REPORT

To the Shareholders of Mechel PJSC

on the accounting statements of Mechel PJSC for January 1 – December 31, 2021

Moscow

2022

INDEPENDENT AUDITOR’S REPORT

to the Shareholders of Mechel Public Joint-Stock Company

Opinion

We have conducted an audit of the attached annual accounting statements of Mechel Public Joint- Stock Company (PSRN 1037703012896), consisting of the balance sheet as of December 31, 2021, the profit and loss statement for 2021, a supplement to the balance sheet and the profit and loss statement, including the capital statement for 2021 and the cash flow statement for 2021, notes to the balance sheet and profit and loss statement for 2021, including the fundamentals of accounting policies.

In our opinion, the attached annual accounting statements represent accurately in all material respects the financial standing of Mechel Public Joint-Stock Company as of December 31, 2021, as well as its financial performance and cash flow for 2021 in accordance with accounting principles established in Russian Federation.

Grounds for the Opinion

We have conducted an audit in accordance with the International Standards on Auditing (ISA). Our responsibilities under these standards are further described in the Auditor’s Responsibilities for the Audit of Annual Accounting Statements section of this report. We are independent in respect of the audited entity in accordance with the Rules of Independence of Auditors and Audit Organizations and the Code of Professional Ethics for Auditors, corresponding to the International Code of Ethics for Professional Accountants (including the International Standards of Independence) developed by the International Ethics Standards Board for Professional Accountants, and we have fulfilled other obligations in accordance with these requirements of professional ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide the grounds for our opinion.

Material Uncertainty Regarding Going Concern

We draw attention to Section 21 of the notes to the balance sheet and profit and loss statement, which reveals that as of December 31, 2021, the audited entity’s short-term liabilities exceeded its current assets by RUB 66,383,911 thousand, and the issued collaterals exceeded the balance sheet currency by RUB 272,491,657 thousand. As noted in Section 21 of the Notes to the Balance Sheet and the Profit and Loss Statement, these conditions, along with other matters set out in Section 21 of the Notes, indicate a material uncertainty that may cast significant doubt on the ability of Mechel Public Joint-Stock Company to continue as a going concern. Our opinion has not been modified in connection with this circumstance.

2

INDEPENDENT AUDITOR’S REPORT

ON ANNUAL ACCOUNTING STATEMENTS of Mechel PJSC

for January 1 – December 31, 2021

Key audit issues

Key audit issues are the issues that, in our professional judgment, were of the most significance to our audit of the annual accounting statements for the current period. These issues were considered in the context of our audit of the accounting statements as a whole and in forming our opinion on these statements; we do not express a separate opinion on these issues.

1. Evaluation of financial investments in shares (stakes) for which their current market value is not determined – Notes 3.1, 10.2 (tabular part), Notes 2.4, 6, 16 (text part) to the balance sheet and the profit and loss statement

We treat this issue as a key one, considering the materiality of the impact the value of financial investments exerts on the balance sheet structure and on the audited entity’s liquidity assessment, as well as in connection with significant transactions with financial investments effected during 2021.

The audited entity’s annual accounting statements as of December 31, 2021, present long-term financial investments in the amount of RUB 250,243,313 thousand in the form of contributions to the authorized capital of subsidiaries and other organizations and in the form of loans issued. Therewith, financial investments in the form of contributions to authorized capital (stakes and securities which current market value is not determined), as well as additional investments in subsidiaries, amount to RUB 209,788,436 thousand. Non-publicly traded stakes and securities may be subject to the risk of a considerable drop in value below the value of economic benefits that the audited entity expects to receive from these financial investments in the normal conditions of its activities. Such financial investments are valuated based on the management’s significant value judgments.

In 2021, the audited entity allocated additional investments in subsidiaries and also depreciated contributions to authorized capital and additional investments – considering the financial standing of subsidiaries based on testing the existence of conditions for a sustainable decrease in the cost of financial investments.

Our audit procedures regarding the presentation in the accounting statements of information on financial investments which current market value is not determined included: assessment of the internal control system and the procedure for making value judgments concerning such financial investments; research and assessment of the legality, economic reasons, and conditions for making additional contributions to subsidiaries, in particular, those with an unsatisfactory assets-to-liabilities ratio; carrying out procedures as to substance regarding the analysis of the audited entity’s testing of such financial investments for any conditions for their sustainable impairment; recalculation of the amount of the financial investments impairment provision; verification of the audited entity’s compliance with the principle of prudence when forming, accounting, and evaluating the financial investments which current market value is not determined. We have requested and received explanations from the management of the audited entity regarding the nature and economic objectives of transactions to make contributions to the subsidiaries’ property, as well as the circumstances and justification for making decisions on the depreciation of financial investments in subsidiaries, and assessed the completeness and correctness of financial investments disclosures in the audited entity’s statements.

3

INDEPENDENT AUDITOR’S REPORT

ON ANNUAL ACCOUNTING STATEMENTS of Mechel PJSC

for January 1 – December 31, 2021

2. Dynamics of the amounts of accounts payable and loan liabilities, their classification by maturity – Note 5.3 (tabular part), Notes 2.5, 8.2, 13.1, 16 (text part) to the balance sheet and the profit and loss statement

We consider this issue as a key one due to the loan liabilities amount materiality, their impact on balance sheet structure and liquidity assessment as well as a significant change in the structure of loan liabilities and accounts payable by maturity during 2021.

The audited entity’s annual accounting statements as of December 31, 2021, present liabilities for loans received (hereinafter, the “loan liabilities”) in the amount of RUB 180,165,702 thousand, including long-term loans in the amount of RUB 179,216,873 thousand. Compared to the previous reporting period, the amount of long-term loan liabilities decreased by RUB 97,314,379 thousand, however, the amount of short-term accounts payable increased by RUB 70,036,025 thousand, which is a negative change in the audited entity’s balance sheet structure.

Our audit procedures included: verification of the correct classification of loans liabilities and accounts payable by maturity in accordance with the terms and conditions of the contracts; assessment of the state and functioning of the audited entity’s internal control system in terms of monitoring and ensuring compliance with the liabilities’ maturity; study of documentary grounds for the commencement and repayment of loan liabilities, as well as accounts payable to subsidiaries, including in terms of their interrelationship. We have requested, received, and analyzed explanations from the audited entity’s management concerning the circumstances associated with the dynamics, structure, and composition of the accounts payable to subsidiaries and the debt liabilities. We have researched and assessed the sufficiency of disclosures regarding the classification and dynamics of loan liabilities and accounts payable by maturity in the accounting statements.

3. Evaluation of the transaction to receive financial assistance from a subsidiary – Note 10.1 (tabular part) Notes 7.1, 9, 16 (text part) to the balance sheet and the profit and loss statement

We consider this issue as a key one due to the transaction amount materiality and its impact on the classification of income and the financial performance indicator in the accounting statements.

In 2021, the audited entity received financial assistance from a subsidiary in the amount of RUB 29,731,802 thousand, which does not affect the authorized capital of the audited entity and is not a dividend. The financial assistance received is classified in the audited entity’s annual accounting statements as other income.

Our audit procedures regarding the presentation of information on financial assistance received in the accounting statements included: assessment of the legal qualification and admissibility of the transaction under the current legislation; verification of the validity of the payment based on the executed legal documents; testing of cash proceeds and analysis of the correctness of the received income classification in the audited entity’s accounting statements. We have also checked whether disclosures in the audited entity’s accounting statements on the income received and the related-party transactions are appropriate and complete.

4

INDEPENDENT AUDITOR’S REPORT

ON ANNUAL ACCOUNTING STATEMENTS of Mechel PJSC

for January 1 – December 31, 2021

Information other than the annual accounting statements and the auditor’s report thereon

The Management is responsible for other information. The other information comprises the information included in the audited entity’s annual report but does not include the accounting statements and our audit report thereon. Our opinion on the annual accounting statements does not apply to other information, nor do we provide a conclusion ensuring any form of confidence regarding this information.

In connection with our audit of the annual accounting statements, our responsibility is to review the other information when provided to us and, in doing so, consider whether the other information is materially inconsistent with the annual accounting statements or our knowledge obtained in the audit and whether it 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 to the management and the Chairman of the Audit Committee of the Board of Directors of the audited entity and demand that the annual report be amended.

Responsibility of the management and the Chairman of the Audit Committee of the Board of Directors of the audited entity for the annual accounting statements

The management shall be responsible for the preparation and accurate presentation of the specified annual accounting statements in accordance with the accounting principles established in the Russian Federation, and for such internal control the management deems is appropriate to enable the preparation of annual accounting statements free from material misstatement due to fraud or error.

When preparing the annual accounting statements, the management shall be responsible for assessing the audited entity’s ability to continue as a going concern, disclosing, as applicable, the data relating to the going concern, and for drafting the statements based on the going concern assumptions, unless the management intends to liquidate the audited entity, to cease its operations, or has no other viable alternative but to liquidate the company or cease its operations.

The Chairman of the Audit Committee of the Board of Directors shall be responsible for supervising the preparation of the audited entity’s annual accounting statements.

Auditor’s Responsibilities for the Audit of Annual Accounting Statements

Our objective is to obtain reasonable assurance that the annual accounting statements are free from material misstatement, due to fraud or error, and to issue an auditor’s report that represents our opinion. Reasonable assurance is a high degree of assurance, but it is not a guarantee that an audit conducted in accordance with International Standards on Auditing always reveals material misstatements, if any. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to affect the users’ economic decisions made on the grounds of these accounting statements

As part of an audit conducted in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. Besides, we perform the following:

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Leave a Reply

Your email address will not be published. Required fields are marked *