NLMK Group Annual Report 2013

FY2013 Annual Report · NLMK Group

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NLMK

ANNUAL REPORT

2013

About us

Understanding NLMK

NLMK Group is a leading international manufacturer of high-quality steel products with a vertically
integrated business model. Mining and steelmaking are concentrated in cost-efficient regions; finished
products are manufactured close to our main costumers in Russia, North America, and the EU.

Thanks to our self-sufficiency in key raw materials and energy, coupled with the technological
superiority of our production capacity, NLMK is one of the most efficient and profitable steelmakers in
the world. NLMK has a diversified product mix, ensuring our leading position in local markets and our
sales effectiveness. By leveraging our advantages – our flexible production chain, balanced product mix,
efficient sales system, and widespread customer base – we are able to react quickly to changing market
conditions.

NLMK Group is consistently a financially stable business. The Company maintains a relatively low level
of debt despite significant capital investments in major projects over the past decade. With the launch of
NLMK Kaluga, NLMK completed its sustainable growth stage and focused on enhancing the efficiency of
all business processes, improving product quality, and strengthening its position on the market.

NLMK actively invests in environmental projects, reducing its footprint in the regions where it operates
and striving to comply with the highest environmental standards. NLMK Group creates safe working
conditions through process improvements, professional training sessions for its employees, and
application of the best global standards in occupational health and safety.

Stable operational and financial performance*

 Steel production: 15.4 m t (+3% y-o-y)

 Steelmaking capacity utilization: 95%

 Share of HVA products: 35% (-1 p.p.)

 Sales revenue: US$ 10.9 bn (-10%)

 EBITDA margin: 14% (-2 p.p.)



Investment: US$ 0.76 bn (-48%)

 Net debt/EBITDA 1.80 (1.88 in 2012)

 Free cash flow: US$ 544 m (+63%)

Efficient vertical integration of raw materials and energy resources

 100% self-sufficiency in iron ore concentrate

 100% self-sufficiency in coke

 85% self-sufficiency in scrap

 53% self-sufficiency in energy***

Widely diversified production model, product mix, and sales markets

 80%/20% production — BOF/EAF routes

 25% of rolling capacity in Europe**, 18% in the US

 Sales to over 70 countries worldwide

 Sales in the domestic market: c. 40% (in tonnes)

3
Product mix expansion and secure market positions

 Share of the global slab market: c. 18%

 Share of the global transformer steel market: c. 9%

 Share of Russian steel production: c. 21%

 >100 new grades of steel in 2000–2013 (long and flat products)***

High level of corporate social responsibility

 61,700 employees; in 2013, 70% attended professional training sessions

 Environmental investment: US$ 134 m (+74%)

 Specific atmospheric emissions: 21.9 kg/t (-3%)

 LTIFR 0.82 (-0.04 p.)

NLMK ticker codes

Reuters

 NLMKq.L (LSE), NLMK.RTS (RTS), NLMK.MM (MICEX)

Bloomberg

 NLMK LI (LSE), NLMK RU (RTS), NLMK RM (MICEX)

Indices that include NLMK shares

 Moscow Exchange (RTS-MICEX)
 Moscow Exchange (RTS-MICEX) Metals and Mining Sector

Credit ratings

 Standard and Poor’s
 Moody's
 Fitch

BB+
Baa3
BBB-

* Hereinafter, all results given are for 2013

**Including NLMK Belgium Holdings assets

***Data for NLMK’s main production site in Lipetsk

KEY PERFORMANCE TRENDS

Thanks to a well-balanced business model, a diversified product mix, and continuous efforts to
enhance the efficiency of business processes, NLMK Group managed to maintain a high level of
operational and financial performance. NLMK Group is one of the most financially stable companies in the
industry. Optimization of production processes, innovative thinking, and commitment to the principles of
corporate social responsibility have allowed the Company to achieve sustainable development goals that
will ensure its long-term leadership in the sector.

Robust financial position

 Maintaining an above-average EBITDA for the sector
 Transitioning to a less capital-intensive stage of development
 Maintaining one of the lowest debt levels in the industry

Stable operating performance

Increased steel production following the launch of NLMK Kaluga


 High capacity utilization rates maintained
 Reduced production costs thanks to efficiency enhancement programmes

Efficiency enhancement and stable business development

 Higher labour productivity due to increased production efficiency
 Reduced energy intensity of production as a result of initiatives to enhance energy efficiency


Lower specific atmospheric emissions due to the implementation of modern technologies and
environmental initiatives

 Promotion of better occupational safety through improvements to the OHS system

OUR MILESTONES

Since its inception in 1931, NLMK has made innovation and development its key strategy. In order to
achieve maximum levels of production efficiency for its high-quality steels, NLMK has controlled and
optimized use of its major resources, focused on innovation, and stressed the need for high levels of
safety and corporate social responsibility with regard to both its employees and the areas in which it
operates. Our Company, Russia’s leading manufacturer of steel, is recognized as one of the world’s most
competitive steelmakers.

1934 – Company founded

The first blast furnace produces the first tonne of pig iron.

1950–1991 – Development of steel production prompted by innovations

Intensive development of crude steel and rolled steel production at the Lipetsk site is aided by the best
domestic and international technologies.

1992–1999 – Emergence of a vertically integrated group

During the first years following its privatization, the Company starts to build its raw materials base: NLMK
acquires Stagdok and Dolomit, covering its flux needs.

2000–2003 – Active equipment upgrades at the Lipetsk site

Energy, coke and chemical, and steelmaking capacities are actively upgraded at the Lipetsk site.

 Production increases to 8.9 m t; energy self-sufficiency rises to 40%.

2004–2006 – Shaping of NLMK Group’s raw materials and rolling segments

NLMK acquires Stoilensky, which covers its iron ore concentrate and sinter ore needs.

NLMK acquires Altai-Koks, becoming 100% self-sufficient in coke.

 Significant hedging of raw material risks.

NLMK acquires VIZ-Steel, Russia’s second-largest electrical steel producer.

NLMK acquires DanSteel, a Danish thick plate manufacturer.

NLMK and the Duferco Group create a joint venture consisting of one steelmaking and five rolling mill
companies, and a network of steel service centres in Europe and the USA.

 Production of finished products from slabs supplied by the Lipetsk site begins close to end

customers.

 Further product mix and geographic diversification.

2007 – Development of the long products division

NLMK/Duferco joint venture acquires Sharon Coating (formerly Winner Steel), an American rolled steel
manufacturer.

 Further product and geographic diversification.

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NLMK acquires 50% plus one share in Maxi-Group.

 Diversification into long products and metalware, and higher self-sufficiency in scrap in the

domestic market.

2008 – Optimization of the sales system and further geographic diversification

NLMK acquires international trading companies Novexco (Cyprus) and Novex Trading (Switzerland).

 Development of an effective sales system, optimization of commodity flows, and further

enhancement of the Company’s presence in the core export markets.

NLMK acquires Beta Steel (later renamed NLMK Indiana), a US-based steel and rolled product
manufacturer.

 Diversification into hot-rolled coils in the USA.

2011 – Expansion of operations

NLMK commissions a new steelmaking complex: the 3.4 m t Blast Furnace No. 7 and a new basic oxygen
furnace.

 NLMK’s low-cost production base in Russia expands by a third.
 Stable supply of slabs to NLMK’s international rolling assets secured.

NLMK acquires Steel Invest and Finance rolling assets, formerly part of the NLMK Duferco joint venture.

 Growth of HVA production capacities.
 Balancing of expanding low-cost steel production in Russia with downstream operations close to

end users.

NLMK Clabecq launches a unique quenching and tempering line, expanding its product mix to include
high-strength abrasion-resistant Q&T plates.

 Expansion of the Company’s presence in niche segments.

2012 – Consolidation of leadership

With a 20% share of the market, NLMK becomes Russia’s leading steelmaker, expanding its steelmaking
capacity in a low-cost region.

NLMK continues to upgrade its steelmaking capacity at the Lipetsk site.

 Secondary treatment facilities allow the Company to produce specialized grades of steel that are

in high demand on the market.

 Facilities to produce wide and thick slabs expand NLMK’s semi-finished product mix. International
assets are almost fully supplied by in-house slabs; NLMK begins to supply slabs to large-diameter
pipe manufacturers.

NLMK DanSteel revamps its thick plate rolling mill, designed for plates of 5–200 mm in thickness and
widths of up to 4,000 mm.

 Consolidation of positions in the plate markets, including new high-growth markets such as

offshore drilling platform manufacturing and the offshore wind sector.

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2013 – Focus on efficiency improvement

NLMK Group launches a large-scale programme to enhance efficiency at all of its sites.

 Hot-end optimization at Novolipetsk and Altai-Koks.


 Application of innovation in all areas: technology, production, process organization, energy, and

Implementation of an optimization programme at NLMK Europe.
Improvement of profitability by tapping into internal potential.

logistics.

 Company savings in 2013 total US$ 244 million.

NLMK launches a next-generation EAF mill, NLMK Kaluga.

Increased long product production in an undersupplied region.


 Strengthening of the Company’s position in the promising Russian market.

World Steel Dynamics confirms that NLMK is among the world’s 35 most competitive steelmakers.

 Analysts highlight NLMK’s competitive advantages, such as proximity to growing sales markets

and customers, production of high value added products, and technological innovations, as well
as the Company’s activities in the areas of social and environmental responsibility and employee
safety.

OUR BUSINESS MODEL

NLMK is a vertically integrated group with a well-balanced value chain, providing control over every
stage of steel production, from the mining of raw materials to the sale of high-technology finished
products to end users.

NLMK Group’s vertically integrated business model

NLMK has created a unique business model. A key factor is our ability to make the most of our strategic
advantages based on the geographical location of our assets. Mining and steel production (the most
material- and resource-intensive aspects of the metallurgical process) are concentrated in low-cost
regions, while finished products are manufactured much closer to the Group’s client base. This allows
NLMK to minimize expenditure on production and logistics while at the same time swiftly and flexibly
adapting to the changing requirements of our end users and the situation in local sales markets.

The key stages of our production chain are:

1. Upstream

Our Russian assets fully supply the Group’s requirements for iron ore concentrate, sinter ore, and coke,
and the majority of our scrap and electrical power needs. NLMK manages one of the most efficient iron
ore manufacturers in the world, which is situated close to the Group’s main steel production facility and
has reserves of over 6 billion tonnes. Novolipetsk and Altai-Koks have their own energy-generating
capacities that run on by-product gases and cover the companies’ energy needs. Altai-Koks even sells
excess energy to third-party consumers.

2. Midstream

NLMK has a flexible production chain. Approximately 20% of our steel is produced using electric arc
furnace (EAF-based) technology, and 80% is manufactured using basic oxygen furnaces (BOF) at one of
the most economically run companies in the world: our site at Lipetsk. About 94% of our steelmaking
capacity is located in Russia, next to our main sources of raw materials and close to key end users of our
products (about 40% of our sales).

3. Downstream

Production and sale of our wide range of finished products is evenly split between developing and mature
markets, which ensures both growth and stability. A substantial proportion of finished products are
manufactured by NLMK rolling facilities close to our wide client base, which has strict requirements in
terms of product quality and delivery deadlines.

1. Upstream

The extraction and processing of raw materials used in steel production.

Our extensive resource base is situated in a low-cost region (Russia).

Iron ore

Iron ore concentrate and sinter ore are the key input materials in pig iron and BOF steel production.

Advantages

Stoilensky supplies all of the Group’s requirements for iron ore concentrate and sinter ore, and when our
pelletizing plant is completed, it will cover all NLMK’s needs for iron ore, including iron ore pellets. In
addition, its ferruginous sludge (waste) utilization technology will allow us to further reduce our
consumption of iron ore.

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Coke and coking coal

Coke is used as a raw material in the production of pig iron. It is obtained by baking a blend of several
grades of ground coking coals.

Advantages

Altai-Koks and the coke batteries at the Lipetsk site supply more than 100% of the Group’s requirements
for coke, which is used in the blast furnaces to produce pig iron. In 2013, pulverized coal injection (PCI)
technology was introduced at Novolipetsk’s Blast Furnace No. 5, partially supplanting expensive coke and
natural gas with a far more cost-effective alternative. Another innovation – the use of a petroleum coking
additive – enabled us to improve the quality of the coke. The use of granulated tar pitch allowed us to
reduce the amount of expensive coal grades in the charge.

Scrap

Steel is fully recyclable. At the end of their useful life, steel products can be used as input for smelting.
Scrap is used in both EAF and BOF operations.

Advantages

Scrap processing businesses within NLMK Group provide about 85% of the ferrous scrap required by our
Russian steelmaking plants. To supply the increased demand for scrap (taking into account the rise in
scrap consumption following the launch of NLMK Kaluga), the Group is continuing to develop its scrap
processing division. In 2013, NLMK’s scrap processing site in the city of Podolsk commissioned a shredder,
thus expanding NLMK’s ferrous scrap processing capacity and maintaining a high level of self-sufficiency
after the launch of NLMK Kaluga.

Fluxes

Fluxes are used to manufacture refractories, and in sinter and BOF processes.

Advantages

Stagdok (limestone) and Dolomit (dolomite) fully cover our flux requirements.

Electricity

Electricity is one of the main energy sources used in steel production.

Advantages

NLMK has generating plants run mainly on by-product gases from coke and blast furnace operations. In
2013, the Lipetsk site was 53% energy self-sufficient. At Altai-Koks, enough energy is generated to meet
all of the Company’s requirements, and the excess is sold to third-party consumers.

 Over 100% self-sufficiency in coke
 100% self-sufficiency in iron ore concentrate and sinter ore
 85% self-sufficiency in scrap
 53% self-sufficiency in energy
 Over 100% self-sufficiency in flux

2. Midstream

This is the process of converting raw materials into the components used to charge the furnaces, as well
as the production of crude steel and cast slabs.

NLMK’s steelmaking capacities are located in close proximity to our raw material assets.

Process

The Group’s steelmaking operations are well balanced, using different methods: the basic oxygen furnace
(BOF) route, representing over 80% (at the low-cost Novolipetsk site), is complemented by electric arc
furnace (EAF) production, representing around 20% (at NLMK Russia Long, NLMK Europe Plate, and NLMK
USA)

Advantages

This balanced business model allows us to quickly and flexibly adjust our production according to the
market situation. The steel produced by our Group in Russia is one of the lowest-cost products in the
world. This is facilitated by proximity to the sources of our raw materials, the relatively low cost of energy
and labour, and the highly efficient technology we use.

Over the last few years, NLMK has been actively developing its secondary metallurgy capacity. This has
allowed us to expand our product mix to include high-quality grades of steel that are in demand on the
market.

Recently, this competitive advantage has allowed the Group to further expand its low-cost production
base in Russia: in 2011, we commissioned a new blast furnace and basic oxygen furnace, increasing our
steelmaking capacity by over a third. In 2013, we commissioned a next-generation EAF plant, NLMK
Kaluga, with a capacity of approximately 1.5 million tonnes of steel.

 US$ 348/t slab production cost at the main production site
 Steel production capacity of more than 17 m t/y
 80%/20% BOF/EAF production ratio
 100% of steel undergoes secondary metallurgy treatment

3. Downstream

This is the process of creating rolled steel, ready for sale.

We roll steel close to our main customers.

Process

NLMK’s steel processing plants are diversified both geographically and in terms of the products they
manufacture. Our rolling facilities are located in Russia, Europe, and the USA.

Advantages

NLMK’s strength is the proximity of its finished product manufacturing sites to its end consumers. Russia,
the EU, and the US have traditionally been NLMK’s key sales markets, and it is in these regions that the
Group’s rolling mills are located.

Having set up an efficient production flow and flexible sales strategy, NLMK can adjust its production
programme according to the demands of the market. When demand shrinks for high value added (HVA)
products, NLMK can switch to standard steel production with practically no losses, and direct sales to
more profitable markets. When demand recovers, the Company can increase its HVA product output,
balancing out production.

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 Over 14 m t/y total rolling capacity*
 More than 90% of steel produced can be processed at our own rolling mills in Russia and

abroad*

 HVA accounts for 35% share of finished product output
 80% of rolled steel is sold close to where it is produced

* including NBH capacities

GROUP STRUCTURE

Our vertically integrated operations are organized into three clear geographical operating divisions, and
span virtually the entire steelmaking value chain, from mining to processing steel into finished products.

Service centres and trading companies ensure uninterrupted, just-in-time deliveries and a high level of
customer service in over 70 countries around the world.

NLMK Russia

NLMK Europe

NLMK USA

This is the Group’s key business segment
comprising its mining, coke-chemical,
steel production, and rolling assets. Over
90% of our steelmaking assets, including
the NLMK Kaluga Mini-Mill launched in
2013, are located in Russia. This segment
accounts for about 60% of flat steel
products and 100% of long products.
NLMK Russia comprises three business
units: NLMK Russia Flat, NLMK Russia
Long, and NLMK Russia Raw Materials.

NLMK Europe produces a wide range
of HVA flats. NLMK’s industrial model
is unique in Europe and based on the
efficient supply of semi-finished
products (slabs) from Russia to
flexible, high-quality European
processing facilities close to key
customers. NLMK Europe includes two
business units: NLMK Europe Strip and
NLMK Europe Plate.

NLMK USA comprises three
flat steel production assets.
The Division has an electric
arc furnace (EAF), hot-rolling
facilities, and a common
distribution structure.

Core businesses

NLMK Europe Strip*:

NLMK La Louvière (Belgium)
NLMK Coating (France)
NLMK Strasbourg (France)

NLMK Europe Plate*:

NLMK DanSteel (Denmark)
NLMK Clabecq (Belgium)
NLMK Verona (Italy)

NLMK Indiana (Portage, IN,
USA)
Sharon Coating (Sharon, PA,
USA)
NLMK Pennsylvania (Farrell,
PA, USA)

Products

Hot-rolled steel
Cold-rolled steel
Galvanized steel
Pre-painted steel
Thick plates, including quenched and
tempered

Slabs
Hot-rolled steel
Cold-rolled steel
Galvanized steel

NLMK Russia Flat:
Novolipetsk
VIZ-Steel

NLMK Russia Long:

NSMMZ
NLMK Metalware
NLMK Kaluga

NLMK Russia Raw Materials:

Stoilensky
Altai-Koks
Stagdok
Dolomit
Vtorchermet NLMK

Slabs
Hot-rolled steel
Cold-rolled steel
Galvanized steel
Pre-painted steel
Electrical steel: dynamo and transformer
steel
Billets
Rebar
Wire rod
Sections
Metalware
Iron ore concentrate
Sinter ore
Coke
Limestone
Dolomite
Scrap metal

Global market:

18% of the global slab market

2% of the EU strip market
8% of the EU plate market

3% of the US flat steel
market

Sales markets

Russian market:

Cold-rolled steel: 24%
Pre-painted steel: 21%
Galvanized steel: 17%
Rebar: 18%

14% of Russian iron ore concentrate
production

14.6 m t of crude steel (+5% y-o-y)
5.4 m t of flat steel (+5% y-o-y)
2.0 m t of long steel and metalware
(+16% y-o-y)
6.7 m t of coke, 6% moisture (-6% y-o-y)
15.4 m t of iron ore (-1% y-o-y)
2.3 m t of dolomite (+10% y-o-y)
3.9 m t of limestone (+7% y-o-y)
2.2 m t of scrap processed (+4% y-o-y)

~58,100 people

Our service assets

2013 production highlights**

0.1 m t of steel (-13% y-o-y)
1.0 m t of flat steel (-12% y-o-y)
1.0 m t of thick plate (+4% y-o-y)

0.7 m t of steel (-7% y-o-y)
1.8 m t of flat steel (+2% y-
o-y)

Employees

~2,500 people**

~1,100 people

Our supporting businesses include service and trading assets that allow us to diversify our sales,
enhance our access to core export markets, and establish better control over export operations. Sales
operations in the Group’s export markets are handled through our traders.

* NLMK’s European rolling assets, with the exception of NLMK DanSteel, were united under NLMK Belgium
Holdings. Starting from 30 September 2013, its results are not consolidated when preparing NLMK Group’s financial
reporting

** Including NLMK Belgium Holdings results; reference data is presented without taking account of the
deconsolidation of the asset in Q4 2013

WHERE WE OPERATE

NLMK Group has assets on three continents. We sell our high-quality products to buyers in more than
70 countries worldwide. We make every effort to optimize each step of the production process in order
to minimize logistics costs and provide access to the end user.

Service assets

NLMK's service assets, which facilitate the purchase and sale of products, are located in Russia, Europe,
and Asia. They help to optimize sales in key end markets and enable direct access to end users.

The locality of our business model

Breakdown by capacity

Russia

Europe

USA

Upsteam

Midstream

Downstream

100%

94%

56%

25%

19%

 We operate on three continents
 Our assets are located in 13 countries
 We have 16 service centres and trading companies in key end markets
 We sell our steel in more than 70 countries worldwide

Steel product sales by region in 2013

Country/ region

Russia
EU
North America
Asia and Oceania
Middle East, incl. Turkey
Other regions
Total

m t Share $ bn
39%
5.79
17%
2.53
14%
2.10
10%
1.44
10%
1.46
10%
1.51
14.83

4.37
2.07
1.56
0.79
0.88
1.23
100% 10.91

Share
40%
19%
14%
7%
8%
11%
100%

NLMK-Metalware

VIZ-Steel

NLMK Kaluga

Novolipetsk

MoscowBelgiumFranceItalyDanmarkNLMK PennsylvaniaRUSSIACzech RepublicUSANLMK Group production assets*Under constructionCoal assetsNLMK IndianaSharon CoatingNLMKNSMMZStagdokDolomitNLMK-KalugaStoilenskyGOKAltai-KoksVIZ-StalUZPSNLMK CoatingNLMK VeronaNLMK StrasburgNLMK DanSteelNLMK La LouviereNLMK ClabecqZhernovskoye-1ZhernovskiGlubokiUsinsky3*NLMK Group also includes a number of scrap collecting assets located in 39 regions of Russia18

PRODUCTS AND USES

The Company’s integrated production model enables it to offer its customers a diversified portfolio of
high-quality products and be responsive to changes in market conditions.

NLMK is a leading international steelmaker. Our steel is used in many different industries for a variety of
products:

– Construction, including construction infrastructure – supporting structures and facing materials,
reinforced concrete structures, roof tiles, air conditioning systems, railway infrastructure, highway
construction, bridges, etc

– Vehicle manufacturing – body panels and parts for cars and commercial vehicles

– Pipes – pipelines, large-diameter pipes for the oil and gas industry, water and gas pipes

– Mechanical engineering – mining equipment, agricultural and construction (yellow) machinery, lifting
and transport equipment, railway engineering, shipbuilding, wind power engineering, heating and power
plants, and offshore drilling platforms

– Electrical equipment and instrument making – transformers, electric motors, and generators

– Household goods – gas and electric ovens, washing machines, refrigerators, dishwashers, extractor fans,
household boilers, etc

HVA products

NLMK is a leading provider of high-quality steel products in key markets. Our range of high value added
products includes cold-rolled steel, galvanized steel, pre-painted steel, electrical steel (transformer and
dynamo), a wide range of thick plates, and metalware. The Company is consistently growing its portfolio of
downstream products through organic expansion as well as the acquisition of rolling assets with direct
access to key market segments.

In 2013, we maintained a high level of HVA sales: 5.2 million tonnes, accounting for 35% of total sales. A
large volume of HVA products is produced by NLMK Group’s Russian assets; there was a structural shift in
the product mix towards an increased share of finished products following the consolidation of European
and American assets specializing in the production of HVA products.

Flat products

Flat steel is most widely used in sectors such as construction, electrical equipment, machine building
(including automotive), energy, shipbuilding, and pipe manufacture.

Products

Hot-rolled steel is mainly used in the production of steel structures, guardrails, ship hulls, machine casings,
road-building machinery components, pressure vessels, and building structures.

 13% share of the Russian market

Hot-rolled thick plates* are used in the manufacture of pipes, pressure vessels, ship hulls, and bedplates
for wind turbines and compressors, as well as in the construction of bridges.

 8% share of the European market

Cold-rolled steel* is widely used in the production of body parts for machines and equipment, load-bearing
structures, pipes, lighting masts, and agricultural equipment.

 24% share of the Russian market

Galvanized steel* is used in the production of machine body parts, roofing materials, and load-bearing
structures in hostile environments.

 17% share of the Russian market

Pre-painted steel* is used in construction for the production of roofing and finishing materials, and casings
for consumer and commercial technology (household appliances).

 21% share of the Russian market

Transformer (grain oriented) steel* is used in the electrical industry for the manufacture of transformer
cores and fixed components for electrical equipment.

 99% share of the Russian market
 9% share of the international market

Dynamo (non grain oriented) steel* is used for the production of electrical equipment, such as components
for electric motors and generators.

 77% share of the Russian market

Long products

Long products are used primarily in construction and infrastructure projects, which account for over two
thirds of the total consumption of this type of product.

Products

Rebar is used in the construction of reinforced concrete structures for road and building construction.

 18% share of the Russian market

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Wire rod is drawn into wire and used mainly in construction, as well as in transport engineering (steel
cords).

Metalware products* are primarily used in the construction sector (fasteners, nails, mesh), as well as in
transport engineering.

 22% share of the Russian market (in the low carbon segment)

*High value added products

**Excluding hot-rolled thick plates

STRATEGY

NLMK Group’s Strategy 2017 is focused on unlocking the significant internal potential of the Group’s
businesses by boosting operational and process efficiency across the entire production chain, enhancing
vertical integration into key raw materials, increasing sales of high value added (HVA) products, and
pursuing environmental, safety, and human capital development programmes.

Strategy 2017 targets net gains of US$ 1.0 billion per annum, and envisages total new investment of US$
1.6 billion.

“With the launch of Strategy 2017, NLMK is entering the next phase of its growth. We have a proven track
record of successfully delivering on our strategic objectives in the past, and we believe our new strategy will
enable us to strengthen our leading positions in the industry.

Over the last 10 years, we have invested US$ 11 billion, doubling the size of our business. We now intend to
exploit the potential of this platform to ensure further growth and value creation.

Strategy 2017 has a modular structure, combining multiple projects across all business units. We intend to
significantly improve the Group’s operating efficiency and the quality of our business processes, and to
increase self-sufficiency in strategic resources. At the same time, we are working on enhancing our positions
in the key markets through better utilization of our newly built and upgraded facilities.

We seek to ensure the robustness of the strategy both through efficiency programmes launched in each
division (NLMK Production System), and through implementing more than 100 investment projects with high
return hurdles. The mix of operational and investment levers will ensure the Group’s sustainable
development under various market conditions. NLMK Production System has already delivered savings of
US$ 244 million in 2013 compared with 2012 levels.

The Group’s new strategy places a special emphasis on industrial safety, sustainability, and human capital
development. These aspects play a decisive role in maintaining the Company’s leading position in the long-
term perspective.”

Oleg Bagrin, NLMK Group President and CEO

STRATEGY IN ACTION

1. Leadership in operational efficiency

How we do it:

Maximum use of potential to enhance operational efficiency through investment programmes and NLMK
Production System. Target net income from these measures: US$ 300 million/year over the 2013 level.

What we did in 2013:

- Development of the NLMK Production System, which includes initiatives to improve the efficiency of
technological and supporting processes and increase labour productivity.

- Development of the management support system through financial control and employee incentive
systems.

- Achievement of savings of US$ 244 million.

2. World-class resource base

How we do it:

100% self-sufficiency in iron ore with a flexible charge structure, and reduced consumption of expensive
resources. Target net income from these measures: US$ 480 million/year over the 2013 level.

What we did in 2013:

- Continued construction of the pelletizing plant at Stoilensky.

- Identification of bottle-necks at Stoilensky. Once eliminated, iron ore concentrate production at existing
capacities will increase by up to 1 million tonnes per year.

- Optimization of the coal charge and elimination of imported coals in 2014, reducing NLMK’s expenses on
coking coal and setting up the conditions for the implementation of new technologies for blast furnace
operations.

- Implementation of a pulverized coal injection (PCI) system at Blast Furnace No. 5 at Novolipetsk, reducing
natural gas and coking coal consumption.

3. Leading positions in strategic markets

How we do it:

Entering new or expanding presence in existing attractive product niches, industries, and regions: higher
utilization rates at existing capacities; growth in domestic sales; an increased share of HVA products. Target
net income from these measures: US$ 190 million per year over the 2013 level.

What we did in 2013:

- Launch of NLMK Kaluga, resulting in an 18% year-on-year increase in sales of long products in 2013.

- Continued implementation of projects to develop the production of transformer steel at the Lipetsk site
and VIZ-Steel.

- Development of thick plate sales at NLMK international assets due to the gradual increase of utilization
rates at the upgraded facilities of NLMK Europe Plate at NLMK DanSteel and NLMK Clabecq, as well as entry
into new product markets.

4. Leadership in sustainability and safety

How we do it:

Systematic minimization of our environmental footprint; compliance of production processes with the
strictest environmental and OHS standards; leadership in labour productivity in the sector, supported by
motivated and involved staff.

What we did in 2013:

- Reduction in specific atmospheric emissions of 3% year-on-year due to the introduction of new
environmentally friendly equipment, technological innovations, and consistent environmental investment.

- Approval of a new OHS policy focused on achieving the best global OHS standards and ensuring leadership
in terms of the culture of production.

- Creation of the conditions for high labour productivity through provision of opportunities for professional
training, as well as through the fostering of a strong corporate culture.

2013 performance

CHAIRMAN’S STATEMENT

Dear Shareholders,

The global economy is entering a new phase of uncertainty. Developed economies are still experiencing
unstable growth, while developing economies are slowing down. The global steel market is quickly
approaching the moment of truth, when the strategies of many production companies will be thoroughly
challenged.

The model that we have implemented at NLMK combines the production of steel and key raw materials in
low-cost regions with the manufacture of high value added products close to the end consumer. This type
of model gives steel manufacturers the strategic flexibility to achieve success under conditions of slow
growth and tight competition.

Strategy

In 2013, we created a Company strategy which will run until the end of 2017. The strategy heralds a new
stage in NLMK’s development, while also being a logical continuation of the previous stages. The preceding
stage, our Sustainable Growth Strategy, which essentially concluded with the commissioning of the NLMK
Kaluga plant in mid-2013, saw the end of the capital-intensive phase of the Company’s scaling-up activities.

The new stage of our strategy takes account of current challenges in the steel industry and the opportunities
opening up for the most efficient and stable companies.

The core of our strategy lies in improving operational efficiency at all stages of the production chain by
optimizing both technological and supporting processes. We will continue to strengthen efficient vertical
integration through expanding existing low-cost raw materials assets and implementing new resource-
saving technologies to reduce consumption of expensive raw materials.

In the context of increased competition and the localization of demand for steel, our goal is to strengthen
our leadership on strategic markets. We are planning to extend our share of the market in regions where
consumption is growing rapidly, primarily in Russia, where NLMK has every opportunity to expand the
market more quickly, raising our share of sales in high-capacity and burgeoning segments such as
construction and infrastructure. In Europe and the USA, we are planning to take advantage of the recovery
of economic growth and boost capacity utilization.

Finally, we are setting ourselves the goal of achieving industry-wide leadership in terms of our level of
environmental impact and occupational safety, developing our human capital as much as possible. We
believe that achieving these goals is a necessary condition for long-term, sustainable growth in any industry,
and especially in one such as the steel sector.

The new strategy is founded on the principles of a conservative financial policy and strict investment
discipline, which stipulates that only those projects that guarantee high returns will be approved. The
strategy’s investment programme will be less capital intensive than the previous one. In total, we plan to
spend approximately US$ 1.6 billion on the new investment programme projects, which will permit us to
increase our EBITDA by about US$ 1 billion per year from the 2013 level, beginning with the year 2018.

Dividends

We took a decision to pay 2013 dividends in the amount of RUB 0.67 per share, or 35% of NLMK Group’s
net profit. We came to the conclusion that NLMK has retained sufficient internal reserves to maintain the
business’s financial stability and continue to consistently reduce our debt load while preserving our
investment plans for this year unchanged.

Corporate governance

The Company is persevering in its commitment to high standards of corporate governance, which is also
one of the foundations of leadership in the industry. I chair the Board of Directors, whose members possess
wide-ranging experience in the industry, and are capable of effectively supervising the work of the
management team. The high level of transparency and openness that has been the norm at the Company
for many years is much valued by the investment community.

Employees

In the modern world, the success of any company depends to a significant extent on its employees. It is
impossible to attain a leading position on a market without the support of professional, engaged staff who
have the opportunity to fully realize their potential. That is why it is so important to attend to the
development of an effective HR policy within a company. We continue to work consistently on expanding
professional development opportunities for our employees; we are improving our incentive programmes
and making every effort to attract talented people.

Social responsibility and the environment

As I have mentioned, reducing damaging environmental impact and high employment standards are
necessary if we wish to maintain a sustainable leadership position in the industry. Over the past decade,
we have had substantial success in executing our environmental programme. Notwithstanding our
expanded steel production, the Company has significantly reduced atmospheric emissions and wastewater
discharge, and has increased its waste recycling levels. We continue to work in this area, and plan to attain
compliance with the most exacting environmental standards.

In the field of industrial safety, we are implementing best occupational health and safety practices. Our
main task is to change people’s behaviour, to re-orient them towards the identification of risks and
prevention of incidents and accidents.

In conclusion, I would like to express my thanks to the Company’s employees for their valuable
contributions to the Company’s achievement of excellent results, and to wish them future success in their
work.

Sincerely,

Vladimir Lisin

PRESIDENT’S REVIEW

Dear Shareholders,

The past year was a rather difficult one for the global steel industry. Globally, there was significant
production overcapacity, while demand for steel in most regions remained weak. Instead of the expected
normalization of the spreads between key raw materials and end products, we saw a further narrowing of
steel producers’ margins. As a result, the profitability of the steelmaking industry remained low.

Performance highlights

Under challenging market conditions, NLMK Group demonstrated strong operational and financial results.
In the middle of the year, a new plant for the production of long products, NLMK Kaluga, was commissioned,
and is now showing a good growth trajectory. As a result, NLMK Group’s steel production increased by 3%
to 15.4 million tonnes in 2013, and we retained our status as the leading steel producer in Russia in terms
of volume, with a production share of over 21%.

In 2013, the Company consolidated its leadership position on the domestic market: NLMK’s sales in Russia
rose by 19% to 5.8 million tonnes. This growth was the result of an increase in our presence on the long
products markets and the development of slab supply for the pipe industry.

Notwithstanding the 10% fall in revenues to US$ 10.9 billion, the Company ensured an EBITDA margin of
14%, which is above the industry average.

In 2013, NLMK Group maintained a high level of financial stability, significantly reducing its debt load. At
the end of the year, the Company’s net debt had decreased by 24%, and its net debt/EBITDA ratio was 1.8,
one of the lowest in the industry.

Development priorities

In February 2014, NLMK Group announced the launch of Strategy 2017, which will allow the Company to
strengthen its leading positions in the global steel industry by implementing investment projects and
management initiatives aimed at improving operational efficiency.

In 2013, the Company continued its development of the NLMK Production System, which includes
improving production technologies and implementing lean manufacturing tools. The Company has
succeeded in reorganizing its internal processes, an endeavour that has included reorienting the
management structure towards goals built around a rise in efficiency, and making the switch to
management by objectives. The implementation of measures aimed at increasing efficiency allowed
production costs to be cut by US$ 244 million year-on-year.

We actively continued the restructuring of the Group’s European assets that was begun back in 2008. In
March of last year, we reached an agreement with our partners on the reorganization of NLMK La Louvière’s
production site. We were able to retain two thirds of the jobs. In September 2013, we sold 20.5% of the
shares in NLMK Belgium Holdings S.A. (which comprises all of NLMK’s European companies except NLMK
Dansteel) to a strategic investor: the Belgian state-owned company SOGEPA.

At Stoilensky, preparatory and design work was under way to construct a pelletizing plant and expand the
iron ore mining and beneficiation capacities.

29
In 2013, we consolidated our leadership in the domestic market, with NLMK’s sales growing by 19% to 5.8
million tonnes. We are also continuing to implement investment projects aimed at developing our product
mix.

Last year, the Company began systematic implementation of international occupational health and safety
practices. Notably, a new occupational health and safety policy was approved that involves staff being
proactively engaged in identifying sources of risks and hazards. The policy is aimed at reducing the number
of accidents to zero.

We continued to work on reducing our damaging environmental impact, as well as on improving the quality
of life in regions where the Company operates. For instance, in 2013, we reduced atmospheric emissions
by 3% and increased funding for social programmes by 6%.

Management

Achieving our strategic development goals would be impossible without the efficient and well-coordinated
work of our management team. At the beginning of 2013, Sergey Filatov was appointed Managing Director
at NLMK’s main production site in Lipetsk. Mr. Filatov has extensive practical experience in the field of
optimizing technological processes. Former Director of Strategy and Business Development Grigory
Fedorishin was appointed as the new Vice President of Finance. Mr. Fedorishin makes use of his
professional experience to address tasks related to further improving the business’s efficiency. Alexander
Starchenko, who had been the Group’s Director for Energy, became Vice President for Energy, a move which
emphasizes the strategic importance of energy in securing the Group’s competitive advantages. At the end
of the year, a new Vice President for Sales, Ilya Gushchin, joined the NLMK team; he will be tasked with
improving the effectiveness of our sales departments. In 2013, the new position of Vice President for
Investment Projects was created, and Konstantin Lagutin was appointed to fill it. We are certain that his
experience in implementing large investment projects will facilitate the creation within the Company of a
project management system based on best Russian and international practices.

Outlook

In 2014, NLMK plans to boost steel production due to an increase in the utilization of NLMK Kaluga and
stable high utilization of the steelmaking capacities at its other sites. The Company will continue to develop
the NLMK Production System, which is aimed at maintaining the outcomes we have already achieved and
further raising operational efficiency, which will be one of the main sources of profitability growth for the
business in 2014. The Company will also continue to implement investment projects, working towards
achieving the goals announced in Strategy 2017.

In conclusion, I would like to thank the Company’s employees for their dedication, their talent, their
extreme professionalism, and their zest for their work, all of which is the bedrock on which the success of
our business is built.

Sincerely,

Oleg Bagrin

MARKET REVIEW

Global steel market

Conditions on the 2013 global steel market continued to be determined by production overcapacity,
intensified competition in the international steel product trade, and a slower growth rate in the demand
for steel compared to pre-crisis levels.

In 2013, world steel production increased by 3.5% to 1.61 billion tonnes, while average global utilization
rates rose from 76.2% in 2012 to 78.1%. Steel production in China grew by 7.5% to 779 million tonnes,
meaning that China accounted for 48% of total global steel production. At the same time, developed
countries decreased their production volumes, weighed down by the persisting
in
macroeconomic conditions.

instability

In H1 2013, prices for steel products decreased, impacted by increased steel production and destocking
after a period of restocking at the end of 2012 and during the first months of 2013. By the end of Q3, steel
product inventories were largely in line with demand, while prices rose slightly on the back of the seasonal
increase in demand. In Q4, prices declined slightly again due to a weakening in consumer activity. Overall,
average steel prices in 2013 were lower year-on-year as a result of intensified competition on the global
market.

In 2013, South-East Asian countries increased their net exports of steel products by 19% to 67 million
tonnes, including by 15% in China, to 46.8 million tonnes. At the same time, developed countries decreased
their net exports: for instance, in the EU-27 countries, exports were down by 30% to 12.5 million tonnes.

Russian market

Russian GDP growth slowed to 1.3% in 2013, from 3.4% year-on-year, owing mostly to a rapid deceleration
in fixed asset investment which decreased by 0.3% compared to a 6.7% increase in 2012. This reduction in
investment created a drag on the machine-building sector, where production fell by 7.6% year-on-year. In
turn, this led to a slowing of steel consumption growth rates. According to the World Steel Association,
steel consumption in 2013 grew by 1.7% to 43 million tonnes, compared with 3.6% growth in 2012. The
construction and infrastructure sector continues to be the main driver: the consumption of finished steel
products here grew by 8% despite the overall economic slowdown.

In 2013, exports of finished and semi-finished steel products decreased by 8% to 23.3 million tonnes,
weighed down by intensified competition in the global markets. As a result, Russian manufacturers grew
their steel product supplies to the domestic market, although they faced pressure from imports. For
instance, in the long products segment, steel imports in 2013 increased by 14% to 3.3 million tonnes.
Intensified competition in the domestic market, and lower prices in the global steel market, created a drag
on steel product prices in the Russian market in 2013. Prices for flat products went down by 8–13% on
average, and rebar prices fell by 13%.

EU market

In mid-2013, the EU-27 countries began showing signs of economic recovery. Q2 saw the first quarter-on-
quarter GDP growth (+0.4%) since the end of 2011. In July, the PMI exceeded 50, indicating positive trends
in the processing industries. Business confidence is gradually building up in manufacturing and construction.
However, economic recovery rates in 2013 remained slow, and, according to EUROFER, at year-end,
apparent steel use in the EU had decreased by 0.5% to 141 million tonnes.

31
Weak demand for steel products on the domestic market and intensified competition in export markets
have led to a decrease in steel production by European steelmakers. In 2013, steel production in the EU
countries decreased by 1.8% to 165.6 million tonnes.

Prices on the European market in 2013 were, on average, lower than in 2012, affected by lower demand
on the market and intensified competition between local manufacturers in the context of reduced export
deliveries. Annual average prices for hot-rolled sheets decreased by 9%; prices for commercial grades of
thick plates fell by 10–12%.

US market

In 2013, GDP growth in the US decelerated to 1.9% compared with 2.8% in 2012, against a background of
lower government spending. However, in Q3 and Q4 2013, growth increased to 2.0% and 2.5% year-on-
year, supported by steady gains in private consumption and investment, including investment in
construction. Lower economic growth rates have led to lower steel use: according to the World Steel
Association, consumption in 2013 fell by 0.6% to 96 million tonnes.

Despite the lower growth rates in demand for steel products, steelmakers were able to be flexible in
adjusting production volumes to market conditions throughout the year (in 2013 overall, steel production
in the US fell by 2% to 87 million tonnes) and maintain average 2013 prices for steel products at 2012 levels.

Outlook

We expect an insignificant increase in steel consumption year-on-year on the back of the gradually
recovering developed countries, and the continued growth in the developing economies, despite a mild
slowdown. However, the maintained growth in steel consumption and the increase in prices in the steel
product market could be limited by persistent steelmaking overcapacity, and prices for raw materials that
are lower year-on-year.

NLMK GROUP CONSOLIDATED OPERATING AND FINANCIAL PERFORMANCE

Key highlights

‘000 t/$ million

Q4 20132

Q3 2013

Changes,
qoq in %

12M 2013

12M 2012

Changes,
yoy in %

Sales volumes

Revenue

Operating profit

EBITDA3

3,571

3,724

2,505

2,720

204

409

149

379

-4%

-8%

+37%

+8%

14,831

15,184

10,909

12,157

644

1,133

1,505

1,900

EBITDA margin (%)

16.3%

13.9%

13.8%

15.6%

Net income4

Net debt5

Net debt/EBITDA5

2013

-21

138

2,702

2,772

1.80

1.87

-3%

189

596

2,702

3,574

1.80

1.88

-2%

-10%

-43%

-21%

-68%

-24%

 Group’s steelmaking capacities were running at 95%.
 Steel production grew by 3% year-on-year to 15,429 million tonnes, including a 24% year-on-year

increase for the Long Products Segment (to 2,232 million tonnes).

 Revenue totaled $10,909 million (-10% year-on-year).
 EBITDA was US$ 1,505 million (-21% year-on-year). EBITDA margin was 13.8%.
 Net debt/EBITDA was 1.80 (1.88 in 2012).

Q4 2013

 Group’s steelmaking capacities were running at 96%.
 Steel production grew by 5% quarter-on-quarter to 4,064 million tonnes.
 Group’s revenue totaled US$ 2,505 million (-8% quarter-on-quarter).
 EBITDA grew by 8% quarter-on-quarter to US$ 409 million. EBITDA margin was 16.3%.

Notes:

1 Consolidated financial results are prepared based on US GAAP. Reporting periods of the Company are 3M, 6M, 9M and 12M 2013. Q3 and Q4
figures are derived by computational method. The same assumption applies to the calculation of segmental financial results.

2 Up till and inclusive of Q3 2013, NLMK Belgium Holdings (NBH) sales were included into the Group’s consolidated sales. Starting from Q4 2013,
NBH sales are shown separately.

3 EBITDA calculations are presented in the Appendix. EBITDA is calculated as operating profit adjusted to loss from impairment of fixed assets and
intangible assets (including goodwill) and depreciation and amortization.

4 Net profit attributable to NLMK shareholders.

5 Net debt and Net debt/EBITDA ratio as of 31 December 2013 do not include NLMK guarantees for NBH financial debt.

Net debt is calculated as the sum of LT and ST credits and loans less cash and cash equivalents, as well as ST financial investments at period end.
Net debt / EBITDA is represented by net debt as at the end of the period and EBITDA is presented as Last 12 months EBITDA.

CEO COMMENTS:

Oleg Bagrin, NLMK President and CEO, commented on the 12M and Q4 2013 operating results:
“2013 was a challenging year for the global steelmaking industry: the supply/demand imbalance
intensified on the back of the weak recovery in developed economies and the slow-down in economic
growth in developing countries. As a result, steelmaking capacities were running at below the cycle
average. This caused the raw materials/steel products price spreads to narrow, creating a drag on the
profitability of the industry.

“In these conditions, NLMK Group managed to keep its main steelmaking capacities running at almost
100%. A new plant to produce long products, NLMK Kaluga, was launched, bringing NLMK’s total steel
production to 15.4 million tonnes (+3%).
“NLMK continued to implement its efficiency enhancement programmes as part of NLMK Production
System. Measures aimed at boosting process efficiency and optimizing costs led to a US$ 244 million cut
in costs year-on-year, allowing NLMK to retain its margins at above the industry average with a 14%
EBITDA margin in 2013.

“In 2013, NLMK completed the capital-intensive stage of its investment cycle, cutting investments by 48%
year-on-year to US$ 756 million. Free cash flow grew by 63% year-on-year to US$ 544 million. Net debt
reduced by 24%, with the Net debt/EBITDA standing at 1.8 at the end of 2013.

“In 2014, NLMK plans to grow steel output on the back of higher utilization rates at NLMK Kaluga and
consistently high steelmaking capacity utilization rates at the Group’s other sites. The Company will
continue to develop NLMK Production System aimed at retaining the gains already made and at further
operational efficiency enhancements. This will be one of the key drivers for profitability growth in 2014.

“In Q1 2014, we expect seasonal improvements in demand for steel products. Together with continued
implementation of projects under NLMK Production System and the positive impact from the weakening
of the rouble on our costs, this should result in improved financial performance quarter-on-quarter.”

MANAGEMENT COMMENTS

 Market review

2013 overview

In 2013, despite the global growth in steel consumption (+4% to 1,481 billion tonnes), steel
product/raw materials price spreads continued to narrow as a result of an oversupply in the steel
market. Average prices for steel products decreased by 6% year-on-year to US$ 540/tonne, prices
for iron ore concentrate increased by 3% year-on-year (import, China).

Prices for steel products in the Russian market also slumped (HRC prices were down by 15% year-
on-year to US$ 500/tonne) on the back of negative global price trends and import growth.

In the USA, prices remained stable on average throughout the year, with an upward trend recorded
in H2. In Europe, the supply/demand imbalance persisted, with rolled steel prices decreasing by 6%
year-on-year to US$ 625/tonne.

Q4 2013 overview

Q4 saw the seasonal decrease in demand from key consumers in Russia (construction and
infrastructure sectors). This led to a price decrease in the long product market. European prices
remained stable overall, or decreased insignificantly. In the USA, improved demand supported an
increase in prices.



Production and sales structure

2013 overview

In 2013, NLMK Group grew its steel production by 3% year-on-year to 15,429 million tonnes. This
was supported by high utilization rates at NLMK’s steelmaking capacities and the launch of a new
EAF mill, NLMK Kaluga.

In 2013, steel product sales totaled 14.8 million tonnes (-2% year-on-year). The year-on-year
decrease was caused by lower commercial pig iron sales (-73% year-on-year to 169,000 tonnes) and
lower finished product sales by NLMK Europe (see the Segments section for one-off and other
factors). These factors were partially offset by higher sales by the Long Products Segment (+23%
year-on-year to 2,104 million tonnes) and higher sales by NLMK USA (+4% year-on-year to 1,811
million tonnes). High value added product sales accounted for 35% (-1 p.p. year-on-year). This is
explained by the deconsolidation of NBH results in Q4 2013.

Q4 2013 overview

Increased utilization rates at NLMK Kaluga allowed increasing Q4 steel production to 4.1 million
tonnes (+5% quarter-on-quarter). Group’s steelmaking capacities were running at 96%, including
100% at NLMK’s main production site in Lipetsk; 87% at Long Product Division sites; and 85% at
NLMK USA.

Q4 sales totaled 3,571 million tonnes (-4% quarter-on-quarter). This decrease was caused by the
seasonality factor and the accumulation of finished product reserves to be sold in Q1-2 2014 on the
back of expected improvements in the market conditions.

Following the deconsolidation of NBH sales, the share of high value added products decreased by 7
p.p. to 31%.



Sales markets

2013 overview

In 2013, NLMK’s wide sales geography allowed the company to respond flexibly to the local changes
in demand and to promptly redirect its deliveries to the most stable markets. NLMK sales in the
Russian market grew to 19% year-on-year (to 5.8 million tonnes). NLMK was able to expand its
presence on the Russian market through increased deliveries of semi-finished products to pipe and
tube manufacturers, and through higher sales to construction and infrastructure companies (up to
75% of total Russian sales).

В структуре международных продаж ключевыми рынками сбыта остаются Европа (17% от
Traditionally, the key international markets were Europe (17% of total sales), North America (14%),
Asia and Oceania (10%), and the Middle East, including Turkey (10%).

Q4 2013 overview

NLMK sales to the Russian market decreased by 9% quarter-on-quarter to 1.5 million tonnes due to
the seasonally weakened demand. The seasonality factor was partially offset by an increase in NLMK
Kaluga sales.

Due to improved demand in the North American market, NLMK was able to grow sales to the region
by 30% quarter-on-quarter to 0.7 million tonnes. Sales were also partially redirected from the Middle
East (-41% quarter-on-quarter) to Europe and Asia (+10% and +13%, respectively).



Prices

2013 overview

In 12M 2013, average sales prices for NLMK products dropped by 4-6% year-on-year.

The decrease in Steel Segment prices for semi-finished products and flat steel was largely in line with
the global trends (by 4-6% year-on-year). Prices for long products in the Russian market were down
by 10-11% year-on-year.

Sales price trends for our international assets were largely in line with the local market trends:
average prices in Europe were down by 6-8%, and by 2-4% in the US.

Q4 2013 overview

Average NLMK prices for flat and long products decreased by 2-5% quarter-on-quarter on the back
of the seasonal weakening in demand from the construction sector. Q4 saw a positive trend in the
USA market, where prices for flat steel increased by 2-5% on average quarter-on-quarter. In Europe,
prices stabilized, with an upward trend for some of the products.

 Operational efficiency programmes in 2013

In 2013, NLMK continued to develop and implement a whole range of initiatives aimed at improving
the efficiency across NLMK Group divisions (“NLMK Production System”). Over the course of the year,
these initiatives led to structural savings of US$ 244 million year-on-year, largely offsetting the
softening in market conditions.

 Debt management

NLMK Group’s net debt at the end of 2013 stood at US$ 2,702 billion, decreasing by 3% quarter-on-
quarter and by 24% year-on-year on the back of a positive free cash flow. The decrease in net debt
to the beginning of the year was also caused by the deconsolidation of NBH financial obligations (see
press release).

Net debt / EBITDA at the end of 2013 was 1.80. Cash and ST financial investments at the end of 2013
stood at US$ $1,455 million.

На конец 2013 г финансовый долг НЛМК составил $4 157 млн (+1% кв/кв и -10% г/г), из At the
end of 2013, NLMK’s financial debt was US$ 4,157 million (+1% quarter-on-quarter and -10% year-

36
on-year), with 27% being accounted for by ST obligations, represented mostly by rouble bonds and
revolving credit lines to finance working capital.

In October 2013, NLMK closed the order book for its BO-13 exchange bond issues, with a value of
RUB 5 billion, a maturity period of 10 years, and a put option in 4 years after the date of placement.
The rate of coupons 1-8 for these issues will be 8.05%. Proceeds from the placement of the bonds
will be used for refinancing current liabilities and other general corporate purposes.

37
KEY FINANCIALS



Revenue

2013 overview

2013 revenue decreased by 10% year-on-year to US$ 10,909 million, due to a 4-6% year-on-year
reduction in average sales prices, the deconsolidation of NBH results in Q4 2013, and a 2% reduction
in steel product sales volumes (see the Production and sales structure section above).

Q4 2013 overview

Q4 revenue decreased by 8% quarter-on-quarter to US$ 2,505 million, due to the effect from the NBH
deconsolidation and the seasonal weakening in demand and prices in the Russian market. On the back
of increased production volumes in Q4, the Group has accumulated finished product reserves to be
sold in Q1-2 2014.

 Operating profit

2013 overview

12M 2013 operating profit was US$ 644 million, a decline of 43% year-on-year due largely to narrowed
spreads for finished steel and raw materials prices.

2013 slab cash costs at NLMK's Lipetsk plant (representing 80% of crude steel production in 2013)
dropped by 10% year-on-year to US$ 348. This decrease was related to the savings achieved under
efficiency gains programmes for upstream operations.

Amortization expenses in 2013 increased by 12% year-on-year to US$ 862 million, due to the
commissioning of new production facilities.

2013 general and administrative expenses fell by 5% year-on-year to US$ 424 million driven mainly by
the effect of the cost optimization programmes as well as by the deconsolidation of NBH results in Q4.
Selling expenses dropped by 20% year-on-year to US$ 917 million due to the change in the selling
expenses recognition policy: part of transportation costs was reclassified as operating expenses.

Q4 2013 overview

Q4 operating profit jumped by 37% quarter-on-quarter to US$ 204 million. This significant growth was
driven by improved demand in the external markets, better sales and profitability of NLMK USA, and
efficiency gains programmes. These factors offset the seasonal weakening in the Russian market that
was behind the somewhat lower results of the Steel Segment and Long Steel Segment.

Q4 slab cash cost at the Lipetsk plant increased by 6% quarter-on-quarter to US$ 349/tonne driven by
increased prices for scrap and pellets.

Depreciation and amortization declined by 11% quarter-on-quarter to US$ 205 million. This decline is
mainly attributable to the deconsolidation of NBH results. This effect was partially offset by the launch
of new facilities.

Q4 general and administrative expenses dropped by 21% quarter-on-quarter to US$ 85 million driven
by the effect of the cost optimization programme and NBH deconsolidation. Selling expenses increased
by 4% quarter-on-quarter to US$ 221 million due to a higher share of export sales from NLMK’s Russian
assets.

 Net profit

2013 overview

12M 2013 net profit dropped by 68% year-on-year to US$ 189 million due reduced profits from core
operations as market conditions deteriorated, and an increase in amortization expenses (+US$ 94
million in 2013). An additional factor contributing to the decline in the profit was a higher share of
interest expenses recognized in the P&L while the share of capitalized interest expenses reduced
accordingly. Total interest expenses (including capitalized interest expenses) declined by 9% year-on-
year to US$ 239 million.

The decline in the net profit was also attributable to the allowance for non-recoverability of
previously accrued deferred tax assets of NLMK’s foreign rolled assets in Q2 2013 as well as NBH
losses in Q4 2013.

Q4 2013 overview

Q4 2013 net loss totaled (-)US$ 21 million (net income in Q3 2013 totaled US$ 138 million). One of
the factors behind the net loss was the increase in other expenses represented by the additional tax
charges (tax base correction after the introduction of new assets). Another factor is NBH loss
represented by deferred income tax write-off that totaled US$ 27 million. NLMK share in the net loss
of NBH, that was indicated as net loss from associated companies, totaled US$ 54 million.



Cash flow

2013 overview

Operating cash flow in 2013 totaled US$ 1,219 million (-33% year-on-year). This reduction is mostly
attributable to lower operating profit and stable level of working capital (year-on-year) of the Group.

Capital expenditures in 2013 reduced by 48% to US $756 million following the completion of major
capital intensive projects.

Cash outflow from financing activities totaled (-) US$ 128 million, represented by dividends of US$
114 million and net settlements of the debt portfolio.

Cash and equivalents and short term investments totaled US$ 1.455 billion, including US$ 0.485
billion of deposits and short term investments as of the end of 2013.

Q4 2013 overview

Operating cash flow in Q4 2013 went down by 58% to US$ 189 million largely due to increased
finished steel inventories at Novolipetsk. These inventories will be sold in Q1-Q2 2014. Inventories at
NLMK Kaluga also went up (raw materials and finished steel) following the growth in the plant’s run
rates.

Investments totaled US$ 98 million (-65% quarter-on-quarter). The reduction in investments allowed
achieving positive free operating cash flow in Q4 that totaled US$ 92 million.

39
Steel Segment*

$ million

Steel product sales,
‘000 tonnes

including third party

sales, ‘000 tonnes

Q4
2013**

Q3
2013

Change, %

12M
2013

12M
2012

Change, %

2,731

3,144

-13%

11,840

12,117

-2%

2,395

2,210

+8%

9,342

9,502

-2%

-9%

Revenue, incl.

1,802

2,002

-10%

7,865

8,676

Revenue from external

customers

Revenue from

intersegmental

operations

EBITDA

EBITDA margin

2013 overview

1,595

1,529

+4%

6,468

7,150

-10%

207

472

-56%

1,396

1,526

-9%

153

187

-18%

-1 p.p.

637

968

11%

-34%

-3 p.p.

In 2013, the Segment sales totaled 11,840 million tonnes (-2% year-on-year). Sales declined due mainly to
lower pig iron sales (0.169 million tonnes in 2013, and 0.614 million tonnes in 2012).

The revenue of the Segment totaled US$ 7,865 million t (-9% year-on-year). EBITDA went down to
US$ 637 million (-34% year-on-year). The financial results deteriorated due mostly to lower steel prices and
narrowed spreads between steel and raw material prices and also due to higher expenses for the services
of natural monopolies.

Q4 2013 overview

In Q4 2013, the Segment sales totaled 2,731 million tonnes (-13% quarter-on-quarter). This reduction was
factored by the seasonal decline in demand and the high base effect of the previous period. Sales to third
parties in Q4 went up by 8% quarter-on-quarter to 2.395 million tonnes as a result of NBH deconsolidation
and recognition of slab sales to NBH as sales to third parties.

Steel Segment revenue went down by 10% quarter-on-quarter to US$ 1,802 million due to lower sales and
reduced prices on the domestic market. EBITDA margin was 8% (-1 p.p.).

Outlook

In Q1 2014, we expect growth in sales driven among other factors by inventory sales. The seasonal price
improvement on the international markets together with lower iron ore prices will positively affect the
Segment’s financial results.

* The Steel Segment comprises: Novolipetsk (Lipetsk site), VIZ-Steel (a producer of electrical steel), trading companies Novexco Limited, Cyprus and
Novex Trading S.A., Switzerland, Altai-Koks (Russia’s largest non-integrated coke manufacturer), as well as a number of service companies.

** Slab sales to NLMK Belgium Holdings (NBH) till Q3 2013 were included in intercompany sales of the Steel segment. Starting from Q4 2013 these
sales were considered as third parties sales.

Long Products Segment*

$ million

Long products and

metalware sales,

‘000 tonnes

Revenue incl.

Revenue from external

customers

Revenue from

intersegmental

operations

EBITDA

EBITDA margin

2013 overview

Q4
2013

Q3
2013

Change,

12M
2013

12M
2012

Change,

635

570

+11%

2,102

1,699

+24%

473

371

468

355

+1%

1,716

1,645

+4%

+5%

1,328

1,199

+11%

102

114

-10%

388

446

-13%

-69%

-5 p.p.

171

10%

-44%

- 4 p.p.

In 2013 overall sales of the Segment increased by 24% year-on-year to 2,102 million tonnes largely as a
result of the NLMK Kaluga (new facility) launch. NLMK Kaluga sold 0.314 million tonnes of steel products
(0.226 million tonnes were sold in Q4).

The revenue of the Segment went up by 4% year-on-year to US$ 1,716 million driven by sales growth which
offset the lower prices for long steel. EBITDA margin went down to 6% due to the narrowed spreads
between steel and scrap prices, and to higher expenses for the services of natural monopolies.

Q4 2013 overview

In Q4 2013, overall sales of the Segment increased by 11% quarter-on-quarter to 0,635 million tonnes. The
revenue of the Segment went up by 1% as higher sales were offset by the sharp reduction in steel prices (5-
10% quarter-on-quarter). EBITDA margin in Q4 declined to 3% as the reduction in steel prices was
accompanied by seasonally high scrap prices.

Outlook

In Q1 2014, there is still a seasonally low level of demand and a high level of supply on the market that is
weighing on the prices.

*The Long Products Segment covers the financials of NSMMZ, NLMK Metalware, NLMK Kaluga, and scrap treatment facilities. The core activities
of these companies are steelmaking (EAF-based), long products and metalware manufacturing, and ferrous scrap collection and processing.

Mining Segment*

$ million

Sales of iron ore
concentrate and
sinter ore , ‘000

tonnes

Incl. to Lipetsk
plant

Q4
2013

Q3
2013

Change,

12M
2013

12M
2012

Change,

3,964

3,860

+3%

15 434

15 835

-3%

3,051

2,925

+4%

11,641

11,891

-2%

+1%

Revenue incl.

353

312

+13%

1,351

1,338

Revenue from
external

customers

Revenue from

intersegmental

operations

+9%

372

341

+9%

259

226

+14%

979

997

-2%

EBITDA

228

190

+20%

EBITDA margin

65%

61%

+4 p.p.

860

64%

861

64%

2013 overview

In 2013, sales of iron ore concentrate and sinter ore totaled 13,981 million tonnes (-1% year-on-year) and
1,453 million tonnes (-16% year-on-year), respectively. 79% of iron ore concentrate and 41% of sinter ore
were delivered to the Lipetsk plant.

Overall revenue of the Segment increased 1% year-on-year to US$ 1,351 million driven by an increase in
average iron ore prices offsetting lower sales volumes. EBITDA totaled US$ 860 million, EBITDA margin was
64% (previous year level). Higher expenses for the services of natural monopolies were offset by tight
control over other costs.

Q4 2013 overview

Sales of iron ore concentrate and sinter ore totaled 3,604 million tonnes (+3% quarter-on-quarter) and
0,360 million tonnes (-1% quarter-on-quarter), respectively. 80% of iron ore concentrate and 42% of
sinter ore were delivered to the Lipetsk plant.

The Segment revenue increased by 13% quarter-on-quarter to $353 million supported mainly by an
increase in iron ore prices. EBITDA margin went up by 4 p.p. to 65%.

Outlook

In Q1 we expect revenue and profit to decline due to lower world prices for iron ore.

* NLMK’s Mining Segment comprises Stoilensky (the Group’s key mining asset), Dolomit and Stagdok. These companies mainly supply raw
materials to NLMK’s production facilities in Lipetsk and also sell limited volumes outside the Group.

Foreign Rolled Products Segment*

Q4
2013*

541

445

Q3
2013

945

750

Change,

12M
2013

12M
2012

Change,

-43%

3,386

3,983

-15%

-41%

2,742

3,468

-21%

445

750

-41%

2,740

3,467

-21%

-35

+27%

-94

-148

$ million

Steel products sales,
‘000 tonnes

Revenue incl.

Revenue from

external

customers

Revenue from

intersegmental

operations

EBITDA

2013 overview

In 2013, Segment sales totaled 3,386 million tonnes (-15% year-on-year). The reduction was caused by
the deconsolidation of NBH starting from Q4 2013. EBITDA loss was reduced to US$ 94 million.

Q4 2013 overview

In Q4 2013, Segment sales totaled 0,541 million tonnes (-43% quarter-on-quarter), revenue amounted to
US$ 445 million (-41% quarter-on-quarter). The sharp dip in sales and revenues was attributable to the
deconsolidation of NBH results.

EBITDA of the Segment totaled US$ 30 million versus a loss of US$ 35 million in Q3 2013. The key
contributor to the profit was NLMK USA which posted improved results on the back of strong market
conditions. EBITDA of NLMK USA in Q4 totaled US$ 33 million. NLMK Dansteel’s EBITDA loss was US$ 3
million.

Outlook

In Q1 2014, we expect relatively stable sales and prices in Europe. In the USA, positive trends will
persist.

* The Foreign Rolled Products Segment before the 1st October 2013 comprised steelmaking companies located outside Russia. These are rolling
assets in Europe (NLMK Europe) and the USA (NLMK USA). NLMK Europe is represented by thick plate producers NLMK Dansteel (Denmark),
NLMK Clabecq (Belgium), NLMK Verona (Italy) and strip product producers NLMK La Louvière (Belgium), NLMK Coating (France), NLMK
Strasbourg (France). NLMK USA includes NLMK Pennsylvania, Sharon Coating, NLMK Indiana.

Following the deconsolidation of NBH starting from Q4 2013 the segment includes NLMK USA division companies and NLMK Dansteel.

Social responsibility

SOCIAL RESPONSIBILITY HIGHLIGHTS

Consistent social responsibility improvements are a key priority for NLMK.

Improvements in OHS standards


 Higher labour productivity and remuneration
 Providing professional development opportunities for employees
 All-round development of the regions where we operate

STAKEHOLDER ENGAGEMENT

NLMK perceives corporate responsibility as integral, involving the selection and application of the most
effective methods of engaging key stakeholders, resulting in decisions which are beneficial for all parties.

In identifying key stakeholders, the Company considered the extent of their influence over NLMK Group’s
operations.

This approach generated the following list of stakeholders: Company employees, shareholders and investors,
customers and suppliers, government regulators and supervisors, trade unions, public organizations and local
communities in the regions where the Company operates, including potential employees.

The Company conducts regular research into the opinions of key stakeholders through polls and
consultations, engages them in discussions, working group meetings to review specific issues, and standing
committees, etc.

By developing a framework for stakeholder engagement, the Company seeks to improve its current
approaches to dialogue with a view to identifying problems and developing optimal solutions more quickly.

Employees

Stakeholders’ interests: Salary, social package and social guarantees, career growth, safety and working
conditions

Tools for bilateral dialogue: Opinion polls, dial 06 counselling service, union meetings, appointments to
discuss personal issues, change-of-shift meetings, corporate media, incl. corporate magazines, newspapers

Feedback: Salary indexation, swift response to applications, possibilities for further career development,
ensuring safety, improvements in working conditions

Trade unions

Stakeholders’ interests: Compliance with sectoral tariff agreement, compliance with the terms of collective
agreements, observance of employment legislation, awareness of the Company’s operations, employee
salary level and social protection, working conditions and occupational safety

Tools for bilateral dialogue: Meetings and negotiations, discussion and conclusion of collective agreements,
labour dispute commissions, Joint Commission involving administration and union, social insurance
commission, occupational safety commission, qualification and staff review commissions

Обратная связь: Strict application of all social benefits and guarantees specified in collective agreements,
joint implementation of measures, response to applications, following unions’ recommendations

Shareholders and investors

Stakeholders’ interests: Operational and financial performance, Company strategy, dividend payments,
corporate governance issues, number of ordinary NLMK shares floating freely on Russian stock exchanges,
number of shares issued by NLMK and traded at the London Stock Exchange of Global Depositary Shares

Tools for bilateral dialogue: Meetings with the Company’s senior management, annual reports and financial
statements, quarterly performance presentations, teleconferences to discuss quarterly, six-month and
annual results, media publications, Company website

Feedback: Dedicated services for shareholder and investor relations, dedicated section for shareholders and
investors on the Company website

Consumers

Stakeholders’ interests: Fulfilment of contractual obligations, product quality and price, timely review and
settlement of customer complaints and claims, technical upgrades and development, operational and
financial performance, financial and non-financial risks

Tools for bilateral dialogue: Annual reports and financial statements, conferences, forums, business
meetings, Russian and international professional associations and organizations, media publications,
Company website

Feedback: Use of customer satisfaction monitoring results for future contracts

Local communities

Stakeholders’ interests: Regional social and economic development, the environment, public health, funding
of charity programmes, awareness of Company operations, reliability and transparency of information, job
opportunities offered by the Company

Tools for bilateral dialogue: Media, interaction with representatives of public organizations, members of
representative and legislative bodies at different levels, career guidance events, conferences, meetings

Feedback: Funding to support sports, healthcare, education and culture, financing child healthcare
programmes and projects to promote a healthy lifestyle, charitable aid to disadvantaged social groups

Government authorities

Stakeholders’ interests: Participation in the work of state authorities including legislative bodies,
participation in international and Russian professional and public organizations, meetings, dialogues, media

Tools for bilateral dialogue: Participation in the work of state authorities including legislative bodies,
participation in international and Russian professional and public organizations, meetings, dialogues, media

Feedback: A dedicated service for communication with representatives of state and local authorities,
Company participation in different federal and regional programmes

Public organizations

Stakeholders’ interests: Compliance with applicable laws, the environment, regional social and economic
development, charitable activities

Tools for bilateral dialogue: Conducting joint conferences, clubs, meetings and other events, media, letters,
Company website

Feedback: Participation in the implementation of joint projects, handling public appeals, timely resolution of
issues raised by the public within our competence and responsibility

Suppliers

Stakeholders’ interests: Possibility of long-term development, fulfilment of contractual obligations, timely
review and settlement of supplier complaints and claims of customers, accessibility and transparency of
operational and financial statements of the Company

Feedback: Open tenders, providing necessary information on the Company of corporate website, including
contact information for procurement department.

SOCIAL AND ECONOMIC CONTRIBUTION

The Company recognizes that the long-term stability of its business depends on a stable social
and economic environment in the regions where it operates.

A direct economic contribution along with indirect support also has a positive effect on the regions where
the Company has a presence.

Sustainable regional development is an important component of the Company’s development strategy, and
we are pursuing a number of long-term programmes focusing on several priority objectives:

 Promote sustainable development of the territories where the Company operates;
Support macroeconomic stability of local communities;

 Develop partnerships with regional and local authorities;
 Create comfortable living conditions for Company employees and local residents;
 Establish and maintain the reputation of a conscientious and attractive employer.

Economic contribution

NLMK, in partnership with the state and the community, plays an active part in improving quality of life
and promotes stable social and regional development through the corporate responsibility policy it
employs in the regions where it operates.

Social investments

When planning any social investment, the Company focuses primarily on projects which, if implemented, will
actually improve the quality of life of the local population. Social programmes are developed with the active
participation of regional administrations and the community. In order to ensure that its social investments
are as effective as possible, the Company regularly monitors its impact on the social and economic situation
in the regions where it operates.

Priority areas for social investment

Tax and
employment

Improving the
social
environment

Promotion of
sport, healthcare,
education and
culture

Work with
children and
young people

Charitable
activities

Tax and employment

NLMK Group companies are major taxpayers in almost all regions where the Company operates. Therefore,
we consider that full compliance with the applicable laws and timely payment of taxes to be a priority
element of corporate responsibility. The Company's tax payments contribute to the development of other
sectors of industry, agriculture, construction, and social development.

We make a significant contribution to local employment, providing jobs with competitive salaries. Almost all
our employees are local residents.

222385501422454010020030040050060020092010201120122013Taxes paid by NLMK to budgets of all levels in 2009-2013US$ mln50

Improving the social environment

In cooperation with local authorities, we are involved in improving the management of housing provision,
and increasing the efficiency and transparency of welfare spending in cities where our businesses are located.

Our experts play an active part in the legislative activities of municipalities and regions where the Company
operates. As members of municipal and regional assemblies, they have a good understanding of the most
pressing problems of the local community. Therefore, in the development of social programmes, they can
take into account the needs of various social groups and the strategic priorities of the local area.

Our employees also participate in the Civic Chamber, the regional offices of the Russian Union of Industrialists
and Entrepreneurs, and other public organizations.

Over the last 10 years, we built 52 apartment houses with a total living area of approximately 400,000 sq m,
providing housing for over 4,500 families of our employees.

Promotion of sport, healthcare, education and culture

We provide assistance to sports groups and schools for children and young people, as well as to sports clubs
and athletes. Funds are allocated for the maintenance of sports facilities and buildings (stadiums, sports
complexes, sports halls), and the purchase of sports equipment.

We provide support to children's creative clubs, studios, libraries, museums, and art galleries, and also
allocate funds for the protection and proper maintenance of cultural and architectural monuments and other
objects of cultural, and historical value.

We focus particularly on improving professional education. We give ongoing support to core educational
institutions, creating the conditions necessary for to motivate the students and give them the opportunity to
receive a quality education (special scholarships).

In September 2013, a joint project from NLMK Group’s Novolipetsk and its affiliated university, the Lipetsk
State Technical University, won an open contest organized by the Russian Ministry of Education and Science
for a state grant to implement projects aimed at training highly-qualified personnel for companies of the
Lipetsk region. The winning project, ‘Staff Training for Production Companies of the Lipetsk Region’, will now
be implemented by Lipetsk University together with Novolipetsk with the financial support from the federal
budget.

The Lipetsk site founded the Novolipetsk Medical Centre, a non-profit organization which provides medical
care and health services for Company employees and local residents.

Work with children and young people

Winning a reputation as the most attractive employer in the region is essential if the Company wishes to
attract creative and technically competent staff. By helping the younger generation to receive a modern
education, we are creating our own pool of promising talent.

Through sponsorship and charitable assistance, we invest in improving the material and technical
infrastructure of preschools, schools, colleges, professional schools, children's creative centres, children’s
homes, and boarding schools.

NLMK funds the maintenance and renovation of educational facilities, the procurement of equipment and
modern learning aides, computers and sporting goods.

Special importance is placed on providing pupils and students with vocational guidance, which is conducted
on an ongoing basis with the direct participation of our experts.

With a view to the long-term development of its talent pool, we maintain a targeted ‘NLMK Student’
Programme, paying for the tuition of children of Company employees at the best technical and economic
higher educational institutions in Russia.

We offer students on-the-job training opportunities at our production facilities. In the course of their training,
the students are supervised by experienced professionals.

During the school summer break, we welcome the children of our employees as well as children from low-
income families and children’s homes to health resorts and recreation facilities.

Charitable activities

Through our charities, we provide financial aid to vulnerable households. We offer monthly benefits,
medication and medical equipment, and treatment at health resorts for pensioners and veterans of World
War II, most of whom are our former employees. Assistance is provided to children who live or have lived in
children’s homes and at boarding schools, and to those living in rural communities.

OUR EMPLOYEES

Qualified employees are one of the key factors behind NLMK Group’s success. In 2013, NLMK Group
employed 61,700 people.

The Company is pursuing an active HR policy aimed at attracting and retaining the most talented young
employees, regularly increasing salaries, employing various types of incentives, conducting professional
training and staff development programmes, ensuring a safe working environment, and improving social
safeguards for employees.

We have developed a corporate culture that fosters the creation of a favourable environment for strong
labour productivity and the manufacture of high value-added products by relying on the following:

Improved procedures for employee recruitment, adaptation and skill development;
Safe and comfortable operating environments;

 Adequate wage levels and social safety nets for our employees;


 Health improvement programmes for employees and their families;
 Enhanced team-spirit at various businesses.

We have a Board Committee on Personnel, Remunerations and Social Policy that is responsible for such issues
as forming ethical rules (standards) of behaviour in the Company, social responsibility and ecological safety
among others.

Occupational health and safety

We are responsible for the lives and health of its employees and recognize our safety
responsibilities in operating facilities that have the potential to be hazardous.

The Company continues to improve its Occupational Health and Safety (OHS) performance by enhancing the
safety of its production processes, motivating personnel and encouraging employees to comply with OHS
regulations.

In 2013, the Company implemented a new OHS policy:

OUR
VISION

OUR
MISSION
OUR CORE OBJECTIVES

OUR PRINCIPLES

OUR
PRACTICES

MANAGEMENT
RESPONSIBILITIES

NLMK is one of the world’s leading producers of steel. We produce high-
quality, environmentally friendly, safe products, which have applications
in a wide range of fields and improve people’s quality of life.
We take a responsible approach to manufacturing, and provide safe working
conditions for our employees.

 accident-free manufacturing;
 achieving a world-class standard of safety in the workplace, and

becoming a leader in production practices.

 our staff are our most highly prized asset, and the guiding principle
behind our manufacturing process is that their life and health be
safeguarded at all times;

 occupational health and safety (OHS) is an integral part of our
business and lies at the heart of the decisions we take with regard
to the development and constant perfection of our business
processes;

 all accidents, malfunctions, incidents, and work-related illnesses

can and must be prevented;



safety in production processes and OHS compliance are the
responsibility of each and every employee.

 effective risk management with regard to the life and health of

employees, contractors, and third parties;



constantly
occupational health and safety;

improving our employees’ skills

in the field of

 motivating staff to work in a safe manner and avoid accidents;
 ensuring that performance indicators in the field of occupational

safety are open and transparent.



to ensure that manufacturing processes are organized
accordance with state and internal OHS requirements;

to ensure that resources are allocated to support OHS
requirements;

to take measures to prevent accidents, work-related illnesses,
equipment malfunctions, and similar incidents;

to bring in advanced methods and technologies designed to ensure
occupational safety;

RESPONSIBILITIES OF
EMPLOYEES








to conduct regular quality assessments of the OHS management
system, and constantly seek to improve it.

to abide by the established OHS requirements;

to have due regard for their own safety and the safety of those
around them;

to get actively involved in the OHS programme, so that we can
achieve our common objective – AN ACCIDENT-FREE WORKPLACE.

For reference: Novolipetsk is certified for compliance with international standard OHSAS 18001:2007 for
occupational health and safety management systems. The audit was performed in 2007 by
BureauVeritasCertification.

*data for NLMK Russia

Talent development

We treat professional skill and expertise development for our employees as a strategic investment.

Major areas for personnel development include:

 Professional training programmes;
 Training to acquire additional (related) skills;

 Training for management reserve;
 Training for top managers.

Skill improvement across all areas of professional expertise;

About 90% of employees are trained in-house, allowing them to benefit from the wealth of knowledge
accumulated by the Company and providing for a more effective training process. Highly qualified managers
and specialists as well as professors from leading Russian educational institutions are invited to teach the
employees.

Adaptation and mentoring programmes are in place for “new comers”. Coachers train younger employees
and share their professional experience, introduce them to corporate regulations and culture of the job, and
help build a positive attitude to the nature, scope and mode of their work.

In 2013, NLMK allocated a total of US$ 5.5 million on professional trainings for its employees.

Productivity and remuneration

Continuous operational improvements, upgrades and the streamlining of our business processes are the
drivers of our efficiency growth over the last 10 years.

Production efficiency at its current level allows us to be in line with the leading global steelmakings. We
intend to continue our development, not only through business process and equipment upgrades, but also
via active personnel engagement. Continuous improvement must become the cornerstone of our corporate
culture.

NLMK continues to improve its remuneration system, aimed at motivating highly qualified specialists;
attracting young talent; increasing productivity and the quality of end products. In 2013, on the back of
improved productivity, average salaries at NLMK Group’s Russian companies grew by 10% to RUB 39,200, or
US$ 1,230. Creating the conditions for high labour productivity and the production of high-quality products
is a key focus for NLMK.

Social package

The Company safeguards the welfare of its employees by offering benefits packages, which include the
following:

- Compensation payments;
- Severance payments;
- Financial aid;
- Additional payments provided for by collective bargaining agreements.

In addition to salaries and various bonuses, Company employees receive benefits, including mandatory and
voluntary medical insurance for employees and a private pension plan.

Mandatory medical insurance for employees provides coverage for in-patient and out-patient treatment to
the extent envisaged under the regional Mandatory Medical Insurance Programmes, except complicated
surgeries, expensive diagnostics and therapy.

Core NLMK Group businesses maintain voluntary medical insurance programmes for their employees,
allowing them access to:

In-patient and out-patient medical services (including medical consultations),


 Preliminary medical treatment at on-site medical stations,
 Preventive medical examinations,
 Dental prosthetic services,
 Treatment at health resort facilities,
 Advanced medical assistance at specialized clinics for complicated medical conditions.

We are actively introducing a private pension programme. NLMK is a founding shareholder of the “Sotsialnoe
Razvitie” (“Social Development”) Private Pension Fund with representative offices in 11 regions of Russia.

Social partnership

Together with trade unions, the Company is building a social partnership framework to serve as a basis for
mutual benefit and cooperation.

Employment law provisions and additional benefits and guarantees for employees are stipulated in the
collective bargaining agreements in place at all of the
Group’s businesses.

Compliance with commitments under collective bargaining agreements is monitored by joint commissions
representing both the administration and trade unions. Continuous direct dialogue helps to secure
agreements on salaries and streamlining of the management structure, safe and healthy working conditions,
and the introduction of benefits which improve the welfare of employees.

In 2013, commitments under the collective bargaining agreements in effect at NLMK Group businesses were
for the most part fulfilled.

Improving employee health

All our businesses operate programmes to provide employees and their families with healthcare services
and treatment at sanatoria and health resorts. Employees working in harmful and hazardous environments
are eligible for medical and preventive care on a priority basis.

Every year, our employees enjoy the services of Company-owned sanatoria and preventive treatment
facilities, as well as health resorts located throughout the Russian Federation.

We help to prevent illness by encouraging physical fitness and sports activities. All of our production divisions
maintain gyms and relaxation centres, where employees can recuperate at the end of their shift.

We promote health, wellness, and sports through annual Corporate Games, and intra-company football,
volleyball, basketball, swimming, chess, table tennis and shooting championships and tournaments, as well
as cross-country skiing and track and field meets.

Environmental activities

KEY HIGHLIGHTS

Continual improvement of environmental performance and energy efficiency is a key focus for NLMK.

 Minimization of the negative impact of the production process on the environment
 No more accumulation of waste, and recycling of previously accumulated waste
 Optimization of energy consumption

ENVIRONMENTAL PROTECTION

We are constantly working to reduce our environmental impact by implementing proven global
solutions, thus reducing our environmental footprint in the regions where we operate.

Our strategy makes provision for the Group’s environmentally oriented development, guaranteeing a
reduction in negative impacts on the environment alongside a significant increase in the production of
commercial products, including no less than 12.4 million tonnes of steel at our main production site.

In the face of current challenges, NLMK Group is directing all its efforts towards increasing the efficiency of
operations. This includes protecting the environment and ensuring the sustainable environmental and
social development of the regions where the Group operates.

Our key goal in the area of environmental protection is to reduce our environmental footprint and its impact
on the communities in which we operate, and to lead the way globally in environmentally friendly
operations.

To establish a coherent strategy and consistent approach to environmental management, NLMK has
developed the following corporate principles:

 Compliance with environmental laws and regulations;
 Transparency and accessability of information for all stakeholders;
 Prevention of negative environmental impact;
 Prioritization of environmental criteria when building new facilities, carrying out upgrades, and

improving technological processes (environmentally oriented development of the Group);

 Continuous improvement of our environmental performance, applying the best available

technologies and practices.

Consistent implementation of these corporate principles enables us to eliminate possible risks related to
environmental protection that might hinder the development of the Group.

Environmental protection continues to be a priority for NLMK Group. For the next stage in its development,
NLMK has set out its long-term environmental safety goals covering the period until 2020:

 Reduction in atmospheric emissions to 19.4 kg/t (in line with global best practices);
 Zero water pollution at all NLMK Group production facilities;
 Reduction of accumulated waste by reusing it in operations.

NLMK has developed a comprehensive set of measures to reach the levels of best available practices in
environmental protection. This will help NLMK to further consolidate its competitive advantages, which is
fundamental for the sustainable development of the Group.

Environmental investment

Our reduced environmental impact is the result of focused capital investment by Group businesses.

In 2013, NLMK implemented a range of large-scale environmental protection projects. These included
completing the revamp of central aspiration system No. 2 in the sintering plant at the Lipetsk site, resulting
in an annual reduction of 2,000 tonnes of emissions. Another project, also at the Lipetsk site, was the launch
of the new-generation aspiration systems and new high-capacity filters at BOF Shop No. 2, the largest
contributor to graphite emissions. The new equipment will reduce the dust load of waste gases by 7.5 times,
bringing the dedusting rate up to 99%.

Last year, the Group invested US$ 134 million in environmental projects. Cumulative environmental
investment in 2009–2013 reached US$ 651 million.

Environemntal investment, 2009-2013, in US$ mln

Atmospheric emissions

In 2013, NLMK Group’s atmospheric emissions per tonne of crude steel produced decreased by 3% year-
on-year to 21.9 kilograms, demonstrating a consistent reduction in negative environmental impact.

The minor rise in gross emissions was due to the launch of the new plant, NLMK Kaluga, in mid-2013, as
well as to specific operational modes at selected production facilities.

Our Steel Segment, which contributes 82% of our total steeloutput, accounts for the bulk of the
Groups environmental impact.

Impact on water

Our key goal in terms of water use management is to optimize water consumption efficiency in order to
reduce our negative environmental impact.

1371501537713402040608010012014016018020092010201120122013Динамика инвестиций в экологические проекты в 2009-2013 ггмлн USD62

Total water consumption by NLMK facilities in Russia in 2013 was 79.5 million cubic metres, which is only
3% higher than in 2012, despite the corresponding growth in steel production. Water intake per one tonne
of crude steel produced decreased by 1.5% year-on-year.

In 2009, the Lipetsk production site completed the implementation of a closed water supply system, which
meant that we were able to stop discharging waste water into the Voronezh River altogether, thus
substantially reducing the amount of pollutants released.

Waste management

The Group’s facilities, representing various segments of the metals and mining industry, are characterized
by different levels of waste, from the low level at steel rolling mills to the significant level inherent in
mining companies.

Advanced technologies allow us to neutralize and recycle up to 95% of waste (at the Lipetsk production
site). For instance, in 2004, we stopped waste accumulation at the Lipetsk production site by reusing the
waste in operations. We also began recycling previously stockpiled waste. From 2004 to 2013, we were able
to reduce stockpiled waste volumes by 2 million tonnes.

Waste recycling increased by 5% in 2013, reaching 5.3 million tonnes (excluding Stoilensky). This was driven
by the implementation of environmental protection projects and the scaling up of the recycling
technologies across our operations.

In 2013, the best recycling rates were achieved at Altai-Koks with 121%, Dolomit with 100%, Novolipetsk
with 95.7%, and NLMK Long Products with a 95.4% recycling rate.

Environmental management system

An environmental management system which complies with the ISO 14001 Environmental Management
System international standard has been implemented at five of NLMK Group’s enterprises.

An environmental management system compliant with the ISO 14001:2004 international standard has been
in operation at Novolipetsk since 2002. In 2005, 2008, and 2011, Novolipetsk passed TÜV CERT (Germany)
recertification audits for compliance with the requirements of the abovementioned standard. The year
2012 marked the tenth anniversary of the introduction of the environmental management system, which
passed a successful supervisory audit performed by the British Standards Institution (BSI, United Kingdom)
in 2013.

At the end of 2007, Stoilensky’s environmental management system was certified as compliant with ISO
14001:2004, and the company passed recertification audits conducted by Det Norske Veritas in 2010 and
2013.

In 2011, the environmental management system at Dolomit was certified as compliant with ISO 14001:2007
by SOYUZCERT (Moscow), an integrated management systems certification authority; and in 2013, the
company passed a regular supervisory audit.

In 2011, the environmental management system at Stagdok was certified as compliant with ISO 14001:2007
by Lipetsk State Technical University (Lipetsk), an integrated management systems certification authority.
In March 2014, the company’s environmental management system passed a recertification audit conducted
by Tekhtsentr-Registr (Moscow), which is also an integrated management systems certification authority.

At the end of 2012, the SGS certification authority (Switzerland) certified the environmental management
system at VIZ-Steel as compliant with the ISO 14001:2007 standard. In 2013, BSI (United Kingdom)
conducted a certification audit and issued an EMS certificate confirming that the environmental
management system complied with the ISO 14001:2004 standard.

Altai-Koks and NLMK Long Products are continuing their preparation for certification of their environmental
management systems according to ISO 14001:2004.

Public appraisal of environmental protection activities

Altai-Koks was declared Best Environmentally Responsible Regional Enterprise at RosPromEco-2013, the
Russian Industrial and Environmental Forum held in Moscow on 14–15 November. The company was
nominated by the Administration of Altai Territory.

The success of the environmental protection activities at NLMK Group companies (Novolipetsk and VIZ-
Steel) was recognized by awards in the Russia’s Top 100 2013 – Ecology and Environmental Management
federal competition, founded by the State Duma and the Federation Council and held in St. Petersburg at
the end of March 2013.

ENERGY EFFICIENCY

NLMK strives to manufacture products of the required quality at the lowest possible cost. To achieve this,
we are implementing programmes aimed at improving the efficiency of production, including the
integration of energy-saving technologies into production processes.

Optimization of energy consumption is one of NLMK Group’s key priorities. We take a responsible approach
to the rational use of natural resources and energy. Our strategy, guiding principles, and key objectives in
this area are reflected in NLMK’s Energy Efficiency Improvement Policy.

Key elements of our strategy aimed at enhancing energy efficiency include:

 Continuous improvement of production processes to reduce consumption of energy;

 Technological modernization, equipment upgrades, use of new technologies;



Improvement of energy consumption management systems;

 Compliance with laws regulating resource consumption.

NLMK Group companies are implementing measures aimed at achieving these targets by optimizing existing
business processes and using advanced technologies. For instance, by using the by-products of steelmaking
operations – blast furnace and coke gases – we have been able to achieve 53% self-sufficiency in electricity
at our main production site in Lipetsk.

Efforts to improve efficiency allow us to consistently reduce our energy consumption and carbon dioxide
emissions. Today, all of the Group’s key production companies are involved in energy efficiency
improvement projects. In 2013, specific energy consumption per tonne of steel at the Lipetsk site decreased
by 1.2% to 5.67 Gcal/tonne. Best global practices reach a figure of 5.4 Gcal/tonne.

The certification of Novolipetsk’s energy management system for compliance with the ISO 50001:2011
Energy Management Systems standard in September 2012 confirmed the success of NLMK’s efforts to
implement the best available technologies in the areas of energy consumption optimization and the rational
use of energy resources. NLMK became the first steelmaking company in Russia to receive a certificate of
compliance with the Energy Management Systems international standard.

In 2013, BSI Management Systems CIS conducted an external audit of the company’s energy management
system for compliance with ISO 50001. As a result of the audit, Novolipetsk was reissued an ISO 50001
compliance certificate.

Corporate
Governance

COMPOSITION OF NLMK’S GOVERNING BODIES

Composition of the Board of Directors of NLMK as at 31 December 2013

Name Vladimir

Lisin

Vladimir
Skorokhodov

Oleg
Bagrin

Nikolai
Gagarin

Karen
Sarkisov

Karl
Doering

Helmut
Wieser

Franz
Struzl

Benedict
Sciortino

Year of
birth

Member
ship in
Board’s
Committ
ees

Appoint
ment

Backgro
und

1956

1951

1974

1950

1963

1937

1953

1942

1950

Chairman of the Board
of Directors

Strategic Planning
Committee (Chairman)
Human Resources,
Remuneration and Social
Policies Committee
(Chairman)

Chairman of the Board
since 1998, Board member
since 1996

Started his career in 1975
as an electrical fitter. He
worked at Tulachermet,
rising through the ranks
from assistant steelmaker
to deputy shop manager.
From 1986, he worked in
Kazakhstan, first as Deputy
Chief Engineer, and later as
Deputy CEO of the
Karaganda Steel Plant.
Member of Boards of
Directors of several leading
Russian steel companies
since 1993.

Deputy Chairman of
the Board of
Directors

Member of the
Board, President
(Chairman of the
Management Board)

Strategic Planning
Committee
Human Resources,
Remuneration and
Social Policies
Committee

Board member since
1996

Between 1977 and
1991 worked as junior
researcher, head of
laboratory, Deputy
Director of the Bardin
Central Institute of
Ferrous Metallurgy.
Between 1992 and
1994 worked as Chief
Expert in the Ministry
of Industry and the
Ministry of Economy
of the Russian
Federation.

Graduated from the
Moscow Institute of
Steel and Alloys in
1973, majored in

Strategic Planning
Committee
Human Resources,
Remuneration and Social
Policies Committee

Board member since
2004, President
(Chairman of the
Management Board)
since 2012
Board member of a
number of NLMK
subsidiary companies,
including NLMK
International B.V.
(Netherlands), NLMK
Pennsylvania Corp.,
NLMK Indiana LLC,
Sharon Coating LLC.
(USA).

Managing director of
Libra Capital, a Moscow-
based investment
management company.
Board member of
Freight One, a railroad
transportation company,
and Libra capital, an

Member of the
Board

Audit Committee

Strategic Planning
Committee
Audit Committee

Strategic Planning
Committee

Strategic Planning
Committee
Audit Committee

Strategic Planning
Committee
Audit Committee
(Chairman)

Board member
since 2001

Board member
since 2010

Board member
since 2006

Board member since
2011

Board member
since 2011

Board member since
2012

In 2003 – being
Managing Partner –
he was appointed
Chairman of the
Board at Reznik,
Gagarin,
Abushakhmin and
Partners Law
Offices. Chairman of
the Board,
Managing Partner at
Reznik, Gagarin and
Partners Law
Offices, Moscow,
since 2009.

Graduate of
Moscow State

He serves as an Aide
to the Chairman of
the Board of
Directors on
External Economic
Relations. He is also
a member of the
Board of Directors
at NLMK
International BV.
From 2006 to 2007
Mr. Sarkisov served
as the Chairman of
the Board of
Directors of VIZ-Stal.
From the early
1990’s to 2008 he
worked at steel
trading companies

Currently heads
Project Consulting,
a consulting
company.
Represented the
French USINOR in
Central and
Eastern Europe.
Between 1967 and
2000 held senior
positions in
metallurgical
companies in
Eastern Germany.
From 1979 to
1985 was Deputy
Minister, Mining,
Metals and
Potassium

Helmut Wieser was
an Executive Vice
President of Alcoa
and Group President
responsible for
Alcoa’s global mill
products and rigid
packaging businesses
till November 2011.
He also oversaw
Alcoa’s businesses in
the Asia Pacific
region, with a focus
on China, the
Australian rolled
products businesses
and Alcoa’s
operations in Russia.
In addition, Helmut

In 1967 Franz Struzl
joined Alpine
Steelgroup, later
renamed
Voestalpine AG,
based in Linz,
Austria, serving the
Company for over
four decades.
During his career at
Voestalpine Franz
Struzl held various
positions in a
number of fields
including strategic
planning,
commercial and
technical areas. In
1981 he was

From 1977 to 1995
Benedict Sciortino
worked as an attorney-
at-law and a partner
with Baker &
McKenzie, New York.
He joined Duferco in
1995 as a director and
partner. Now he
serves as a Managing
Director of Duferco
S.A. responsible for
Duferco Group North
American and South
African business as
well as trading
operations, finance
and legal matters,
mergers and

University, majored
in Law.

investment
management company.
Holds a graduate degree
in Operations Research
and a post-graduate
degree in Economics
from State Management
University, Moscow and
a degree in Business
Administration from the
University of Cambridge,
UK.

holding various
executive positions
at a number of
international
trading entities.

Graduated from the
Tashkent State
University majoring
in Oriental Studies.

Industry Ministry,
German
Democratic
Republic,
supervised
technology
development and
capital
expenditures.

Graduated from
the Moscow
Institute of Steel
and Alloys. Ph. D.,
Tech.; Ph.D., Ec.

Pressure Treatment of
Metals. In 1976
completed post-
graduate studies and
obtained a Ph.D. in
the same area.
Ph.D., Tech. (1991
from the Board of
Academics at the
Moscow Institute of
Steel and Alloys).
Professor. Holder of
the 1982 National
Prize for Science and
Technology. 281
academic research
papers: 117 academic
publications, six
books, 158 patent
descriptions.

Graduate of Siberian
Metallurgic Institute,
majored in Ferrous and
Non-Ferrous Foundries. In
1990 graduated from the
Higher School of
Commerce with the
Foreign Trade Academy. In
1992 graduated from the
Academy of National
Economy, majored in
Economics and
Management. Ph.D., Tech.;
Ph.D., Ec.; Professor,
Department of Market and
Economy Issues, Academy
of National Economy under
the Government of the
Russian Federation.
Winner, USSR Council of
Ministers prize for Science
and Technology. Honorary
Metallurgist of the RF.
Knight of the Order of
Honor.

acquisitions. Mr
Sciortino serves as a
director of several
operating companies,
being a Member of the
Board of Directors of
NLMK Pennsylvania
Corp., Sharon Coating
LLC, NLMK Indiana LLC.

Mr. Sciortino was born
in New-York, USA in
1950. He graduated
from Queens College,
New York with a BA
degree and received
JD and LLM degrees
from New England
School of Law (Boston,
MA) and New York
University Law School,
New York.

appointed Chief
Financial Officer
before becoming
Chief Executive
Officer of
Voestalpine Long
Products Group and
a member of the
Executive Board in
1991. From 1995
until 2001 he served
as Vice Chief
Executive Officer of
Group. In 2001
Franz Struzl was
appointed as
Voestalpine Group
Chief Executive
Officer and
Chairman. He held
the position until
2004, when he
moved to become
Chief Executive
Officer of
Voestalpine, Brazil -
Villares Metals,
remaining there
until 2010. From
2011 he is General
Director of RHI AG.

Franz Struzl
graduated from the
University of
Economics, Vienna.

Wieser was a member
of the Alcoa Executive
Council, the senior
leadership group that
provides strategic
direction for the
company. He also
serves on the board
of governors of the
International
Graduate University
in Washington, D.C.
on Capitol Hill. Before
joining Alcoa, Helmut
Wieser worked for
Austria Metal Group
(AMAG) for 10 years,
holding a series of
management
positions in its rolled
products unit,
culminating in 1997
as an executive
member of the board
and chief operating
officer. Earlier, he
held several senior
management
positions with Voest
Alpine in Austria and
Venezuela, including
President of Voest
Alpine Venezuela.
Helmut Wieser
received a Master’s
degree in Mechanical
Engineering and
Economics in 1981
from the University of
Graz.

Composition of the Management Board of NLMK as at 31 December 2013

Name

Year of
birth

Appoint
ment

Backgro
und

Oleg
Bagrin

Sergey
Filatov

Alexander
Gorshkov

Yuri
Larin

Alexander
Saprykin

Stanislav
Tsyrlin

Alexander
Burayev

Brijesh
Garg

Alexander
Sapronov

Grigory
Fedorishin

1974

1959

1961

1952

1967

1968

1963

1964

1953

1979

President (Chairman
of the Management
Board), Member of
the Board of Directors

Board member since
2004, President
(Chairman of the
Management Board)
since 2012
Mr. Bagrin has been
serving as Member of
the Board of Directors
since 2004. He is a
Member of the
Strategic Planning
Committee and the
Human Resources,
Remuneration and
Social Policies
Committee of the
Board of Directors.
Mr. Bagrin is also a
Board member of a
number of NLMK
subsidiary companies.

He is a Board member
of Freight One, a
railroad
transportation
company, and a
Chairman of the Board
of Libra Capital, an
investment
management
company.

Mr. Bagrin holds a
graduate degree in
Operations Research
and a postgraduate

Managing
Director

Vice President,
Iron Ore Division

Board member
since January
2013

Board member
since 2007

Alexander
Gorshkov has
been General
Director of
Stoilensky since
2004. From 2003
to 2004 he was
Deputy Director
of the Lipetsk
branch of
Rumelco Ltd.
From 1999 to
December of
2003 he served as
General Director
of Dolomit.

Graduated from
the Novosibirsk
Electro-Technical
Institute.

On January 25,
2013 Sergey
Filatov was
appointed to the
position of
NLMK’s Managing
Director. Mr
Filatov has been
with NLMK since
October 2012,
serving as Deputy
Senior Vice
President -
General Director
for Production
and Technology.
From 2009 to
2012 he served as
Chief Engineer at
NTMK. From 2007
to 2009 he was
Project Manager
at NTMK Project
Management
Department. Mr
Filatov graduated
from the Moscow
Institute of Steel
and Alloys. He
holds a Ph.D.
(Tech.), and is an
Honorary

Vice President,
Technology
Development &
Operational
Efficiency
Board member
since 2006

From 2007 to 2013
Mr Larin was NLMK
Vice President for
Prospective
Development and
Environment. Vice
President for
Technical
Development and
Environment,
NLMK, from 2006 to
2007. Prior to that
he was Director of
the NLMK
Engineering Centre
from 1999 to 2006,
and from 1996 to
1999 he worked as
Deputy Director of
NLMK’s Central
Laboratory in
charge of
technology.

Graduate of the
Voronezh
Polytechnic
Institute. Ph.D.,
Tech.

Vice President,
Strategic Raw
Materials Division

Vice President, HR &
Management
System

Director for Long
Products and
Metalware

Vice President,
Procurement

Vice President,
Logistics

Vice President,
Finance

Board member
since 2006

Board member
since 2005

Board member
since 2012

Board member
since 20012

Board member
since 2012

From 2004 to 2006
served as Director
for Strategy and
Management
Systems at NLMK,
having previously
worked for Rumelco
(from 2003 to
2004). Prior to that
he worked for the
Boston Consulting
Group from 1996 to
2003, serving
initially as a
consultant, then as
a project manager
before being
appointed Deputy
Director.

Graduated from the
Moscow Institute of
Physics and
Technology and
from Stanford
University.

From 2007 to 2013
Mr Saprykin was
NLMK Vice
President, Head of
Coal Division. From
2006 to 2007 served
as Vice President,
Head of Iron Ore
Division. From 2002
until 2006 he
headed the Raw
Materials Market
Department at
Rumelco and served
as General Director
of RUDPROM
between 1998 and
2001. In 1997 and
1998 Mr. Saprykin
was General
Director of VIZEL.
Prior to that, he
worked as chief
specialist for
Metallurg from
1996 to 1997.

Graduated from the
Moscow State
Mining University.

Director for Long
Products and
Metalware since
2011. General
Director at NLMK
Long Products.

From 2007 to 2011
he was Head of
Production,
Operations
Department at
NLMK. From 2002
to 2007 he worked
as Head of Cold
Rolled and Coated
Flats Shop at
Novolipetsk.
He has held various
offices at NLMK
since 1988, starting
as a heat-treatment
engineer.

Holds a master
degree with a major
in Steelmaking and
Welding
Technologies from
the Lipetsk
Technical Institute
(1986).

He started his
career in 1985 with
Tata Steel, India as
Industrial Engineer
and moved
through various
positions within
the company and
worked with other
steel plants in
New-Zealand Steel
(BlueScope Steel,
Australia) and
ArcelorMittal,
Kazakhstan &
Ukraine.

He has about 14
years of experience
in supply chain
management and
business processes
re-engineering in
large steel plants.
13 years of
experience in
industrial
engineering.

From 1995 to 2001,
he was President at
JSC Russkiy Mir.
Then, from 2001 to
2005, he served as
Vice President and
Senior Vice
President for UKOS
RM. From 2005 to
2007 he served as
Vice President at
Rosneft and from
2008 to 2009 he
worked as Deputy
Director General for
Strategy and
Corporate
Development at
Freight One (PGK).
From 2009 to 2012
he was Director
General for
Independent
Transportation
Company (NTK).
Vice President for
Logistics at NLMK
since 2012.

From 2011 to
2013 he served
as NLMK
Director of
Strategy and
Business
Development.
From 2009 to
2012 served as
an investment
manager at
Libra Capital, a
Moscow-based
investment
management
company. From
2001 to 2009
worked for
Pricewaterhous
eCoopers
consulting
company
where he held
positions up to
a director of
business
restructuring
practice.

Holds a Bachelor of
Engineering degree
with a major in

In 1980, he
graduated from the
All-Union

Graduated
from Academy
of Finance,

Metallurgist of
Russia.

degree in Economics
from the State
University of
Management
(Moscow), as well as
an MBA from the
University of
Cambridge (UK).

Industrial
Engineering, has
CPIM Certification
from American
Production and
Inventory Control
Society (APICS) and
is a certified SAP
Solution
Consultant.

Moscow. Holds
a master
degree in
Business
Administration
from INSEAD
business
school, France
& Singapore. A
member of an
association of
Certified
Financial
Analysts (CFA).

Correspondence
Law Institute and in
1992 from the
Russian
Management
Academy. In 2007,
he received an MBA
in Logistics and
Supply Chain
Management from
the State University
Higher School of
Economics.

Member of FAS
Russia (Federal
Antimonopoly
Service) Expert
Council for Railway
Transport. Member
of the International
Management
Academy since
2012.

CORPORATE GOVERNANCE

We adhere to high standards of corporate governance and maintain a policy of maximum transparency.
This policy allows our shareholders and investors to have all the necessary information on the activities
of NLMK provided in a timely manner so that they can make an investment decision regarding the
Company’s securities.

The main objective of the Group’s corporate governance system is to protect shareholders’ rights to
participate in the management of the Group by attending meetings of the management and audit bodies,
to vote on agenda items and to receive timely information on NLMK’s activities. In addition, our corporate
governance system provides guaranteed protection of shareholder investments, as it follows the principle
of equal treatment of all shareholders.

Governance system

NLMK recognises the importance of corporate governance for building an attractive investment case for
the Company, and continues to improve its corporate governance policy and practice. Policies
determining business strategies, guiding principles and objectives regulate the Company’s activities in all
socially significant and operationally critical areas.

NLMK Corporate Governance structure follows key principles set by the Organization for Economic
Cooperation and Development (OECD Principles of Corporate Governance, 1999), and the provisions of
the Code of Corporate Conduct approved by the Russian regulatory authorities. NLMK governance system
is fully compliant with the current legislation of the Russian Federation and countries where Group assets
are located.

Key principles lying at the core of our Corporate Governance are:

 Seek to ensure effective and transparent arrangements to guarantee the rights and interests of

shareholders

 Provide equal treatment of all shareholders
 Seek to provide shareholders with the opportunity to exercise their right to participate in the

management of the Company
 Observe the rights of third parties
 Pursue a common corporate policy in respect of subsidiary companies, affiliates and other legal

entities in which the Company is the founder, a participant or a member

 Maintain a policy of open and transparent communications
 Promote a policy of complying with business ethics in conducting its operations
 Seek to comply with the applicable legislation and international corporate governance standards

According to the Corporate Governance Code and the Charter of the Company, the governance structure
includes:

 General Meeting of Shareholders – supreme governing body of NLMK
 Board of Directors that is responsible for the overall operations of the Company and its long-term

development strategy

 The executive bodies including the President (Chairman of the Management Board) and the

Management Board that manage day-to-day activities of the Company
 Corporate Secretary that secures NLMK shareholders' rights and interests.

An independent auditor, the Internal Audit Commission, Audit Committee and Internal Audit department
oversee financial and economic activities. Financial statements are audited in compliance with Russian
legislation and the US Generally Accepted Accounting Principles.

NLMK governance structure*

*as at 31 December 2013.

General Shareholder Meeting

Shareholders of NLMK, being the owners of the shares, participate in managing the Company by taking
decisions at the General Shareholders’ Meeting. At the General Shareholders’ Meetings, shareholders
elect the main governance and supervisory authorities of the Company (the Board of Directors, the
President (Chairman of the Management Board), Internal Audit Commission, the Auditor), approve annual
reports, distribute profits, approve the Charter of the Company and internal corporate documents, etc.

The Annual General Shareholder Meeting for FY 2012 was held on 7 June 2013. The following agenda

items were addressed during the meeting:

- Approval of the Group's 2012 Annual Report;
- Announcement of dividends for 2012;

- Election of the Group’s Board of Directors, President (Chairman of the Management Board), Internal
Audit Commission;
- Approval of changes to NLMK’s internal documents;
- Payment of remuneration to the members of NLMK’s Board of Directors.

Board of Directors

The Board of Directors of NLMK is the central element in the corporate governance system of the
Company. The Board represents the interests of the shareholders and is responsible for increasing the
value of the business through efficient management.

The main purpose of the Board of Directors is to carry out Group management duties in a conscientious
and competent fashion in order to increase the value of shares and shareholder wealth, as well as to
protect shareholder rights. The Board of Directors treats all shareholders fairly in its decisions and it is not
be guided by the interests of any single group of shareholders.

According to the corporate policies, the Board of Directors:

 exercises overall control of Company operations, defines its long-term development strategy and

uses this to make decisions;

 assesses the performance of the Company and its Bodies;
 determines the structure and composition of the Management Board;
 approves large transactions and related party transactions;
 assesses political, financial and other risks impacting Company operations;
 develops remuneration incentive methods and systems for company employees.

According to NLMK’s corporate procedures, NLMK's Board of Directors meets on a regular basis, at least
six times a year. Meetings of the Board of Directors are convened by the Chairman of the Board of
Directors in accordance with the approved plan for holding meetings.

Extraordinary meetings of the Board of Directors of NLMK can be called by the Chairman of the Board of
Directors at the request of a member of the Board of Directors, the Internal Audit Commission, the
Auditor, an executive body of the Company, or shareholders who own more than 5% of the shares.

Information (materials) relating to agenda items from meetings of the Board of Directors are submitted
to the members of the Board of Directors. Decisions by the Board of Directors are adopted by a simple
majority of members present at the meeting of the Board of Directors, except as stipulated by the Group
Charter and the law. Each member of the Board of Directors is entitled to one vote. Members of the Board
of Directors may be individuals who are elected at the General Shareholder Meeting and nominated by
the shareholders or by the Board of Directors. The composition of the Board of Directors is determined
by corporate documents. The Board of Directors may include executive directors, the number of whom
shall not exceed one quarter of the total number of members of the Board of Directors of the Group. Since
2005, independent directors have been elected to the Board of Directors of NLMK in accordance with
international best practice in corporate governance and the provisions of the Group’s corporate
documents. The Group is interested in having at least three independent directors on the Board.

Members of the Board of Directors are elected by cumulative voting at the General Shareholder Meeting
for a period lasting until the next Annual Meeting. Candidates with the highest number of votes are
elected to the Board of Directors.

Chairman of the Board of Directors

The Chairman of the Board of Directors organizes the work of the Board of Directors, convenes its
meetings, presides over them and arranges for minutes to be recorded. He also presides over the General
Shareholder Meeting or delegates this responsibility to one of the members of the Board of Directors. The
Chairman of the Board of Directors presides over discussions of such issues as strategic development
plans, Group priority areas of activity, and approval of transactions for the acquisition of assets that are
strategically significant for NLMK.

The Chairman of the Board of Directors is elected by the members of the Board of Directors by a majority
vote. Vladimir Lisin has been Chairman of the Board of Directors since 1998, and a member of the Board
of Directors since 1996.

Independent Board members

The Group is interested in having at least three independent directors on the Board.

Currently there are three independent directors: Benedict Sciortino, Helmut Wieser, and Franz Struzl.

For reference: According to the Regulations on the Board of Directors the independent director

 have not been an officer (manager) or employee of the Company or an officer (manager) or









employee of the Company’s managing company within the last 3 years;
is not an officer of other company in which any of the Company’s officers is a member of the
Committee of the Board of Directors on Personnel and Remunerations;
is not an affiliated person of a manager or officer of the Company’s managing organization;
is not an affiliated person of the Company;
is not a party to an agreement with the Company under which it may acquire property (receive
money) with the value of 10 or more per cent of the total annual income of that person, except
the remuneration for participation in the Board of Directors;
is not a large counterpart of the Company (a counterpart is considered to be large in case the total
amount of transactions between such counterpart and the Company is 10 or more per cent of the
book value of the Company’s assets);

 has declared in public way its status as an independent director;


shall immediately inform the Company in case of circumstances impeding an independent
director to correspond to the status of an independent director;

 has the required qualification;
 enjoys good reputation;
 participates in the Board of Directors of the Company in good faith;


is not a state representative.

Composition of the Board of Directors

As at 31 December 2013, the Board of Directors consists of nine people, including three members of the
Board of Directors who are independent.

Composition of the Board of Directors of NLMK as at 31 December 2013

Full name

Position

Years on
the Board

Inde
pend
ent

Strategic
Planning
Committee

Audit
Committe
e

Vladimir Lisin

Vladimir
Skorokhodov

Oleg Bagrin

Chairman of the
Board of Directors
Deputy Chairman
of the Board of
Directors
Member of the
Board of Directors
Member of the
Board of Directors

Benedict
Sciortino
Helmut Wieser Member of the

Nikolai Gagarin Member of the

Board of Directors

Karl Doering

Karen Sarkisov

Franz Struzl

Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors

Chairman



Yes

Chairman



Human
Resources,
Remuneratio
n, and Social
Policies
Committee

Chairman



* As at 31 December 2013.

The Board of Directors’ activity in 2013

In 2013 there were 9 meetings of the Board of Directors of NLMK, six of which were held by absentee
ballot.

The following are the main issues that were examined by the Group’s Board of Directors in 2013:

 Reviewing proposals on the agenda of the General Shareholder Meeting and proposals on

nomination of candidates to NLMK’s governing bodies.

 Convening the Annual General Shareholders’ Meeting on the results of 2012, approving the
agenda, draft documents and measures necessary for preparing for and holding the Annual
General Shareholders’ meeting;

 Electing the Chairman of the Board of Directors and the Deputy Chairman of the Board of

Directors and the formation of Committees under the Board of Directors of NLMK;

 Approving the plan for holding the meetings of NLMK’s Board of Directors;
 Making changes to the exchange bond programme;
 NLMK’s participation in other organizations;
 Approving provisions of the contract with an NLMK’s Management Board member;
 Approving the consolidated budget of the Group;
 Approving related party transactions;
 Approving the amount of payment for NLMK auditor services;
 Establishing the Company’s priority areas of activity (including: signing an addendum to the
agreement on creating a consolidated group of taxpayers; transferring extraction licenses;
approving the adjusted consolidated budget of the Group);
 Approving the composition of the NLMK Management Board;
 Operational risk management;
 NLMK’s European assets restructuring;
 Closing the Group’s office in Novokuznetsk.

Table: Participation of Members of the Board of Directors in the Meetings of this Body in 2013.

Board of Directors’ Member

Vladimir Lisin
Vladimir Skorokhodov
Oleg Bagrin
Benedict Sciortino
Helmut Wieser
Nikolai Gagarin
Karl Doering
Karen Sarkisov
Franz Struzl

Participation in meetings
9
9
9
8
9
9
9
9
9

Remuneration and compensation for the members of the Board of Directors

Remuneration

The Annual General Shareholder Meeting may decide to pay a bonus to the members of the Board of
Directors on the basis of the Group’s results for the fiscal year and in accordance with the
recommendations of the Human Resources, Remuneration, and Social Policies Committee.

Remuneration is paid to the members of the Board of Directors for reasonable and faithful exercise of
their rights and their duties in the interests of NLMK. Remuneration is paid to a particular member of the
Board of Directors of the Group in the form of a fee, which is calculated on the basis of the extent of his
or her personal involvement in the ongoing work of this governing body, in accordance with regulations.
The extent to which the directors performed their duties faithfully and carefully is considered when
determining the amount of remuneration. Directors who have failed to attend more than half of the Board
of Directors’ meetings during their tenure are not eligible to receive an annual performance bonus.

The size of the bonus is based on the Group’s results. Its amount shall not exceed 0.1% of the net profit
for the reporting period as determined in accordance with the US Generally Accepted Accounting
Principles (US GAAP) for each member of the Board of Directors.

The Chairman of the Board of Directors and members and chairmen of the committees of the Board
are paid additional bonuses. The Acting Chairman of the Board of Directors is paid 1.5 times the amount
of the bonus. Members of the committees of the Board of Directors may be paid remuneration equal to
1.2 times the amount of the bonus. Chairmen of the committees of the Board of Directors may be paid
compensation equal to 1.4 times the amount of the bonus.

Compensation

All expenses of the members of the Board of Directors that are directly connected with the
performance of their functions are subject to compensation by the Group. The following expenses are
considered to be reimbursable:



transportation costs of the members of the Board of Directors incurred while travelling to
meetings;

 Costs for accommodation incurred while attending meetings;
 Representation expenses;
 Costs associated with obtaining the professional advice of experts on issues under

consideration at the meetings of the Board of Directors;

 Costs associated with translating materials to be studied by members of the Board of Directors

into a foreign language.

Remuneration and compensation paid to Board members in 2013 (US$ m)

Item

Payments made to members of the Board of Directors

Including remuneration

2013

2.3

2.2

Committees of the Board of Directors

For the purposes of handling certain aspects of NLMK Group business, and in accordance with the Board
of Directors Regulations, the Board of Directors has established the following standing committees:





the Strategic Planning Committee
the Audit Committee
the Human Resources, Remuneration and Social Policies Committee.

Strategic Planning Committee

The Strategic Planning Committee drafts and submits recommendations to the Board regarding priority
areas for company activities and its development strategy, including long-term actions to improve
effectiveness, and to promote asset growth, profitability and a stronger investment case.

The Strategic Planning Committee is completely accountable to the Board of Directors of NLMK and acts
as an advisory body. The activity of the Committee is governed by the ‘Regulations on the Strategic
Planning Committee’.

The Committee comprises members of the Board of Directors:

 Vladimir Lisin (Chairman)
 Oleg Bagrin
 Vladimir Skorokhodov
 Benedict Sciortino (independent director)
 Karl Doering
 Karen Sarkisov
 Helmut Wieser (independent director)
 Franz Struzl (independent director)
 Alexey Lapshin

Results of the Committee’s activity for 2013

In 2013, the Strategic Planning Committee held two meetings (all meetings were held in person). In
2013, the Committee approved the Group’s long-term strategy. Decisions were made on the following
issues:

 Strategic development objectives for NLMK Group and its divisions;
 Development programmes for the companies and operating units to achieve the strategic

objectives;

 Restructuring of NLMK’s European assets.

Table: Participation of Members of the Board of Directors in Committee Meetings in 2013.

Full name

Position

Participation in
meetings in 2013

Vladimir Lisin

Oleg Bagrin

Chairman of the Committee, Chairman of the
Board of Directors

Member of the Board of Directors,
President (Chairman of the Management Board)

Vladimir Skorokhodov

Deputy Chairman of the Board of Directors

Karl Doering

Member of the Board of Directors

Benedict Sciortino

Member of the Board of Directors

Karen Sarkisov

Helmut Wieser

Franz Sruzl

Member of the Board of Directors

Alexey Lapshin

Advisor to the Chairman of the Board of Directors

Audit Committee

The Audit Committee, chaired by an Independent Director, drafts and submits to the Board
recommendations regarding the efficient supervision of the financial and business activities of the
Company, including annual independent audits of financial statements, the quality of services provided
by the auditor and compliance with the requirements for auditor independence.

The activity of the Audit Committee is fully accountable to the Board of Directors of NLMK and is an
advisory body.

The Committee members comprise:

 Benedict Sciortino (Chairman, independent director)
 Franz Struzl (independent director)
 Nikolai Gagarin
 Karl Doering
 Karen Sarkisov

Results of the Committee’s activity for 2013

In 2013 there were four meetings of the Audit Committee, in which the following decisions were made

and measures adopted for their implementation:

 A proposal was prepared and submitted for the Annual General Shareholder Meeting
recommending that the RAS financial (accounting) statements of the Group for 2012 be approved.
 A draft assessment of the external auditor’s audit report of the Group’s RAS financial (accounting)
statements for 2012 was prepared and approved. A proposal was submitted to the Board of
Directors to confirm the assessment of the audit report as material to be presented at the Annual
General Shareholder Meeting.

 A proposal was prepared for the Board of Directors containing recommendations for the General
Shareholder Meeting on the Group’s external auditor in 2013 and the amount of its remuneration.
 A recommendation to approve the US GAAP consolidated financial statements for the year 2012

was prepared and submitted to the Board of Directors.

 The US GAAP condensed interim consolidated financial statements for Q1, H1, and the first 9

months of 2013 were reviewed and approved.

 Development concept for risk management processes, internal supervision and internal audit of

the Group in 2013-2015 was approved.

 Developed procedures for ensuring timely access to information about potential and current trials
and its disclosure in the RAS and US GAAP financial statements were reviewed and approved.

Table: Participation of Members of the Audit Committee in its Meetings in 2013.

Full name

Benedict Sciortino

Nikolai Gagarin

Karl Doering

Karen Sarkisov

Franz Struzl

Position

Participation in meetings in 2013

Chairman of the Committee,
Member of the Board of
Directors

Member of the Board of
Directors

Human Resources, Remuneration and Social Policies Committee

The Human Resources, Remuneration and Social Policies Committee makes recommendations to the
Board of Directors on human resources policy, remuneration of senior management and the social policy
of the Group, in particular with regard to the following issues:

 Development of a strategy, policy and standards aimed at attracting qualified professionals to

manage the Group.

 Development of corporate social programmes that provide staff and their families with healthcare

options.
Implementation of occupational safety and health standards.

Implementation of social programmes.


 Remuneration of members of the management and the Internal Audit Commission of the Group.

 Ensuring the transparency and accessibility of social programmes supported by the Group.
 Making charitable contributions.
 Partnership with state and municipal government agencies.
 Environmental safety and environmental protection measures.

The Committee members comprise:

 Vladimir Lisin (Chairman)
 Oleg Bagrin
 Vladimir Skorokhodov
 Alexey Lapshin

Results of the Committee’s activity for 2013

Three meetings of the Committee on Human Resources, Remuneration and Social Policies were held in
2013 (including 2 in the form of absentee voting). The following issues were discussed at the meetings:

 Compensation of members’ of the Board of Directors costs associated with their participation in

the Committees;

 Achievement of targeted quantity and project performance indicators by members of the

Management Board in 2012;

 Approval of the results of the first stage of the ‘Roadmap for human resources committee’

project;

 Appointment of secretary for the Human Resources, Remuneration and Social Policies

Committee;

 Compliance with the independent director status requirements of the following candidates to the

Board of Directors: Benedict Sciortino, Helmut Wieser, Franz Struzl;

 Proposals on the amount of remuneration to members of NLMK Board of Directors on the basis

of the 2012 annual results;

 Review of key performance indicators and targets for the Members of NLMK’s Management

Board in 2013.

Table. Participation of Members of the Board of Directors in Committee Meetings in 2013.

Full name

Vladimir Lisin

Vladimir Skorokhodov

Oleg Bagrin

Alexey Lapshin

Management Board

Position
Chairman of the Committee,
Chairman of the Board of Directors

Deputy Chairman of the Board of
Directors

Member of the Board of Directors,
President (Chairman of the
Management Board)

Advisor to the Chairman of the
Board of Directors

Participation in meetings in 2013

The implementation of the approved strategy and specific decisions of the Board of Directors is delegated
to the President and the Management Board.

The main objective of the Management Board is to ensure that the Company is operating efficiently. In
order to reach its objective the Management Board is guided by the following principles:

 Efficient and objective decision-making that favors the interests of the Company and its

shareholders;

 Fair, timely and efficient execution of the decisions of the General Shareholder Meeting and the

Board of Directors;

 Cooperation with trade unions of the Company’s employees with the purpose of taking into

account the employees' interests;

 Cooperation with government agencies and local authorities on the most important issues.

The key issues that the Management Board is responsible for addressing are as follows:

 Elaboration and submission of a development concept, strategic plans and major activity
programmes to the Board of Directors, as well as preparation of reports on the status of their
implementation, and development and approval of the Company’s current activity plans.

 Establishment of procedures for NLMK's cooperation with its subsidiaries and affiliates and the

appointment of NLMK representatives to management positions at these companies.

 Making recommendations to the senior management bodies for the approval of major

transactions and related party transactions.

 Approval of transactions involving NLMK assets if the amount of the transaction exceeds 10% of

the Company's assets.

 Making decisions concerning the Group's participation in other companies if the value of the

acquired property is not more than 2% of the value of NLMK's assets

President (Chairman of the Management Board)

President (Chairman of the Management Board) manages the day-to-day activities of the Company,
excluding issues that fall within the exclusive competence of the General Shareholders’ Meeting, the
Board of Directors and the Management Board; arranges for the execution of the decisions made by the

General Shareholders’ Meeting and the Board of Directors. President (Chairman of the Management
Board) acts without any Power of Attorney on behalf of the Company.

President (Chairman of the Management Board) submits candidates to the Management Board for
approval to the Board of Directors, as well as proposals on the structure and number of members of the
Management Board.

According to the corporate documents, President (Chairman of the Management Board) cannot
simultaneously be the Chairman of the Board of Directors of the Company.

The President (Chairman of the Management Board) is elected by the General Shareholders’ Meeting for
a period lasting until the next Annual Meeting, unless otherwise stipulated by the General Shareholders’
Meeting. Oleg Bagrin has been the President (Chairman of the Management Board) since 2012 and is also
a member of the Board of Directors. He was last elected on 7 June 2013.

Composition of the Management Board

The structure and the number of members of the Management Board is approved by the Board of
Directors; the opinion of the President (Chairman of the Management Board) is also considered. The
composition of the Management Board is approved by the Board of Directors from candidates proposed
by the President (Chairman of the Management Board).

As at 31 December 2013, the Management Board is made up of 10 people:

Full name

Oleg Bagrin

Member of the Board of Directors
President (Chairman of the Management Board)

Position

Alexander Burayev

Director for Long Products and Metalware

Brijesh Garg

Vice President, Procurement

Alexander Gorshkov

Vice President, Iron Ore Division

Yuri Larin

Vice President, Technology Development & Operational Efficiency

Alexander Sapronov

Vice President, Logistics

Alexander Saprykin

Vice President, Strategic Raw Materials Division

Grigory Fedorishin

Vice President, Finance

Sergey Filatov

Managing Director

Stanislav Tsyrlin

Vice President, HR & Management System

Table. Shares owned by members of the Management Board.

Full name

Position

Oleg Bagrin

Member of the Board of Directors
President (Chairman of the Management
Board)

Share of the authorized
capital stock of NLMK

Not an NLMK shareholder

Alexander Burayev

Director for Long Products and Metalware

0,00005%

Brijesh Garg

Vice President, Procurement

Not an NLMK shareholder

Alexander Gorshkov

Vice President, Iron Ore Division

Not an NLMK shareholder

Yuri Larin

Vice President, Technology Development &
Operational Efficiency

0,00083%

Alexander Sapronov

Vice President, Logistics

Alexander Saprykin

Vice President, Strategic Raw Materials
Division

Grigory Fedorishin

Vice President, Finance

Sergey Filatov

Managing Director

Not an NLMK shareholder

Stanislav Tsyrlin

Vice President, HR & Management System

Not an NLMK shareholder

Activity and remuneration of the Management Board in 2013

In 2013, there were 36 meetings of the Management Board, including 16 meetings that were held using
absentee ballots. The following issues were considered at these meetings:

 Recommendations were submitted to the Board of Directors, as well as to the management units
of subsidiaries and affiliated organizations, on the approval of related party transactions and
issuing and floating NLMK bonds;

 Participation/withdrawing participation of the Group in other companies;
 Approval of draft decisions on matters within the competence of the General Shareholder

Meetings of companies in which the Group is the sole participant/shareholder;

 Examination of the draft annual report of NLMK for 2012;
 Examination of previously issued instructions;
 Execution of the development programmes of NLMK’s divisions (functional areas);
 Approval of the plan for Management Board meetings;
 Examination of draft budgets of the Group’s divisions and the draft consolidated budget of the

Group;

 Meeting key performance indicators of the Group (incl. supporting companies);
 Approval of transactions;
 Group’s consolidated budget execution;
 Meeting Group’s key performance indicators in occupational health & safety;
 Examination of the working capital.

Table. Participation of Members of the Management Board in Meetings of this body in 2013

Management Board
Member

Oleg Bagrin

Alexander Burayev

Brijesh Garg

Alexander Gorshkov

Yuri Larin

Alexander Sapronov

Alexander Saprykin

Grigory Fedorishin

Sergey Filatov

Stanislav Tsyrlin

Participation in meetings

Remuneration and compensation of members of the Management Board

Following best practice in corporate governance, NLMK strives to provide the most transparent reports
of compensation awarded to the members of the Management Board.

In accordance with the Regulations on the Management Board, members of the Board shall receive
remuneration and compensation for expenses related to the performance of their responsibilities as
members of the Board for their period of service. The conditions and procedure for remuneration of
Management Board members are governed by an agreement that is concluded with Board members in
accordance with the Regulations for Management Board Member Remuneration approved by the Board
of Directors acting on advice of the Human Resources, Remuneration, and Social Policies Committee. The
Management Board shall be compensated in monetary form.

The following principles outline the mechanism for determining the amount of compensation that is
awarded to NLMK top management:

 Honest and efficient performance of their duties by members of the Management Board;
 Rational use of the rights that are granted to them;
 The size of the bonuses awarded to members of the Management Board is dependent on their
achievement of key performance indicators (KPIs) and on the Company’s overall results during
the reporting period;

 Active involvement by members of the Management Board in the work of the Group’s executive

bodies.

Table. Remuneration and compensation paid to Management Board members in 2013 (US$ m)

Item

Payments made to members of the Management Board

Including bonuses and salary

2013

6.9

6.8

Corporate Secretary

Corporate Secretary role

Corporate Secretary's functions are to secure shareholders’ rights and interests, including the creation of
efficient and transparent mechanisms for securing such rights.

The Corporate Secretary’s responsibilities include securing compliance by the Company, its management
bodies and officers with the law and the Company’s Charter and internal documents. The Corporate
Secretary organizes the communication process between the parties to corporate relations, including the
preparation and holding of General Meetings and meetings of the Company’s Board of Directors; storage,
disclosure and dissemination of information about the Company and reviewing communications from
shareholders.

The Corporate Secretary acts as the Head of the Management Board Secretariat, as well as the AGM
Secretary.

Valery Loskutov has been the Corporate Secretary since 2005.

Policy on major and related party transactions

Major transactions

According to the Russian legislation, a transaction (including loan, credit, pledge, and guarantees) or
several related transactions connected with the acquisition, disposal or option to dispose, either directly
or indirectly, of property with a value equal to 25 or more percent of the book value of the Company’s
assets, determined with respect to its records at the last reporting date, except transactions made in the
normal course of business of the Company, transactions connected with the distribution of common
shares of the Company by means of subscription (sale), transactions connected with the distribution of
issued securities convertible to common shares of the Company, and transactions mandatory for the
Company in line with federal laws and (or) other legal acts of the Russian Federation settled at prices
determined as per the procedure set by the RF Government, or at the prices and tariffs set by the federal
executive body authorized by the RF Government, are considered to be major transactions.

NLMK has developed procedures to approve and complete such transactions in order to eliminate their
negative effects.

The Management Board submits recommendations on approval of major transactions to the Board of
Directors. Resolution on approval of a major transaction made in respect of the property with a value of
25 to 50 percent of the book value of the Company’s assets shall be adopted by the unanimous resolution
of the Board of Directors of the Company, provided that the votes of retired members of the Board of
Directors are disregarded.

In case there is no unanimous opinion in the Board of Directors of the Company, the issue on approval of
a major transaction shall be transferred to the General Shareholders’ Meeting by resolution of the Board
of Directors of the Company. In this case a resolution on approval of a major transaction shall be passed
by the General Shareholders’ Meeting of the Company by a majority of votes of shareholders possessing
voting shares and present at the General Shareholders’ Meeting.

Resolution on approval of a major transaction in respect of property with a value of more than 50 percent
of the book value of the Company’s assets shall be passed by the General Shareholders’ Meeting by a

88
majority of three fourths of votes given by shareholders possessing voting shares and present at the
General Shareholders’ Meeting.

Related party transactions

Company’s policy on related party transactions is aimed at minimizing the risks of improper use of
Company assets by senior management. NLMK has developed and implemented an efficient internal
system for ensuring compliance with the requirements and a procedure for completing and approving
related party transactions.

The Management Board submits recommendations on the approval of related party transactions to the
Board of Directors. The decision to approve a related party transaction is made by a majority of votes cast
by those members of the Board of Directors who are not related parties. If the transaction amount
exceeds 2% of the total assets of the Company, then the matter is put before the General Shareholder
Meeting for approval.

SUPERVISION OVER THE FINANCIAL AND BUSINESS ACTIVITIES

External auditors

According to the legislation of the Russian Federation, the Group’s General Shareholder Meeting selects
auditors on an annual basis. The Audit Committee advances candidates for Group auditor who are
recognized independent auditors with strong professional reputations for consideration by the Board of
Directors.

The Audit Committee is guided by the following core principles when making its recommendations:

 The qualifications of the audit organization and its professional reputation;
 The quality of its services;


Its compliance with auditor independence requirements.

In June 2013, ZAO PricewaterhouseCoopers Audit was selected to be the auditor for NLMK at the Annual
General Shareholder Meeting in order to conduct an audit of financial statements prepared in accordance
with the Russian Accounting Standards (RAS) and the US Generally Accepted Accounting Principles (US
GAAP). Address: 10 Butyrsky Val, Moscow, 125047, Russia.

Remuneration

The Board of Directors has determined the amount of remuneration for audit services (review) of the
US GAAP consolidated financial statements of NLMK for H1 2013, 9M 2013, 12M 2013 and Q1 2014, and
the RAS Statements for 2013 to be US$ 2,150,000 (excluding VAT).

Independence of external auditors

In 2013 ZAO PricewaterhouseCoopers Audit performed audits of consolidated financial statements
prepared in accordance with US GAAP and financial statements of NLMK Group’s major companies in
accordance with RAS.

ZAO PricewaterhouseCoopers Audit has several systems to ensure the independence of its auditors,
for example, it regularly rotates the key staff in its audit working group (as least once every seven years).

The Group has hired ZAO PricewaterhouseCoopers Audit and other PricewaterhouseCoopers
companies (hereafter PWC) to provide consulting (non-audit) services. The management of NLMK has

conducted the necessary procedures, and is sure that these services do not affect the independence of
the auditor and are not related to financial reporting. The share of consulting (non-audit) services
provided by ZAO PricewaterhouseCoopers Audit for NLMK in 2013 amounted to about 7% of the total
amount of services performed.

Internal Audit Commission

The Internal Audit Commission is a full-time internal control authority exercising continuous supervision
over the financial and business activities of the Company. The Internal Audit Commission operates under
the Charter and the Internal Audit Commission Regulations. It audits the financial and business activities
of NLMK Group in order to obtain adequate assurance that the activities of NLMK Group comply with
applicable Russian Federation laws and do not infringe upon the rights of Company shareholders, and that
the Company reports and accounts contain no material misstatements.

The Internal Audit Commission acts for the protection of the shareholders’ investments and the Group’s
assets and is elected by the General Meeting of Shareholders for a term of one year.

The following members of the Internal Audit Commission were elected on 7 June 2013:

 Valery Kulikov, Chairman of the Internal Audit Commission;

Ludmila Kladienko, Member of the Internal Audit Commission;
 Sergey Nesmeyanov, Member of the Internal Audit Commission;

Larisa Ovsyannikova, Member of the Internal Audit Commission;
 Galina Shipilova, Member of the Internal Audit Commission.

Activity in 2013

In 2013, the Internal Audit Commission held three meetings to examine the 2012 NLMK Financial and
Operating Performance Audit Report and the report of the Commission was approved for 2012; the
Commission’s planned activities for 2013 were also discussed. The Commission reviewed the Group’s
financial and business activities for 2013 in accordance with its powers and on the basis of the approved
plan.

Remuneration

Remuneration is paid to the members of the Internal Audit Commission in accordance with the
Regulations on Internal Audit Commission Members’ Remuneration and Compensation, which describes
the criteria for receiving compensation as well as the amounts of said compensation.

Remuneration paid to the members of the Internal Audit Commission in 2013 totaled RUB 145,000

(US$ 5,000).

Internal Audit Department

The Internal Audit Department is an inherent part of internal controls system exercising continuous
supervision over the financial and business activities of NLMK. The objective of the department is to
ensure the efficiency of operations, and to provide independent and objective guarantees that control
procedures integrated into the operations are working properly.

The main functions of the Internal Audit Department:

-
-

-
-
-

review, evaluation and monitoring of the internal controls efficiency and risk management;
control over the proper execution of the existing business operations and regulatory
documents;
control over compliance with legal and normative requirements for financial and tax accounting
and preparation of financial (tax) statements;
control over existence and safety of the assets;
audit of repair and construction activities ;
consulting.

Activity in 2013

In 2013, the Internal Audit Department executed the following activities:

-
-

audits of material risk management efficiency; and assessment of business process efficiency;
audits of Company’s financial and operational activities; compliance with financial and tax
accounting regulations; and preparation of financial (tax) statements;
in accordance with the existing laws on joint-stock companies and limited liability companies’
statutes, the Internal Audit Department’s employees participated in internal audits at NLMK
Group companies;
audits of repair and construction and other activities

RISK MANAGEMENT

The main goal of risk management for the Group is to minimize the possible negative effects on the

business of changes to the external environment and to internal processes.

Risk management policy

The risk management policy is intended to protect the interests of shareholders, interested parties and
society in general by means of a system of effective risk management. Risk management is a necessary
component of the shareholder value creation process and is instrumental in achieving the Group’s strategic
goals.

Risk management process

In 2008–2009, in conjunction with Marsh, a large risk management consulting firm, we evaluated the
effectiveness of our existing risk management system, developed recommendations to improve it and
drafted a set of internal documents to regulate the Company’s risk management procedures. Since 2010,
the Group has implemented its risk management procedures independently.

Risk management is a continuous, integral and transparent process that involves all employees at

various stages:



Identification and constant monitoring of risks;

 Evaluation of potential impact of risks on the Group’s business;

 Assignment of responsibility to risk owners;

 Development of risk management measures;

 Monitoring of critical risks.

Item

Impact level of
risk

COMMERCIAL RISKS

Price risk

Critical risk

Credit risk

Critical risk

Description

Mitigation measures

Risk for the Group emerges if pricing
trends for finished products and key
raw materials diverge. The key risk
for the Group occurs when finished
products price decline and coking
coal and pellet prices increase.

In order to mitigate this risk the Group has
developed the following measures:

1. Minimizing the risk through formula-based pricing
2. Monitoring and immediate reaction to changing
spreads between steel products and key raw
material prices

The bulk of Company’s goods is sold
on post-payment terms, which
means that there is a risk of debt
non-payment, increase of accounts
receivable, additional expenses on
debt servicing.

For risk management purposes the Group uses
various transaction security tools: bank guarantee,
factoring, accounts receivable insurance. Moreover,
NLMK has implemented a protocol for evaluating the
risks of default on obligations by contracted clients
in case of a delay in payment. The protocol allows
balanced decisions to be made with the aim of
minimizing the risk of non-payment for deliveries by
contracted clients.

Risks of raw
materials
procurement
safety

Significant risk

Risks are caused by:
1) shortage of delivery (untimely
delivery) of raw materials in case of
accidents and other emergencies
2) suppliers’ failure to comply with
time and volumes of raw materials
deliveries

1. Strategy 2017 of NLMK Group.
2. Determination of Group’s demand for strategic
raw materials in the long term.
3. Priority of long-term formula-based contracts for
shipments of strategic raw materials.
4. Raw materials procurement management within
category strategies.

FINANCIAL RISKS

Currency risk

Critical risk

Risk of
managing
stocks (incl.
investment)

Significant risk

Risks associated with fluctuations in
the currency. The majority receives
the majority of its revenues from
exports in foreign currency, while the
majority of its expenditures is
denomimated in roubles.

Risks associated with ineffective
product flow management, build-up
of undemanded stocks, overstocking
of warehouses with finished goods

TECHNICAL (TECHNOLOGICAL) RISKS

1. Control of open foreign exchange position.
2. Implementing natural hedging

1. Maintaining standard levels of stocks across the
value chain

Technological risks involving the loss
of property (or parts thereof) as a
result of an accident at a production
site, and reduction in revenue caused
by production stoppages.

1. Insurance of property and production stoppages
2. Risk-oriented Programme of maintenance and
capital repairs of the Group's fixed assets
3. Technical policy is developed on the basis of
acceptable risk levels and is aimed at increasing the
safety of production processes, management and
development of the Group
4. Quality control of input raw materials

Technical
(technological)
risks

Critical risk

INVESTMENT RISKS

Risk of untimely
launch of
facilities

Risk of
exceeding
planned project
costs

Critical risk

REGULATORY RISKS

Change of
labour
legislation

Critical risk

Risks of delays in the launch of
facilities.

Risk of increasing costs of
implemented investment projects
compared to the confirmed
projected level

1. Change of government policy and
legislation uncertainty related to
insurance tariffs
2. Change of government approach
to managing occupational health and
safety
3. Change of government policy in
managing bankruptcy effects

CONTROL AND SAFETY

Risk of
personnel death
as a result of an
accident

Significant risk

Risks associated with the occurrence
of accidents and incidents.

Risk of fraud

Significant risk

Risk of losing money as a result of
fraud by personnel or partners

Risk of blocking
information
systems and
data networks

Significant risk

Blocking of information systems and
data networks (violation of
information security requirements by
Company’s personnel or third
parties).

1. Management based on the principles of Project
management: identification of project risk zones,
development of initiatives to minimize project risks

Key measure to mitigate risk effects are:
- monitoring of changes in legislation
- involvement in government bodies’ meetings.

1. All of the Group’s production facilities have
developed and implemented occupational health
and safety standards.
2. Employees are provided with the latest personal
protection and hygiene equipment.

In order to mitigate this risk the Group:
1) develops local regulatory acts and documents
aimed at preventing corruption
2) carries out preventive measures to minimize risk
of fraud
3) NLMK joined the Russian Business Anti-Corruption
Charter

The main measures to mitigate risk effects are:
- carrying out an independent audit of information
system security;
- design, implementation and development of
information system subsystems, modernization of
information systems in accordance with information
security requirements

ENVIRONMENTAL RISKS

Environmental
risk

Less significant
risk

Risks occur during the construction
and operation of production sites,
when there is a likelihood of
environmental damage.

In order to reduce environmental risks, we
constantly monitor the chemical content of
atmospheric emissions and wastewater discharge.
The Group is also systematically reducing its impact
on the environment through commissioning new,
environmentally safe technological equipment and
modernizing its existing equipment.
The Group’s companies also hold third-party liability
insurance in case of accidents during the operation
of hazardous production sites.

INFORMATION FOR SHAREHOLDERS

Ordinary shares

The Group’s share capital is divided into 5,993,227,240 shares with a nominal value of RUB 1 each. NLMK’s
shares are traded on the MICEX and RTS trading platforms of the Moscow Stock Exchange, as well as in the
form of Global Depositary Shares (GDS) (1 GDS = 10 ordinary shares) on the London Stock Exchange (LSE).

LSE (London) Ticker
Code

MICEX (Moscow) Ticker
Code

RTS (Moscow) Ticker
Code

Bloomberg Ticker Code

Reuters Ticker Code

For information:

NLMK

• NLMK LI for GDS traded on the LSE
• NLMK RM for shares traded on the MICEX platform of the Moscow
Exchange
• NLMK RU for shares traded on the RTS platform of the Moscow Stock
Exchange

• NLMKq.L for GDS traded on the LSE
• NLMK.MM for shares traded on the MICEX platform of the Moscow
Stock Exchange
• NLMK.RTS for shares traded on the RTS platform of the Moscow Stock
Exchange

Indices that include NLMK shares (the weights below will be used in March-June 2014):

Moscow Stock Exchange (RTS-MICEX) (NLMK’s share - 0.62%)

Moscow Stock Exchange (RTS-MICEX) Metals & Mining (NLMK’s share – 11.83%)

Global Depositary Shares (GDS)

The ratio of Global Depositary Shares to ordinary shares is 1:10. The volume of Global Depositary Shares
issued by NLMK and traded on the London Stock Exchange amounted to 7.49% of share capital as of 31
December 2013. On 31 December 2013, GDS were trading at US$ 16.89.

The Company’s depositary bank is Deutsche Bank Trust Company Americas.

Share price

NLMK Global Depositary Shares on the London Stock Exchange*

Price of GDS (US$)

Maximum

Minimum

Mean

End of year

Average volume of daily trade
(US$ m/day)

2013

23.0

12.5

16.8

16.9

10.13

2012

26.7

14.9

20.0

20.3

14.55

* The Company’s shares were listed on the London Stock Exchange in the form of Global Depositary Shares on 15
December 2005.

Ordinary NLMK shares on MICEX*

Share price (RUB)

Maximum

Minimum

Mean

End of year

Average volume of daily trade
(RUB m/day)

2013

68.45

41.20

52.87

55.18

223.35

2012

78.67

49.54

61.58

61.15

442.39

* On 6 April 2006, NLMK ordinary shares began trading on MICEX, included in the schedule of non-listed securities.

NLMK GDS price on the London Stock Exchange (US$/GDS)

2
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NLMK GDS price on LSE (US$/GDS), lhs

MICEX index (indicator of Russian companies' share prices), rhs

NLMK share price on MICEX (RUB/share)

2
1
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2
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2
1
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2
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3
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3
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3
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3
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NLMK share price on MICEX (RUB/share), lhs

MICEX Metals & Mining Index, rhs

1800

1600

1400

1200

1000

800

600

400

200

4000

3000

2000

1000

How we communicate with our shareholders

NLMK strives to comply with best international information disclosure practice in order to provide a clear
understanding of its business, industry position, and strategy. The Group achieves this by making active use
of all available channels of communication, including its corporate website, social media, and face-to-face
management meetings.

The effectiveness of this all-round approach is evident from the list of Russian and international awards
received by the Company in 2013:

 Placed among top three companies in the world in terms of financial disclosure by IR Global

Rankings 2013.

 Shortlisted by UK IR Society in the “Most effective overall annual report by an international

company” category.

 Won a number of national awards and nominations.

Market capitalization

NLMK market capitalization in 2013 was largely in line with the general trends seen in capital markets.
Average market capitalization of the Company on the London Stock Exchange was US$ 10 040 million (-16%
year-on-year). At the end of 2013, NLMK share price was US$ 1.69, or US$ 16.9 per GDS, consistent with
capitalization of US$ 10.12 billion.

NLMK shares on MICEX were more robust compared to MICEX Metals & Mining index. Average NLMK share
price on MICEX was 52.87 RUB/share (-14% year-on-year). MICEX sector index declined by (-) 23% year-on-
year.

Taxation

In accordance with Russian legislation, the rate of taxation of dividend payments for corporate shareholders
who are residents of the Russian Federation is 9%; for corporate shareholders who are non-residents, it is
15%; for individuals, the rates are 9% and 15% respectively (rate valid from 1 January 2008). Where an
avoidance of double taxation agreement is in effect, tax payments are made in accordance with the rates
specified in the agreement.

Note: Information on taxation is provided for general information purposes only. Potential and existing
investors should consult with their own advisors regarding the tax consequences of investing in the
Company’s shares, including Global Depositary Shares (GDS).

Dividends

Our dividend policy

The Group’s dividend policy, the latest version of which was approved in June 2011, is designed to provide
shareholders and all interested parties with as much clarity as possible regarding the Group’ strategy for
the distribution and utilization of NLMK’s net profit. In accordance with the dividend policy, providing that
they do not impact the stability of the Group’s financial situation and prospects for development, dividend
payments may not be less than 20% of net income, determined in accordance with US GAAP. In addition,
the Group aims to achieve an average dividend payout of at least 30% of net income, determined in
accordance with US GAAP.

Net gains on the sale of investments in equity securities that do not provide a significant level of influence
or control over the issuing company can be put towards the payment of dividends in full, providing there is
no need to raise money for investment. The amount of dividends payable for each period is approved by

the Group’s shareholders on the recommendation of the Board of Directors, and will depend on the Group’s
financial position, operating results, cash flow, outlook, general economic conditions, and other factors.

Declared dividends are paid to shareholders within 60 days of the date of their announcement, unless a
shorter period is specified by decision of the General Meeting of Shareholders on the payment of dividends.

Dividends payable to GDS holders

Any dividends paid on shares certified by GDS will be declared and paid to the Depositary in roubles or
foreign currency, converted into US dollars by the Depositary (in the case of dividend payment in a currency
other than US dollars), and distributed to the holders of GDS, net of fees and Depositary expenses.

Dividend history

Dividend history (US$ m)

738

660

683

386

379

376

471

125

119

115

70%

60%

50%

40%

30%

20%

10%

800

700

600

500

400

300

200

100

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Declared dividends for the year

Interim dividends

Dividend payout ratio (dividend/net profit), rhs

The Annual General Meeting of NLMK Shareholders announced 2013 dividends for ordinary shares in the
amount of RUB 0.67 in cash per share.

Corporate documents

The Group’s corporate documents, including the Company Charter, are available at http://nlmk.com.

Financial reporting and disclosure

The Group posts announcements of financial results on the London Stock Exchange website via the
regulatory news service (RNS) and then publishes them on the Group website in the form of press releases,
and distributes them to the media.

The Company publishes its financial results on a quarterly basis.

The annual report is published in electronic form on the Group website, http://nlmk.com, on the day of its
official publication. The Group shall give notice of this date in a specially issued press release. A hard copy
of the annual report is available on request in the office of the Register of Shareholders and in the office of
the Group’s PR consultant in London.

Structure of share capital as at 31 December 2013

Fletcher Group Holdings Limited

6,97%

7,49%

85,54%

Deutsche Bank Trust Company
Americas (global depositary
shares traded on LSE)

Other shareholders (including
shares floating on Russian stock
exchanges, companies of which
NLMK managers are
beneficiaries)

Financial calendar for 2014

Date

27 January 2014

10 February 2014

27 March 2014

28 March 2014

16 April 2014

22 April 2014

19-23 May 2014

2-6 June 2014

21 July 2014

4-8 August 2014

20 October 2014

Event

Q4 2013 trading update

NLMK Capital Markets Day

12M 2013 consolidated financial results (US GAAP)

12M 2013 financial results for the Group’s major companies
(under Russian Accounting Standards, RAS)

Meeting of the Board of Directors (BoD)

Q1 2014 trading update

Q1 2014 consolidated financial results (US GAAP)

Annual General Meeting of Shareholders

Q2 2014 trading update

H1 2014 interim financial results (US GAAP)

Q3 2014 trading update

3-7 November 2014

9M 2014 interim financial results (US GAAP)

Contacts for shareholders

Registrar

The register of holders of NLMK securities is maintained by the Regional Independent Registrar Agency
(RIR Agency)

Registered address: 10 B 9 Maya St., Lipetsk, 398017, Russia

Depositary bank

Deutsche Bank Trust Company Americas

New York Headquarters

60 Wall St., New York, NY 10005

USA

London Office

Winchester House

1 Great Winchester St.

London EC2N 2DQ

United Kingdom

Valery Loskutov

Head of Shareholders’ Equity Department

Corporate Secretary

Tel: +7 (4742) 44 49 89

Email: loskutov_va@nlmk.ru

Sergey Takhiev

Head of Investor Relations

Tel: +7 (495) 915 15 75

Email: ir@NLMK.com

100

Statements

101

RESPONSIBILITY STATEMENT

NLMK management, having considered the information available regarding the activities of the Company,
confirms its responsibility for:

1. Preparation and reliability of the Group’s consolidated financial statements, prepared in
accordance with US GAAP, as of December 31, 2013, 2012 and 2011, and also for the years ended
on those dates, within balance sheets, profit and loss statements, cash flow statements, equity
statements and the statements on the total income of shareholders and notes to the consolidated
financial statements.

Management confirms the reliability of NLMK’s financial status, operational results and cash flow
results, as well as its subsidiaries and dependent companies in the consolidated financial
statements.

2. The completeness and correctness of the information submitted in the NLMK Group Annual
Report for 2013, specifically the information on the operational results of NLMK Group, the results
of its strategic development, risks and events which in the near future may have impact on the
operations of the Group.

The Company management confirms that the operational and financial indices fully reflect the
outcome of NLMK Group’s operations in 2013 and main changes regarding the previous periods
as well as give a comprehensive representation on the development of NLMK and its subsidiaries
and dependent companies.

President (Chairman of the Management Board) O. Bagrin

102

OJSC
NOVOLIPETSK STEEL

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH
ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES OF AMERICA

AS AT DECEMBER 31, 2013, 2012 AND 2011
AND FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(WITH REPORT OF INDEPENDENT AUDITORS THEREON)

103OJSC Novolipetsk Steel
Consolidated financial statements
as at and for the years ended December 31, 2013, 2012 and 2011

CONTENTS

Report of Independent Auditors

Consolidated balance sheets

Consolidated statements of income

Consolidated statements of comprehensive income

Consolidated statements of stockholders’ equity

Consolidated statements of cash flows

Notes to the consolidated financial statements

8 – 38

104105OJSC Novolipetsk Steel
Consolidated balance sheets
as at December 31, 2013, 2012 and 2011 (thousands of US dollars)

Note

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

ASSETS

Current assets

Cash and cash equivalents

Short-term investments

Accounts receivable and advances given, net

Inventories, net

Other current assets

Deferred income tax assets

Non-current assets

Long-term investments

Property, plant and equipment, net

Intangible assets, net

Goodwill

Deferred income tax assets

Other non-current assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable and other liabilities

Short-term borrowings

Current income tax liability

Non-current liabilities

Deferred income tax liability

Long-term borrowings

Other long-term liabilities

Total liabilities

9(b)

9(a)

969,992

484,981

1,437,697

2,123,755

7,578

77,864

5,101,867

501,074

10,002,996

115,958

463,409

58,585

40,192

11,182,214

16,284,081

1,175,709

1,119,286

21,553

2,316,548

599,250

3,038,041

55,433

3,692,724

6,009,272

951,247

106,906

1,490,951

2,826,933

30,394

62,959

5,469,390

19,293

11,753,157

141,922

786,141

249,565

38,052

12,988,130

18,457,520

1,462,105

1,816,169

23,800

3,302,074

792,240

2,815,554

457,362

4,065,156

7,367,230

797,169

227,279

1,572,641

2,828,433

59,355

18,887

5,503,764

8,420

10,569,828

158,611

760,166

237,113

19,274

11,753,412

17,257,176

1,622,679

1,306,263

10,994

2,939,936

713,666

3,073,535

424,878

4,212,079

7,152,015

Commitments and contingencies

Stockholders’ equity

NLMK stockholders’ equity

Common stock, 1 Russian ruble par value –
5,993,227,240 shares issued and outstanding at
December 31, 2013, 2012 and 2011

14(a)

Statutory reserve

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Non-controlling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

221,173

10,267

256,922

(1,897,100)

11,655,490

10,246,752

28,057

10,274,809

16,284,081

221,173

10,267

306,391

(997,035)

11,582,368

11,123,164

(32,874)

11,090,290

18,457,520

221,173

10,267

306,391

(1,489,442)

11,098,635

10,147,024

(41,863)

10,105,161

17,257,176

The consolidated financial statements as set out on pages 4 to 38 were approved on March 27, 2014.

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

106OJSC Novolipetsk Steel
Consolidated statements of income
for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

Revenue

Cost of sales

Production cost

Depreciation and amortization

Note

For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

10,909,442

12,156,592

11,728,556

(7,928,521)

(861,516)

(8,790,037)

(8,494,438)

(767,715)

(9,262,153)

(7,780,243)

(588,707)

(8,368,950)

Gross profit

2,119,405

2,894,439

3,359,606

General and administrative expenses

Selling expenses

Taxes other than income tax

(424,185)

(917,270)

(134,134)

(448,268)

(1,143,610)

(169,786)

(556,169)

(972,685)

(165,073)

Operating income

643,816

1,132,775

1,665,679

Loss on disposals of property, plant and equipment

Gains / (losses) on investments, net

Interest income

Interest expense

Foreign currency exchange gain, net

Other expenses, net

(22,413)

21,124

40,241

(113,869)

37,804

(123,222)

(38,051)

(2,828)

28,581

(68,462)

3,282

(140,428)

(29,293)

11,922

29,531

18,662

(14,337)

Income before income tax

483,481

914,869

1,682,164

Income tax expense

Income, net of income tax

Equity in net (losses) / earnings of associates

(221,937)

(304,712)

(421,034)

261,544

610,157

1,261,130

(53,958)

276

54,272

Net income

207,586

610,433

1,315,402

Add: Net (income) / loss attributable to the non-
controlling interest

(18,846)

(14,628)

42,192

Net income attributable to NLMK stockholders

188,740

595,805

1,357,594

Earnings per share – basic and diluted:

Net earnings attributable to NLMK stockholders per share
(US dollars)

0.0315

0.0994

0.2265

Weighted-average shares outstanding:
basic and diluted (in thousands)

5,993,227

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

107OJSC Novolipetsk Steel
Consolidated statements of comprehensive income and statements of stockholders’ equity
for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

Consolidated statements of comprehensive income

For the year ended
December 31, 2011

For the year ended
December 31, 2012

For the year ended
December 31, 2013

Net income

Cumulative
translation
adjustment

Comprehensive
income / (loss)

Non-controlling
interest

Comprehensive
income / (loss)
attributable to
NLMK stockholders

1,315,402

(567,550)

747,852

(37,201)

785,053

610,433

490,059

1,100,492

12,280

1,088,212

207,586

(770,321)

(562,735)

18,250

(580,985)

Consolidated statements of stockholders’ equity

NLMK stockholders

Note

Common
stock

Statutory
reserve

Additional
paid-in
capital

Accumulated
other
comprehensive
loss

Retained
earnings

Non-
controlling
interest

Total
stockholders’
equity

Balance at
December 31, 2010

Net income / (loss)

Cumulative translation
adjustment

Disposal of assets to the entity
under common control

Change in non-controlling
interest in deconsolidated
subsidiaries

2(b)

Dividends to shareholders

14(b)

Balance at
December 31, 2011

Net income

Cumulative translation
adjustment

2(b)

Change in non-controlling
interest

Dividends to shareholders

14(b)

Balance at
December 31, 2012

Net income

Cumulative translation
adjustment

2(b)

Change of non-controlling
interests in existing subsidiaries

Disposal of other
comprehensive income as a
result of deconsolidation

Dividends to shareholders

19(b)

14(b)

Balance at
December 31, 2013

221,173

10,267

98,752

(916,901)

10,261,214

(120,691)

9,553,814

207,639

1,357,594

(42,192)

1,315,402

(572,541)

4,991

(567,550)

207,639

116,029

(520,173)

221,173

10,267

306,391

(1,489,442)

11,098,635

(41,863)

10,105,161

595,805

14,628

610,433

492,407

(2,348)

490,059

(3,291)

(112,072)

221,173

10,267

306,391

(997,035)

11,582,368

(32,874)

11,090,290

188,740

18,846

207,586

(769,725)

(49,469)

(596)

(770,321)

42,681

(6,788)

(130,340)

(115,618)

(130,340)

(115,618)

221,173

10,267

256,922

(1,897,100)

11,655,490

28,057

10,274,809

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

108OJSC Novolipetsk Steel
Consolidated statements of cash flows
for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

Note

For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

207,586

610,433

1,315,402

CASH FLOWS
FROM OPERATING ACTIVITIES

Net income

Adjustments to reconcile net income to net cash
provided by operating activities:

Depreciation and amortization

Loss on disposals of property, plant and equipment

(Gains) / losses on investments, net

Interest income

Interest expense

Equity in net losses / (earnings) of associates

Deferred income tax expense

(Gains) / losses on derivatives

Other

Changes in operating assets and liabilities

(Increase) / decrease in accounts receivable

(Increase) / decrease in inventories

Decrease in other current assets

Increase / (decrease) in accounts payable and other
liabilities

Increase / (decrease) in current income tax payable

Cash provided by operating activities

Interest received

Interest paid

Net cash provided by operating activities
CASH FLOWS
FROM INVESTING ACTIVITIES

Purchases and construction of property, plant and
equipment

Proceeds from sale of property, plant and equipment

(Purchases) / proceeds from sale of investments and loans
given, net

(Placement) / withdrawal of bank deposits, net

Acquisition of additional stake in existing subsidiary

Disposal of investment in subsidiary
Acquisitions of subsidiaries, net of cash acquired of
$112,806 in 2011

19(b)

19(a)

Net cash used in investing activities
CASH FLOWS
FROM FINANCING ACTIVITIES

Proceeds from borrowings and notes payable

Repayment of borrowings and notes payable

Capital lease payments

Dividends to shareholders

Proceeds from disposal of assets to an entity under
common control

Net cash (used in) / provided by financing activities

Net (decrease) / increase in cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

861,516

22,413

(21,124)

(40,241)

113,869

53,958

80,867

(455)

(48,623)

(337,090)

(95,777)

7,351

412,147

2,104

1,218,501

40,433

(81,486)

1,177,448

(756,290)

6,371

(87,368)

(264,412)

(9,609)

46,169

767,715

38,051

2,828

68,462

(276)

20,933

(8,522)

14,293

166,715

169,858

31,628

(69,932)

12,471

1,824,657

588,707

29,293

(11,922)

(54,272)

45,643

4,819

24,967

130,417

(368,932)

13,495

97,616

(10,118)

1,805,115

1,824,657

1,805,115

(1,453,386)

28,692

(2,047,852)

26,980

13,334

124,986

1,568

192,310

(1,065,139)

(156,510)

(1,442,884)

(41,751)

(1,868,745)

2,005,458

(1,995,800)

(24,400)

(113,613)

(128,355)

(16,046)

34,791

951,247

969,992

1,819,425

(1,798,836)

(23,116)

(116,529)

(119,056)

262,717

(108,639)

797,169

951,247

1,967,362

(1,683,536)

(32,525)

(516,335)

313,246

48,212

(15,418)

64,608

747,979

797,169

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

109OJSC Novolipetsk Steel
Consolidated statements of cash flows
for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

Note

For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Income tax

Interest (excluding capitalized interest)

Placements of bank deposits

Withdrawals of bank deposits

Non cash investing activities:

Capital lease liabilities incurred

Fair value of assets disposed in course of partial disposal
of investment

19(b)

Fair value of net assets acquired from third parties in new
subsidiaries, net of cash acquired of $112,806 in 2011

19(a)

(143,317)

(81,486)

(1,231,976)

967,564

17,108

867,320

(271,224)

(68,462)

(144,315)

269,301

(374,523)

(528,737)

721,047

29,869

18,430

464,511

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

110OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

BACKGROUND

OJSC Novolipetsk Steel (the “Parent Company”) and its subsidiaries (together – the “Group”) is one of the world’s
leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Parent Company
is a Russian Federation open joint stock company in accordance with the Civil Code of the Russian Federation. The
Parent Company was originally established as a State owned enterprise in 1934 and was privatized in the form of an
open joint stock company on January 28, 1993. On August 12, 1998 the Parent Company’s name was re-registered
as an open joint stock company in accordance with the Law on Joint Stock Companies of the Russian Federation.

The Group is one of the leading global suppliers of slabs and transformer steel and one of the leading suppliers to
the Russian market of high value added products including pre-painted, galvanized and electrical steel as well as a
variety of long steel products. The Group also operates in the mining segment (Note 20).

The Group’s main operations are in the Russian Federation, the European Union and the USA and are subject to the
legislative requirements of the subsidiaries’ state and regional authorities.

The Group’s primary subsidiaries, located in Lipetsk and other regions of the Russian Federation, comprise:

(cid:2)

Mining companies OJSC Stoilensky GOK, OJSC Stagdok and OJSC Dolomite. The principal business
activities of these companies are mining and processing of iron-ore raw concentrate, fluxing limestone and
metallurgical dolomite.
Coke-chemical company OJSC Altai-Koks. The principal business activity of this company is the production
of blast furnace coke, cupola coke, nut coke and small-sized coke.
Steel rolling company LLC VIZ-Stahl. The principal business activity of this company is the production of
cold rolled grain oriented and non-oriented steel.
LLC NLMK Long Products, OJSC NSMMZ and scrap collecting companies. The principal business
activities of these companies are the collection and recycling of iron scrap, steel-making and production of
long products.

The Group’s major subsidiaries and associates, located outside the Russian Federation, comprise:

(cid:2)

(a)

Danish steel rolling company NLMK DanSteel A/S. The principal business activity of this company is
production of hot rolled plates.
Rolled steel producers of hot rolled, cold rolled coils and galvanized steel NLMK Pennsylvania LLC and
Sharon Coating LLC, and also NLMK Indiana LLC, an EAF mini-mill producing hot-rolled steel located in
USA.
Trading companies Novexco (Cyprus) Ltd. and Novex Trading (Swiss) S.A. The principal business activity
of these companies is sales of the Group’s products outside the Russian Federation.
Investment in associated undertakings NLMK Belgium Holdings S.A. (NBH) – owner of European hot
rolled, cold rolled coils and galvanized and pre-pained steel producers NLMK La Louvière S.A.,
NLMK Coating S.A. and NLMK Strasbourg S.A., and also producers of a wide range of plates
NLMK Clabecq S.A., NLMK Verona S.p.A. as well as a number of steel service centers located in the
European Union.

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PREPARATION

Basis of presentation

The Group maintains its accounting records in accordance with the legislative requirements of the country of
incorporation of each of the Group’s companies. The accompanying consolidated financial statements have been
prepared from those accounting records and adjusted as necessary to comply, in all material respects, with the
requirements of accounting principles generally accepted in the United States of America (“US GAAP”).

111OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PREPARATION (continued)

(b)

Functional and reporting currency

In accordance with the laws of the Russian Federation the accounting records of the Parent Company are
maintained, and the Parent Company’s statutory financial statements for its stockholders are prepared, in Russian
rubles.

Functional currency of the majority of the Group entities is considered to be the Russian ruble. The functional
currency of the foreign subsidiaries is their local currency. The accompanying consolidated financial statements
have been prepared using the US dollar as the Group’s reporting currency, utilizing period-end exchange rates for
assets and liabilities, corresponding period quarterly weighted average exchange rates for consolidated statement of
income accounts and historic rates for equity accounts in accordance with the relevant provisions of ASC No. 830,
Foreign currency matters. As a result of these translation procedures, a cumulative translation adjustment of
$(770,321), $490,059 and $(567,550) was recorded directly in stockholders’ equity in the years ended
December 31, 2013, 2012 and 2011, respectively.

The Central Bank of the Russian Federation’s Russian ruble to US dollar closing rates of exchange as of the
reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated
below.

2013

2012

2011

For the 1st quarter
For the 2nd quarter
For the 3rd quarter
For the 4th quarter
As at December 31

(c)

Consolidation principles

30.4142
31.6130
32.7977
32.5334
32.7292

30.2642
31.0139
32.0072
31.0767
30.3727

29.2698
27.9857
29.0461
31.2304
32.1961

These consolidated financial statements include all majority-owned and controlled subsidiaries of the Group. All
significant intercompany accounts and transactions have been eliminated.

SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies have been applied in the preparation of the consolidated financial
statements. These accounting policies have been consistently applied by the Group from one reporting period to
another with the exception of newly adopted accounting pronouncements.

(a)

Use of estimates

The preparation of financial statements in accordance with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements, and revenue and expenses during the periods reported.

Estimates are used when accounting for certain items such as allowances for doubtful accounts; employee
compensation programs; depreciation and amortization lives; asset retirement obligations; legal and tax
contingencies; inventory values; valuations of investments and determining when investment impairments are other
than temporary; goodwill; assets and liabilities assumed in a purchase business combinations and deferred tax
assets, including valuation allowances. Estimates are based on historical experience, where applicable, and other
assumptions that management believes are reasonable under the circumstances. Actual results may differ from
those estimates under different assumptions or conditions.

(b)

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, cash on current accounts with banks, bank deposits and other
highly liquid short-term investments with original maturities of less than three months.

112OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(c)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounts receivable and loans issued

Receivables and loans issued are stated at cost less an allowance for doubtful debts. Management quantifies this
allowance based on current information regarding the customers’ and borrowers’ ability to repay their obligations.
Amounts previously written off which are subsequently collected are recognized as income.

(d)

Value added tax (VAT)

Output value added tax related to sales of goods (work performance, services provision) is payable to the tax
authorities upon delivery of the goods (work, services) or property rights to customers. Input VAT on goods and
services purchased (received) is generally recoverable against output VAT. VAT related to sales / purchases and
services provision / receipt which has not been settled at the balance sheet date (VAT deferred) is recognized in the
balance sheet on a gross basis and disclosed separately within current assets and current liabilities. Where a
doubtful debt provision has been made, a loss is recorded for the gross amount of the debt, including VAT.

(e)

Inventories

Inventories are stated at the lower of acquisition cost inclusive of completion expenses or market value. Inventories
are released to production or written-off otherwise at average cost. In the case of manufactured inventories and
work in progress, cost includes an appropriate share of production overheads.

The provision for obsolescence is calculated on the basis of slow-moving and obsolete inventories analysis. Such
items are provided for in full.

(f)

Investments in marketable debt and equity securities

Marketable debt and equity securities consist of investments in corporate debt and equity securities where the
Group does not exert control or significant influence over the investee. The Group classifies marketable debt and
equity securities using three categories: trading, held-to-maturity and available-for-sale. The specific identification
method is used for determining the cost basis of all such securities.

Trading securities

Trading securities are bought and held principally for the purpose of selling them in the near term. Trading
securities are carried in the consolidated balance sheet at their fair value. Unrealized holding gains and losses on
trading securities are included in the consolidated statement of income.

Held-to-maturity securities

Held-to-maturity securities are those securities which the Group has the ability and intent to hold until maturity.
Such securities are recorded at amortized cost.

Premiums and discounts are amortized and recorded in the consolidated statement of income over the life of the
related security held-to-maturity, as an adjustment to yield using the effective interest method.

Available-for-sale securities

All marketable securities not included in trading or held-to-maturity are classified as available-for-sale.

Available-for-sale securities are recorded at their fair value. Unrealized holding gains and losses, net of the related
tax effect, are excluded from earnings and reported as a separate component of accumulated other comprehensive
income in the stockholders’ equity until realized. Realized gains and losses from the sale of available-for-sale
securities, less tax, are determined on a specific identification basis. Dividend and interest income are recognized
when earned.

113OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(g)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments in associates and non-marketable securities

Investments in associates

Associates are those enterprises in which the Group has significant influence, but not control, over the financial and
operating policies. Investments in associates are accounted for using the equity method of accounting. The
consolidated financial statements include the Group’s share of the total recognized gains and losses of associates
from the date that significant influence effectively commences until the date that significant influence effectively
ceases.

Investments in non-marketable securities

Investments in non-marketable securities where the Group does not exercise control or significant influence over
the investee are carried at cost less provisions for any other than temporary diminution in value. Provisions are
calculated for the investments in companies which are experiencing significant financial difficulties for which
recovery is not expected within a reasonable period in the future, or under bankruptcy proceedings.

(h)

Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at acquisition cost less accumulated depreciation and adjustments
for impairment losses (Note 3(k)). The cost of self-constructed assets includes the cost of materials, direct labor and
an appropriate portion of production overheads directly related to construction of assets.

Property, plant and equipment also include assets under construction and plant and equipment awaiting installation.

Where an item of property, plant and equipment comprises major components having different useful lives, they are
accounted for as separate items of property, plant and equipment.

Subsequent expenditures

Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for
separately, are capitalized with the carrying amount of the component subject to depreciation. Other subsequent
expenditures are capitalized only when they increase the future economic benefits embodied in an item of property,
plant and equipment. All other expenditures are recognized as expenses in the consolidated statement of income as
incurred.

Capitalized interest

Interest costs are capitalized against qualifying assets as part of property, plant and equipment.

Such interest costs are capitalized over the period during which the asset is being acquired or constructed and
borrowings have been incurred. Capitalization ceases when construction is interrupted for an extended period or
when the asset is substantially complete. Further interest costs are charged to the statement of income.

Where funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the amount
of interest costs eligible for capitalization on that asset is the actual interest cost incurred on the borrowing during
the period.

Where funds are made available from general borrowings and used for the purpose of acquiring or constructing
qualifying assets, the amount of interest costs eligible for capitalization is determined by applying a capitalization
rate to the expenditures on these assets.

114OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Mineral rights

Mineral rights acquired in business combinations are recorded in accordance with provisions of ASC No. 805,
Business Combinations, (“ASC No. 805”) at their fair values at the date of acquisition, based on their appraised fair
value. The Group reports mineral rights as a separate component of property, plant and equipment in accordance
with the consensus reached by ASC No 930, Extractive Activities – Mining, (cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7) (cid:8) 930”) subtopic 360,
Property, Plant and Equipment.

Depreciation and amortization

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets.
Plant and equipment under capital leases and subsequent capitalized expenses are depreciated on a straight-line
basis over the estimated remaining useful lives of the individual assets. Depreciation commences from the time an
asset is put into operation. Depreciation is not charged on assets to be disposed of and land. The range of the
estimated useful lives is as follows:

Buildings and constructions
Machinery and equipment
Vehicles

20 – 45 years
2 – 40 years
5 – 25 years

Mineral rights are amortized using the straight-line basis over the license term given approximately even production
during the period of license.

(i)

Leasing

Leasing transactions are classified according to the lease agreements which specify the rewards and risks associated
with the leased property. Leasing transactions where the Group is the lessee are classified into capital leases and
operating leases. In a capital lease, the Group receives the major portion of economic benefit of the leased property
and recognizes the asset and associated liability on its balance sheet. All other transactions in which the Group is
the lessee are classified as operating leases. Payments made under operating leases are recorded as an expense.

(j)

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Under ASC No. 350,
Intangibles - Goodwill and Other, (“ASC No. 350”) goodwill is first assessed with regard to qualitative factors to
determine whether it is necessary to perform the two-step quantitative goodwill impairment test. It is required to
calculate the fair value of a reporting unit only if a qualitative assessment indicates that it is more likely than not
that its carrying amount is more than its fair value.

The impairment test under ASC No. 350 includes a two-step approach. Under the first step, management compares
fair value of a “reporting unit” to its carrying value. A reporting unit is the level at which goodwill impairment is
measured and it is defined as an operating segment or one level below it if certain conditions are met. If the fair
value of the reporting unit is less than its carrying value, step two is required to determine if goodwill is impaired.

Under step two, the amount of goodwill impairment is measured by the amount, if any, that the reporting unit’s
goodwill carrying value exceeds its “implied” fair value of goodwill. The implied fair value of goodwill is
determined by deducting the fair value of all tangible and intangible net assets of the reporting unit (both
recognized and unrecognized) from the fair value of the reporting unit (as determined in the first step).

The excess of the fair value of net assets acquired over acquisition cost represents negative goodwill (or “bargain
purchase”) which is recognized as a gain in the consolidated statement of income on the date of the acquisition.

Intangible assets that have limited useful lives are amortized on a straight-line basis over the shorter of their useful
or legal lives.

115OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(k)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of long-lived assets

The Group performs tests for impairment of assets where an impairment trigger has been identified. In accordance
with the requirements of US GAAP management first compares the carrying amount with the undiscounted cash
flows. If the carrying amount is lower than the undiscounted cash flows, no impairment loss is recognized. If the
carrying amount is higher than the undiscounted cash flows, an impairment loss is measured as the difference
between the carrying amount and fair value.

For the purposes of impairment testing, a long-lived asset or asset group represents the lowest level for which
management can separately identify cash flows that are largely independent of the cash flows of other assets and
liabilities. Management combines the assets of different entities which operate together performing different stages
of the production of finished goods.

(l)

Pension and post-retirement benefits other than pensions

The Group follows the Pension and Social Insurance legislation of the Russian Federation and other countries
where the Group operates. Contributions to the Russian Federation Pension Fund by the employer are calculated as
a percentage of current gross salaries. Such contributions are expensed as incurred.

In 2011, 2012 and for the nine months, ended September 30, 2013 (Note 19(b)) the Group maintained defined
benefit pension and defined contribution plans that covered the majority of its employees in Europe. The plans
covered statutory and voluntary obligations and included pensions, other post-retirement benefits, e.g. long-term
severance benefits and some additional benefits (Note 12).

The Group’s net obligation in respect of long-term severance indemnity funds and other post-employment pension
plans is calculated by estimating the amount of future benefit that employees have earned in return for their services
in the current and prior periods. The fair value of any plan assets is deducted. The obligation is calculated using the
projected unit credit method and is discounted to its present value.

The Parent Company and some other Group companies have an agreement with a non-Government pension fund
(the “Fund”) in accordance with which contributions are made on a monthly basis. Contributions are calculated as a
certain fixed percentage of the employees’ salaries. These pension benefits are accumulated in the Fund during the
employment period and distributed by the Fund subsequently. As such, all these benefits are considered as made
under a defined contribution plan and are expensed as incurred. Accordingly, the Group has no long-term
commitments to provide funding, guarantees, or other support to the Fund.

In addition, lump sum benefits are paid to employees of a number of the Group’s companies on retirement
depending on the employment period and the salary level of the individual employee. The scheme is considered as
a defined benefit plan. The expected future obligations to the employees are assessed by the Group’s management
and accrued in the consolidated financial statements, however these are not material.

(m)

Asset retirement obligations

The Group’s land, buildings and equipment are subject to the provisions of ASC No. 410, Asset Retirement and
Environmental Obligations. This ASC addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement costs. The Group’s asset retirement
obligation (“ARO”) liabilities primarily consist of spending estimates related to reclaiming surface land and support
facilities at both surface and underground mines in accordance with federal and state reclamation laws as defined
by each mining permit.

The Group estimates its ARO liabilities for final reclamation and mine closure based upon detailed engineering
calculations of the amount and timing of the future cash spending for a third party to perform the required work.
Spending estimates are escalated for inflation and then discounted at the credit-adjusted risk-free rate. The Group
records an ARO asset associated with the discounted liability for final reclamation and mine closure. The obligation
and corresponding asset are recognized in the period in which the liability is incurred.

The liability is subsequently accreted to its present value each period and the capitalized cost is depreciated in
accordance with the Group’s depreciation policies for property, plant and equipment. As changes in estimates occur
(such as mine plan revisions, changes in estimated costs, or changes in timing of the performance of reclamation
activities), the revisions to the obligation and asset are recognized at the appropriate credit-adjusted risk-free rate.

116OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(n)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Borrowing activities

The Group’s general-purpose funding is principally obtained from short-term and long-term borrowings.
Borrowings are carried at the principal amount borrowed, net of unamortized discounts or premiums.

(o)

Commitments and contingencies

Contingent liabilities, including environmental remediation costs, arising from claims, assessments, litigation, fines,
penalties and other sources are recorded when it is probable that a liability can be assessed and the amount of the
assessment and / or remediation can be reasonably estimated.

Estimated losses from environmental remediation obligations are generally recognized no later than completion of
remedial feasibility studies. The Group companies accrue expenses associated with environmental remediation
obligations when such expenses are probable and reasonably estimable. Such accruals are adjusted as further
information becomes available or circumstances change.

(p)

Income tax

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when a different
tax rate is enacted.

Pursuant to the provisions of ASC No. 740, Income Taxes, the Group provides valuation allowances for deferred
tax assets for which it does not consider realization of such assets to be more likely than not. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the historical taxable income
generation, projected future taxable income, the reversal of existing deferred tax liabilities and tax planning
strategies in making this assessment.

The Group does not calculate deferred taxes in respect of temporary differences associated with investments in
subsidiaries and associates.

The Group accounts for uncertain tax positions and reflects liabilities for unrecognized income tax benefits together
with corresponding interest and penalties in the consolidated statement of income as income tax expense.

(q)

Dividends

Dividends are recognized as a liability in the period in which they are declared.

(r)

Revenue recognition

Goods sold

Revenue from the sale of goods is recognized in the consolidated statement of income when there is a firm
arrangement, the price is fixed and determinable, delivery has occurred, and collectability is reasonably assured.

Interest income

Interest income is recognized in the consolidated statement of income as it is earned.

(s)

Shipping and handling

The Group bills its customers for the shipped steel products with product delivery to the place of destination in
accordance with the delivery terms agreed with customers. The related shipping and handling expense is reported in
selling expenses. The share of this expense in selling expenses in 2011-2013 was about 90%.

117OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(t)

SIGNIFICANT ACCOUNTING POLICIES (continued)

Interest expense

All interest and other costs incurred in connection with borrowings are expensed as incurred as part of interest
expense, except for interest which is incurred on construction projects and capitalized (Note 3(h)).

(u)

Non-cash transactions

Non-cash settlements represent offset transactions between customers and suppliers, when exchange equivalents are
defined and goods are shipped between the parties without exchange of cash.

The related sales and purchases are recorded in the same manner as cash transactions. The fair market value for
such transactions is based on the value of similar transactions in which monetary consideration is exchanged with a
third party.

Purchases of property, plant and equipment under capital lease arrangements are also recognized as non-cash
transactions.

(v)

Segment reporting

According to ASC No.280, Segment reporting, segment reporting follows the internal organizational and reporting
structure of the Group. The Group’s organization comprises four reportable segments:

(cid:2)

steel segment, comprising production and sales of coke and steel products, primarily pig iron, steel slabs,
hot rolled steel, cold rolled steel, galvanized cold rolled sheet and cold rolled sheet with polymeric
coatings and also electro-technical steel;

foreign rolled products, comprising production and sales of steel products in Europe and the US;

long products segment, comprising a number of steel-production facilities combined in a single production
system beginning from iron scrap collection and recycling to steel-making, production of long products,
reinforcing rebar, and metalware;

(cid:2) mining segment, comprising mining, processing and sales of iron ore, fluxing limestone and metallurgical

dolomite, which supplies raw materials to the steel segment and third parties;

and other segments, not reported separately in the consolidated financial statements.

The accounting policies of the segments are the same as those described in the summary of significant accounting
policies.

(w)

Guarantees

The fair value of a guarantee is determined and recorded as a liability at the time when the guarantee is issued. The
initial guarantee amount is subsequently remeasured to reflect the changes in the underlying liability. The expense
is included in the related line items of the consolidated statements of income and comprehensive income, based on
the nature of the guarantee. When the likelihood of performing on a guarantee becomes probable, a liability is
accrued, provided it is reasonably determinable on the basis of the facts and circumstances at that time.

(x)

Recent accounting pronouncements

In February 2013, the FASB issued an amendment to existing guidance regarding the reporting of amounts
reclassified out of accumulated other comprehensive income. The amendment requires an entity to present
information about reclassification adjustments from accumulated other comprehensive income in its annual
financial statements in a single note or on the face of the financial statements. The amendment was effective
prospectively for reporting periods beginning after December 15, 2012. As substantially all of the information that
this amendment requires is already disclosed elsewhere in the consolidated financial statements, it did not have an
impact on these consolidated financial statements.

118OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

CASH AND CASH EQUIVALENTS

Cash – Russian rubles
Cash – US dollars
Cash – other currencies
Deposits – Russian rubles
Deposits – US dollars
Deposits – Euros
Deposits – other currencies
Other cash equivalents

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

70,834
194,113
160,551
204,851
331,778
5,732
1,937
196

58,922
98,438
183,307
441,141
105,940
46,464
3,720
13,315

54,448
45,820
66,561
173,644
290,854
165,806
-
36

969,992

951,247

797,169

INVESTMENTS

Balance sheet classification of investments:

Short-term investments and current portion of long-term
investments
Loans to related parties (Note 22(b))
Bank deposits and other investments

Long-term investments
Loans to related parties (Note 22(b))
Investments in associates
Bank deposits and other investments

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

107,565
377,416
484,981

78,030
419,149
3,895
501,074

-
106,906
106,906

-
8,146
11,147
19,293

-
227,279
227,279

-
7,786
634
8,420

Total investments

986,055

126,199

235,699

Investments in associates

As at
December 31,
2013
Ownership

As at
December 31,
2012
Ownership

As at
December 31,
2011
Ownership

As at
December 31,
2013

As at
December 31,
2012

As at
December 31,
2011

NLMK Belgium Holdings S.A.
(Note 19)
TBEA & NLMK (Shenyang)
Metal Product Co., Ltd.

79.50%

100.00%

412,799

50.00%

6,350

8,146

7,786

419,149

8,146

7,786

119OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

ACCOUNTS RECEIVABLE AND ADVANCES GIVEN

Trade accounts receivable
Advances given to suppliers
VAT and other taxes receivable
Accounts receivable from employees
Other accounts receivable

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

895,627
66,813
488,173
3,346
129,902

827,826
105,717
562,944
4,375
152,607

944,250
154,622
511,118
2,799
87,710

1,583,861

1,653,469

1,700,499

Allowance for doubtful debts

(146,164)

(162,518)

(127,858)

1,437,697

1,490,951

1,572,641

As at December 31, 2013, 2012 and 2011 accounts receivable of $141,666, $264,389 and $297,902, respectively,
served as collateral for certain borrowings (Note 11).

INVENTORIES

Raw materials
Work in process
Finished goods and goods for resale

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

980,701
526,589
684,203

1,201,527
876,523
852,855

1,215,944
685,472
1,021,828

2,191,493

2,930,905

2,923,244

Provision for obsolescence

(67,738)

(103,972)

(94,811)

2,123,755

2,826,933

2,828,433

As at December 31, 2013, 2012 and 2011, inventories of $310,538, $672,504 and $641,654, respectively, served as
collateral for certain borrowings (Note 11).

PROPERTY, PLANT AND EQUIPMENT

Land
Mineral rights
Buildings
Land and buildings improvements
Machinery and equipment
Vehicles
Construction in progress and advances for construction
and acquisition of property, plant and equipment
Leased assets
Other

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

215,769
532,190
2,532,082
2,079,292
8,790,467
366,098

2,089,919
76,952
101,561

270,882
557,769
1,937,315
1,384,364
10,399,285
383,760

3,268,252
145,328
151,066

201,852
522,577
1,748,813
1,280,211
7,336,243
324,953

4,630,558
125,897
125,585

16,784,330

18,498,021

16,296,689

Accumulated depreciation

(6,781,334)

(6,744,864)

(5,726,861)

10,002,996

11,753,157

10,569,828

120OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

PROPERTY, PLANT AND EQUIPMENT (continued)

In March 2011, the Group acquired a license for exploration and extraction of coal in the mine field area No. 3 of
the Usinsky coal deposit expiring in 2031. The carrying value of this license as at December 31, 2013 is $42,021.

In August 2005, the Group acquired a license for exploration and mining of Zhernovsky coal deposit, expiring
in 2025. The carrying value of this license as at December 31, 2013 is $31,182.

A license for iron ore and non-metallics mining at Stoilensky iron-ore deposit in Belgorod Region was acquired by
the Group in 2004 through a business combination. The net book value of these mineral rights as at
December 31, 2013 is $185,346. They expire on January 1, 2016 and management believes that they will be
extended at the initiative of the Group.

As at December 31, 2013, 2012 and 2011, property, plant and equipment of nil, $203,838 and $541,928 (net book
value), respectively, served as collateral for certain borrowings (Note 11).

The amounts of interest capitalized are $121,599, $197,569 and $171,764 for the years ended December 31, 2013,
2012 and 2011, respectively.

At December 31, 2013 the Group’s management considered that the low level of economic activity combined with
a deterioration in the steel market represented a trigger for impairment testing and has performed the tests for
impairment of assets.

For the purpose of impairment testing for the year ended December 31, 2013, the Group’s management has
estimated cash flows for 6-19 years for different groups of assets and respective cash flows in a post-forecast
period. Prices for steel products in these estimates were determined on the basis of forecasts of investment banks’
analysts. The long-term growth rate implemented into the models varied from 1.8% to 3.5% for different groups of
assets. As a result of these calculations no impairment was determined as at December 31, 2013.

For the purpose of impairment testing for the year ended December 31, 2012, the Group’s management has
combined all the entities of the European Strip Division into one reporting unit. The Group’s management has
assumed that negotiations with employee representatives and governmental authorities in respect of the proposed
restructuring of the NLMK La Louviere plant are successful. As a result of these calculations no impairment was
determined. Total assets dependent on the results of these negotiations amounted to $653,073 as at
December 31, 2012.

(a)

GOODWILL AND INTANGIBLE ASSETS

Goodwill

Balance as at December 31, 2010

Acquired in new subsidiaries
Cumulative translation adjustment

Balance as at December 31, 2011

Cumulative translation adjustment

Balance as at December 31, 2012

Disposal of goodwill in a partially disposed investment (Note 19(b))
Cumulative translation adjustment

Balance as at December 31, 2013

494,654

289,711
(24,199)

760,166

25,975

786,141

(289,711)
(33,021)

463,409

121OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

GOODWILL AND INTANGIBLE ASSETS (continued)

Goodwill arising on acquisitions was allocated to the appropriate business segment in which each acquisition took
place. Goodwill arising from the acquisition in 2011 of a controlling interest in SIF S.A. (Note 19(a)) amounted to
$289,711. At the time of acquisition this goodwill was assigned to the steel segment and foreign rolled products
segment
in the amount of $128,441 and $161,270, respectively, and was disposed as a result of NBH
deconsolidation (Note 19(b)).

As at December 31, 2013 goodwill relating to steel, long products, mining and foreign rolled products segments
amounted to $307,469, $5,661, $114,553 and $35,726, respectively.

Goodwill impairment

The Group performed a test for impairment of goodwill as at December 31, 2013 and 2012 using the income
approach primarily with Level 3 inputs, in accordance with ASC No. 820. As a result as at both dates the Group
determined no impairment of the tested values. Key estimates used in the impairment model are consistent with
those used for assets impairment tests. The discount rates of 8-11% for different assets were used.

Pursuant to revised ASU 2011-08, the Group assessed the qualitative factors for impairment of goodwill as at
December 31, 2011 that indicated no need for further impairment testing.

(b)

Intangible assets

Subsidiary

Total useful life,
months

Gross book
value as at
December 31, 2013

Gross book
value as at
December 31, 2012

Gross book
value as at
December 31, 2011

LLC VIZ-Stahl

Customer base
Industrial intellectual
property
Customer
base
Beneficial lease interest NLMK Indiana
Industrial intellectual
property
Customers
relationships

SIF S.A.
NLMK
DanSteel A/S

Novexco, Novex

Accumulated
amortization

125

149

180
974

99,154

52,209

89,910
8,700

106,846

100,794

56,260

89,910
8,700

3,226

53,074

89,910
8,700

2,503

4,080

249,973

264,942

259,061

(134,015)

(123,020)

(100,450)

115,958

141,922

158,611

The intangible assets were acquired in business combinations and met the criteria for separate recognition outlined
in ASC No. 805. They were recorded under the provisions of ASC No. 805 at fair values at the date of acquisition,
based on their appraised values. Aggregated amortization expense amounted to $15,293, $25,919 and $14,850 for
the years ended December 31, 2013, 2012 and 2011, respectively.

Estimated amortization expense in subsequent annual periods
2014
2015
2016
2017
2018 and later

(19,820)
(19,820)
(19,852)
(10,198)
(46,268)

122OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

ACCOUNTS PAYABLE AND OTHER LIABILITIES

Trade accounts payable
Advances received
Taxes payable other than income tax
Accounts payable and accrued liabilities to employees
Dividends payable
Short-term capital lease liability
Other accounts payable

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

606,617
105,313
134,006
204,143
1,407
17,395
106,828

758,044
111,833
166,841
227,399
1,521
21,669
174,798

818,729
133,402
143,379
199,300
2,061
14,757
311,051

1,175,709

1,462,105

1,622,679

SHORT-TERM AND LONG-TERM BORROWINGS

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

Parent Company
Bonds, RUR denominated, with interest rates from 7.75% to
10.75% per annum, mature or with put option in 2012-2017
Loans, EUR denominated, with interest rates from EURIBOR
(6 m) +1.5% to EURIBOR (3 m) +3.5% per annum, mature
2012-2019
Bonds, USD denominated, with interest rates from 4.45% to
4.95% per annum, mature 2018-2019
Loan, RUR denominated, with interest rate 8.5% per annum,
mature 2013
Loans, USD denominated, with interest rates from LIBOR
(3 m) +1.2% to 3.86% per annum, mature 2012-2013

Companies of the Foreign rolled products segment
Loans, EUR denominated, with interest rates from EURIBOR
+0.3% to EURIBOR +3.5% per annum, mature 2012-2020
Loans, USD denominated, with interest rates from LIBOR
+1.2% to LIBOR +1.625% and PRIME +0.625% per annum,
mature 2012-2016

Other companies
Loans, USD denominated, with interest rates from LIBOR
+1.2% to LIBOR +2.5% per annum, mature 2014-2015
Loans, EUR denominated, with interest rates from EURIBOR
(6 m) +0.9% to EURIBOR (6 m) +5.5% per annum, mature
2012-2022
Loans, RUR denominated, with interest rates 8.25% and 10%
per annum, mature 2014-2017
Other borrowings

1,400,660

1,669,297

1,416,108

559,928

1,319,585

677,306

506,531

329,702

276,259

757,788

310,958

678,077

178,822

902,833

1,014,160

140,667

108,408

51,347

400,331

114,685

117,773

108,767

38,406
4,243

36,643
6,971

30,771
11,822

4,157,327

4,631,723

4,379,798

Less: short-term loans and current maturities of long-term
loans

(1,119,286)

(1,816,169)

(1,306,263)

Long-term borrowings

3,038,041

2,815,554

3,073,535

123OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

SHORT-TERM AND LONG-TERM BORROWINGS (continued)

Amounts due for SIF S.A. shares as at December 31, 2013 are stated in loans in amount of $250,024 since they
were reassigned to a bank.

Amounts due for SIF S.A. shares included in other current liabilities as at December 31, 2011 amounted to
$145,631; included in other long-term liabilities as at December 31, 2012 and 2011 – $282,697 and $282,738,
respectively.

The Group’s long-term borrowings as at December 31, 2013 mature between 2 to 9 years.

The payments scheduled for long-term loans are as follows:

2015
2016
2017
2018
Remainder

New borrowings

722,883
430,566
381,938
918,676
583,978

3,038,041

The amount of loans and bonds, received by the Group under new loan agreements concluded in the year ended
December 31, 2013, and outstanding as at December 31, 2013, is $1,605,078.

Major terms of loan agreements

Certain of the loan agreements contain debt covenants that impose restrictions on the purposes for which the loans
may be utilized, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or
guarantees, obligations in respect of any future reorganizations procedures or bankruptcy of borrowers, and also
require that borrowers maintain pledged assets to their current value and conditions. In addition, these agreements
contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the
borrowers, including cross default provisions, as well as legal claims in excess of certain amount, where reasonable
expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill
contractual obligations. The Group companies are in compliance with all debt covenants as at December 31, 2013.

OTHER LONG-TERM LIABILITIES

Long-term capital lease liability
Employee benefit obligation
Other long-term liabilities

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

15,789
-
39,644

55,433

34,642
92,592
330,128

26,389
80,458
318,031

457,362

424,878

Other long-term liabilities as at December 31, 2012 and 2011 include payables of $282,697 and $282,738,
respectively, for SIF S.A. shares (Note 19(a)). In 2012 the repayment terms of these payables were amended to
postpone the third installment to 2014.

124OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

OTHER LONG-TERM LIABILITIES (continued)

Year ended
December 31, 2012

Year ended
December 31, 2011

Present value of the defined benefit obligation

116,197

105,425

Less: Fair value of plan assets

(14,922)

(17,616)

Recognized liability for defined benefit obligations at the
end of the period

101,275

87,809

Add: Liability for defined contribution plans

Total pension liabilities
Of which:
Current
Non-current

Principal actuarial assumptions at the balance sheet date
Discount rate at the end of the period
Inflation rate

101,303

8,711
92,592

87,848

7,390
80,458

1.1% - 3%
2%

2.5% - 4.4%
2%

Expense recognized in the income statement

9,947

22,650

CHANGE IN NON-CONTROLLING INTERESTS IN COMPANIES OF LONG PRODUCT
SEGMENT

In August 2011, the Moscow Arbitrage Court ruled to recognize OJSC Maxi-Group as bankrupt and appointed a
temporary management for six months. Management of the Group concluded that this bankruptcy procedure
resulted in the loss of control of OJSC Maxi-Group and therefore deconsolidated this entity from the date of the
court decision. Deconsolidation resulted in the derecognition of a non-controlling deficit of $149,194 related to
OJSC Maxi-Group. Deconsolidation also resulted in the disposal of nominal share of 36% in OJSC NSMMZ,
representing a non-controlling deficit of $33,165. The total result of the deconsolidation of OJSC Maxi-Group is a
net loss of $26,830, included in the “Gains / (losses) on investments, net” line in consolidated financial statements
for the year ended December 31, 2011.

In February 2013, the Parent Company acquired through a public auction for $9,609 a stake of 35.59% in
OJSC NSMMZ. As a result of this transaction, there was a decrease in the additional paid-in capital by $49,469
with a corresponding change of non-controlling interest for the year ended December 31, 2013.

(a)

STOCKHOLDERS’ EQUITY

Stock

As at December 31, 2013, 2012 and 2011, the Parent Company’s share capital consisted of 5,993,227,240 issued
common shares, with a par value of 1 Russian ruble each. For each common share held, the stockholder has the
right to one vote at the stockholders’ meetings.

125OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(b)

STOCKHOLDERS’ EQUITY (continued)

Dividends

Dividends are paid on common stock at the recommendation of the Board of Directors and approval at a General
Stockholders’ Meeting, subject to certain limitations as determined by Russian legislation. Profits available for
distribution to stockholders in respect of any reporting period are determined by reference to the statutory financial
statements of the Parent Company. As at December 31, 2013, the retained earnings of the Parent Company,
available for distribution in accordance with the legislative requirements of the Russian Federation, amounted to
$8,971,697, converted into US dollars using exchange rates at December 31, 2013. As it was previously reported in
the statutory financial statements the retained earnings of the Parent Company, available for distribution as at
December 31, 2012 and 2011 were $10,361,802 and $9,104,566, using exchange rates at December 31, 2012 and
2011, respectively.

The dividend policy provides for a minimum annual dividend payment of at least 20% of annual net income and
sets an objective of reaching an average rate of dividend payments during the five-year cycle of at least 30% of net
income, both determined in accordance with US GAAP.

In June 2013, the Parent Company declared dividends for the year ended December 31, 2012 of 0.62 Russian rubles
per share for the total of $115,618 (at the historical rate). Dividends payable amounted to $1,407 as at
December 31, 2013 (Note 10).

In May 2012, the Parent Company declared dividends for the year ended December 31, 2011 of 2 Russian rubles
per share for the total of $375,776, including interim dividends for the six months ended June 30, 2011 of 1.4
Russian ruble per share for the total of $263,704 (at the historical rate). Dividends payable amounted to $1,521 at
December 31, 2012.

In June 2011, the Parent Company declared dividends for the year ended December 31, 2010 of 1.82 Russian rubles
per share for the total of $378,687, including interim dividends for the six months ended June 30, 2010 of 0.62
Russian ruble per share for the total of $122,218 (at the historical rate). Dividends payable amounted to $2,061 at
December 31, 2011.

EARNINGS PER SHARE

Year ended
December 31, 2013

Year ended
December 31, 2012

Year ended
December 31, 2011

Weighted average number of shares
Net income (thousands of US dollars)

5,993,227,240
188,740

5,993,227,240
595,805

5,993,227,240
1,357,594

Basic and diluted net earnings per share (US dollars)

0.0315

0.0994

0.2265

Basic net earnings per share of common stock is calculated by dividing net income by the weighted average number
of shares of common stock outstanding during the reporting period.

The average shares outstanding for the purposes of basic and diluted earnings per share information was
5,993,227,240 for the years ended December 31, 2013, 2012 and 2011. The Parent Company does not have
potentially dilutive shares outstanding.

DISPOSALS OF ASSETS

In June 2011, the Parent Company completed the disposal of 100% of its interest in NTK LLC and its subsidiaries
(hereinafter, NTK) to an entity under common control for cash consideration of $325 million (as at the date of
payment). An after-tax gain on this transaction of $207,639 was recognized by the Group and included within the
“Disposal of assets to an entity under common control” line in the consolidated statements of stockholders’ equity
for the year ended December 31, 2011.

126OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

DISPOSALS OF ASSETS (continued)

The carrying amounts of the major classes of assets and liabilities of NTK as at the date of disposal were as
follows:

Current assets
Non-current assets

Total assets

Current liabilities
Non-current liabilities

Total liabilities

Net assets

Information on NTK’s transactions up to the date of disposal is as follows:

Sales revenue
Net income

105,861
264,069

369,930

(131,281)
(181,350)

(312,631)

57,299

243,685
31,346

This transaction was carried out in line with the earlier announced strategy of the Group’s further development. In
accordance with a resolution passed by the Board of Directors Strategic Planning Committee in April 2010, the
interest in NTK was classified as a non-core asset.

In 2012, the Group continued using the transportation services provided by NTK after the disposal. Accordingly,
transactions with NTK in these consolidated financial statements are reflected within continuing operations of the
Group within the steel segment.

INCOME TAX

For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

Current income tax expense

(141,070)

(283,779)

(375,391)

Deferred income tax expense:

origination and reversal of temporary differences

(80,867)

(20,933)

(45,643)

Total income tax expense

(221,937)

(304,712)

(421,034)

The corporate income tax rate applicable to the Group is predominantly 20%. The income tax rate applicable to the
majority of income of foreign subsidiaries ranges from 30% to 35%.

127OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

INCOME TAX (continued)

Income before income tax is reconciled to the income tax expense as follows:
For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

Income before income tax

483,481

914,869

1,682,164

Income tax at applicable tax rate

(96,696)

(182,974)

(336,433)

Change in income tax:

- tax effect of non-deductible expenses
- effect of different tax rates
- unrecognized tax loss carry forward for current year
- write-off of previously recognized deferred tax assets
- other

(50,039)
19,038
(30,951)
(62,659)
(630)

(40,299)
58,890
(132,468)
-
(7,861)

(23,235)
54,644
(112,629)
-
(3,381)

Total income tax expense

(221,937)

(304,712)

(421,034)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are
presented below:

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

Gross deferred tax assets
Accounts payable and other liabilities
Non-current liabilities
Accounts receivable
Net operating loss and credit carry-forwards, including:

- related to subsidiaries located in Russia

(expiring in 2016-2023)

- related to subsidiaries located in the USA

(expiring in 2014-2029)

- related to subsidiaries located in Europe

(expiring in 2014-2029)

- related to subsidiaries located in Europe

(no expiration)

Other
Less: valuation allowance

Gross deferred tax liabilities
Property, plant and equipment
Intangible assets
Inventories
Other

170,255
120
27,501
373,259

77,341

220,577

75,341
6,581
(300,024)

180,579
643
29,068
763,726

82,147

220,394

1,734

459,451
-
(525,680)

70,420
2,172
6,114
561,567

74,878

138,705

1,308

346,676
-
(250,724)

277,692

448,336

389,549

(704,253)
(21,817)
(32,247)
-

(869,586)
(11,995)
(43,004)
(5,416)

(780,223)
(14,847)
(60,807)
(14,559)

(758,317)

(930,001)

(870,436)

Total deferred tax liability, net

(480,625)

(481,665)

(480,887)

128OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

INCOME TAX (continued)

The amount of net operating losses that can be utilized each year is limited under the Group’s different tax
jurisdictions. The Group has established a valuation allowance against certain deferred tax assets. The Group
regularly evaluates assumptions underlying its assessment of the realizability of its deferred tax assets and makes
adjustments to the extent necessary. In assessing whether it is probable that future taxable profit will be available
against which the Group can utilize the potential benefit of the tax loss carry-forwards, management considers the
current situation and the future economic benefits outlined in specific business plans for each subsidiary.

Accounting for deferred tax consequences assumes best estimates of future events. A valuation analysis established
or revised as a result of the assessment is recorded through deferred income tax expense in consolidated statements
of income. In the second quarter of 2013 valuation models, previously supported deferred tax assets recoverability
in Group’s major European entities, were revised based on the results of analysis of economic condition in Europe.
The revised models did not support recoverability of a part of these assets of $62,659, which resulted in valuation
allowance recognition in the second quarter of 2013. As of December 31, 2013 figures of the majority of these
European entities were eliminated from consolidated balance sheet (Note 19(b)).

As at December 31, 2013, 2012 and 2011 the Group analyzed its tax positions for uncertainties affecting
recognition and measurement thereof. Following the analysis, the Group believes that it is likely that the majority of
all deductible tax positions stated in the income tax return would be sustained upon the examination by the tax
authorities.

FINANCIAL INSTRUMENTS

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants.

The Group’s management believes that the carrying values of cash, trade and other receivables, trade and other
payables, and short-term loans approximate to a reasonable estimate of their fair value due to their short-term
maturities. The fair value of investments and notes receivable, excluding equity method investments, is defined
using Level 2 inputs, which include interest rates for similar instruments in an active market. Fair values for these
investments are determined based on discounted cash flows and approximate their book values. The fair value of
long term debt is based on current borrowing rates available for financings with similar terms and maturities and
approximates its book value.

The Group holds or purchases derivative financial instruments for purposes other than trading to mitigate foreign
currency exchange rate risk. Forward contracts were short-term with maturity dates in January, February and
November 2013.

In 2012, the Group entered into Russian ruble / US dollar cross-currency interest rate swap agreements in
conjunction with Russian ruble denominated bonds issued by the Group. As a result, the Group pays US dollars at
fixed rates varying from 3.11% to 3.15% per annum and receives Russian rubles at a fixed rate of 8.95% per
annum. Maturity of the swaps is linked to the Russian ruble denominated bonds redemption, maturing on
November 2014.

In accordance with ASC No. 820, the fair value of foreign currency derivatives is determined using Level 2 inputs.
The inputs used include quoted prices for similar assets or liabilities in an active market.

129OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

FINANCIAL INSTRUMENTS (continued)

Fair value of forwards is determined as the sum of the differences between the market forward rate in the settlement
month prevailing at December 31, 2012 and the appropriate contract settlement rate, multiplied by discounted
notional amounts of the corresponding contracts. Fair value of swaps is determined as the sum of the discounted
contractual cash flows in Russian rubles and US dollars as at December 31, 2012.

The amounts recorded represent the US dollar equivalent of the commitments to sell and purchase foreign
currencies. The table below summarizes the contractual amounts and positive fair values of the Group’s unrealized
forward exchange contracts in US dollars.

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

Notional
amount

Fair
value

Notional
amount

Fair
value

Notional
amount

Fair
value

US dollars
Euro

-
-

34,551
31,912

66,463

1,196
468

1,664

-
-

During 2013, 2012 and 2011 gains from forward exchange contracts amounted to $4,611, $9,109 and $9,655,
respectively. These gains and losses were included in “Foreign currency exchange gain, net” line in the
consolidated statements of income.

The table below summarizes the contractual amounts and positive fair values of the Group’s unrealized cross-
currency interest rate swap agreements in US dollars.

As at
December 31, 2013

As at
December 31, 2012

As at
December 31, 2011

Notional
amount

Fair
value

Notional
amount

Fair
value

Notional
amount

Fair
value

US dollars

83,258

573

99,931

7,264

During 2013 and 2012 gains / (losses) from cross-currency interest rate swap agreements amounted to $(6,448) and
$6,976 and were included in “Foreign currency exchange gain, net” line in the consolidated statements of income.

STEEL INVEST & FINANCE (LUXEMBOURG) S.A.
AND NLMK BELGIUM HOLDINGS S.A. SHARES

(a)

Acquisition of SIF S.A. shares

In December 2006, in line with a strategic partnership with the Duferco group, the Group acquired for $805 million
50% of the issued shares of SIF S.A., which were accounted for by the Group under the equity method until
July 2011. The transaction agreements provided for the Group the call option, and for Duferco group put and call
options in regards to all interest in SIF S.A.

In July 2011, the Group exercised its call option to acquire the remaining 50% of SIF S.A. shares from Duferco
group. The purchase price was $600 million. The first tranche of $150 million was paid on June 30, 2011. The
remaining tranches are payable in arrears in three equal annual installments. Management assessed the fair value of
the purchase consideration for 50% acquired as a result of the business combination as $578 million.

130OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

STEEL INVEST & FINANCE (LUXEMBOURG) S.A.
AND NLMK BELGIUM HOLDINGS S.A. SHARES (continued)

The fair value of 50% shares in SIF S.A. held before the business combination had been appraised at $289 million.
Fair value assessment was based on values of assets and liabilities of SIF S.A. determined by an independent
appraiser. A gain of $104 million as a result of remeasuring to fair value the previously held equity interest was
recognized and included in the “Gains / (losses) on investments, net” line in the consolidated statement of income
in 2011.

The total purchase consideration that includes the fair value of purchase consideration for 50% acquired as a result
of the business combination and the fair value of the previously held interest amounted to $867 million.

The table below summarizes the estimated fair values of SIF S.A.’s assets acquired and liabilities assumed. The fair
values of property, plant and equipment and intangible assets were based on estimates determined by an
independent appraiser. Management has determined that resulting SIF S.A.’s goodwill primarily reflects the control
premium paid for the acquisition and future synergies from using SIF S.A. assets for marketing Group products in
Europe and USA.

Current assets
Cash and cash equivalents
Accounts receivable and advances given, net
Inventories, net
Other current assets

Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Other non-current assets

Total assets

Current liabilities
Accounts payable and other liabilities
Other current liabilities

Non-current liabilities
Deferred income tax liability
Other long-term liabilities

Total liabilities

Net assets acquired

Purchase consideration

Goodwill

USD’mln

112.8
685.8
1,169.5
26.9
1,995.0

11.6
1,735.3
270.7
0.7
2,018.3
4,013.3

(1,130.2)
(860.2)
(1,990.4)

(380.2)
(1,065.4)
(1,445.6)
(3,436.0)

577.3

867.0

289.7

(b)

Partial disposal of investment in NBH

In September 2013 the Group signed an agreement with Societe Wallonne de Gestion et de Participations S.A.
(SOGEPA), a Belgian state-owned company, to sell a 20.5% stake in SIF S.A.’s subsidiary – NLMK Belgium
Holdings S.A. (NBH), which comprises NLMK Europe’s operating and trading companies, excluding NLMK
DanSteel, for EUR 91.1 million ($122.9 million). The agreement provides SOGEPA with certain governance rights
over NBH and its subsidiaries, and key management decisions will be taken jointly by the Group and SOGEPA by
their representation on the Board of Directors of NBH.

131OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

STEEL INVEST & FINANCE (LUXEMBOURG) S.A.
AND NLMK BELGIUM HOLDINGS S.A. SHARES (continued)

The Group brought in SOGEPA as a strategic investor in the context of the continuing restructuring of its European
assets aimed at further enhancing efficiency and optimizing costs.

The agreement resulted in the loss of control by the Group over NBH and therefore NBH was deconsolidated from
the Group consolidated financial statements with effect from September 30, 2013.

The fair value of the Group’s remaining 79.5% interest in NBH was determined based on management’s best
estimates of future cash flows, including assumptions regarding the increase in capacity utilization and the
implementation of the operational business plan, including the restructuring plan. This stake in the amount of
$459.2 million was accounted for as an investment in associated undertakings, and will be treated as a related party
balance. The Group has recorded a gain on disposal related to the transaction amounting to $18.9 million, which is
included in “Gains / (losses) on investments, net” line.

Proceeds
Net assets of NBH at date of disposal
Fair value of remaining 79.5% of NBH
Release of cumulative translation adjustment
Goodwill written off
Fair value of put / call option

Gain on disposal

Information about the Group’s operations with SIF S.A. and NBH is disclosed in Note 22.

The carrying amounts of assets and liabilities of NBH as at the date of disposal were as follows:

Current assets
Cash and cash equivalents
Accounts receivable and advances given, net
Inventories, net
Other current assets

Non-current assets
Property, plant and equipment, net
Deferred income tax assets
Other non-current assets

Total assets

Current liabilities
Accounts payable and other liabilities (including accounts payable to NLMK Group amounting to
$422.2 million)
Short-term borrowings (including loans from NLMK Group amounting to $0.1 million)

Non-current liabilities
Deferred income tax liability
Long-term borrowings (including loans from NLMK Group entities amounting to $76.6 million)
Other long-term liabilities

Total liabilities

Net assets

USD’mln

122.9
(373.8)
459.2
130.3
(289.7)
(30.0)

18.9

USD’mln

76.7
329.5
609.4
14.3
1,029.9

980.7
149.1
3.7
1,133.5
2,163.4

(624.7)
(302.2)
(926.9)

(199.2)
(531.9)
(131.6)
(862.7)
(1,789.6)

373.8

132OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

STEEL INVEST & FINANCE (LUXEMBOURG) S.A.
AND NLMK BELGIUM HOLDINGS S.A. SHARES (continued)

Information on NBH’s operations from January 1, 2013 to the date of disposal is as follows:

Sales revenue
Net loss

USD’mln

1,062.0
(276.7)

Revenue and net loss of NBH for the fourth quarter of 2013 amounted to $420,513 and $(70,882), respectively.

Summarized financial information for NBH as at December 31, 2013 is as follows:

Current assets
Non-current assets

Total assets

Current liabilities
Non-current liabilities

Total liabilities

Equity

USD’mln

993.0
1,101.2

2,094.2

(819.4)
(963.0)

(1,782.4)

311.8

The Group’s share in NBH’s net loss from the date of disposal to December 31, 2013 amounted to $(54,218) and is
included in “Equity in net (losses) / earnings of associates” line in the consolidated statements of income.

Fair value of options

In September 2013 SOGEPA and the Group also signed an option agreement, which provides call options for the
Group and put options for SOGEPA over SOGEPA’s 20.5% stake (5.1% of the common shares of NBH in each of
2016, 2017 and 2018, and any remaining stake after 2023).

Under the option agreement the exercise price will be based on the book value of NBH net assets, subject to a
minimum value of 20.5% of the shares of EUR 91.1 million plus fixed interest. The Group has recognized a
liability in respect of these options, based on their fair value in the amount of $30 million as at December 31, 2013.
Respective liability was included in other long-term liabilities.

The options have been valued using standard, market-based valuation techniques. The significant unobservable
inputs used in the fair value measurement are the annualized volatility of the underlying shares and the fair value of
the underlying shares.

SEGMENT INFORMATION

The Group has four reportable business segments: steel, foreign rolled products (Note 19), long products and
mining. Results of the production of coke and coke-chemical products are now presented within the steel segment
in these consolidated financial statements. These segments are combinations of subsidiaries, have separate
management teams and offer different products and services. The above four segments meet the criteria for
reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and
management.

Revenue from segments that does not exceed the quantitative thresholds is primarily attributable to two operating
segments of the Group. Those segments include insurance and other services. None of these segments has met any
of the quantitative thresholds for determining a reportable segment. The investments in equity method investee and
equity in net earnings / (losses) of associates are included in the foreign rolled products (Note 19) and the steel
segments.

133OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

SEGMENT INFORMATION (continued)

The Group’s management determines intersegmental sales and transfers, as if the sales or transfers were to third
parties. The Group’s management evaluates performance of the segments based on segment revenues, gross profit,
operating income and income from continuing operations, net of income tax.

Segmental information for the year ended December 31, 2013 is as follows:

Foreign
rolled
products

Long
products

Steel

Inter-
segmental
operations
and

Mining All other

Totals

balances Consolidated

1,396,165

6,468,371

Revenue from
external customers
Intersegment
revenue
Depreciation and
(538,837)
amortization
Gross profit / (loss) 1,190,897
Operating
income / (loss)
Interest income
Interest expense
Income tax
Income / (loss), net
of income tax
Segment assets,
including goodwill 13,046,727
Capital
expenditures

98,110
208,412
(150,181)
(57,655)

(391,476)

160,479

2,740,056

1,328,178

372,210

627

10,909,442

1,698

388,149

978,765

2,764,777

(2,764,777)

(163,193)
(33,739)

(87,958)
204,281

(71,482)
923,749

(46)
312

(861,516)
2,285,500

-
(166,095)

(861,516)
2,119,405

(257,182)
658
(51,143)
(45,380)

6,807
5,914
(112,869)
(3,445)

788,308
24,540
-
(116,806)

(2,513)
1,147
(106)
(232)

633,530
240,671
(314,299)
(223,518)

10,286
(200,430)
200,430
1,581

643,816
40,241
(113,869)
(221,937)

(343,533)

187,042

762,328

(114)

766,202

(504,658)

261,544

1,925,216

2,781,821

2,374,010

62,838

20,190,612

(3,906,531)

16,284,081

(48,483)

(179,791)

(125,663)

(10,877)

(756,290)

Segmental information for the year ended December 31, 2012 is as follows:

Foreign
rolled
products

Long
products

Steel

Inter-
segmental
operations
and

Mining All other

Totals

balances Consolidated

1,526,183

7,149,802

Revenue from
external customers
Intersegment
revenue
Depreciation and
amortization
(416,897)
Gross profit / (loss) 1,728,436
Operating
income / (loss)
Interest income
Interest expense
Income tax
Income / (loss), net
of income tax
Segment assets,
including goodwill 14,713,625
Capital
expenditures

551,072
254,444
(98,877)
(161,158)

(747,608)

817,389

3,466,682

1,198,660

340,776

672

12,156,592

1,336

446,057

996,889

2,970,465

(2,970,465)

(198,500)
(71,609)

(84,787)
273,209

(67,479)
922,654

(52)
504

(767,715)
2,853,194

-
41,245

(767,715)
2,894,439

(346,901)
1,442
(53,838)
41,829

85,696
4,170
(168,622)
(16,085)

793,094
20,182
-
(160,823)

(2,316)
1,242
(24)
(372)

1,080,645
281,480
(321,361)
(296,609)

52,130
(252,899)
252,899
(8,103)

1,132,775
28,581
(68,462)
(304,712)

(429,860)

(40,140)

618,056

580

966,025

(355,868)

610,157

3,861,038

2,822,417

2,269,724

55,224

23,722,028

(5,264,508)

18,457,520

(173,174)

(300,214)

(230,010)

(2,380)

(1,453,386)

134OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

SEGMENT INFORMATION (continued)

Segmental information for the year ended December 31, 2011 is as follows:

Foreign
rolled
products

Long
products

Steel

Inter-
segmental
operations
and

Mining All other

Totals

balances Consolidated

985,008

8,042,717

Revenue from
external customers
Intersegment
revenue
Depreciation and
(332,530)
amortization
Gross profit / (loss) 2,186,262
Operating
income / (loss)
Interest income
Interest expense
Income tax
Income / (loss), net
of income tax
Segment assets,
including goodwill 13,060,968
Capital
expenditures

1,075,282
280,318
(8,888)
(245,235)

(1,330,181)

1,159,764

2,381,534

1,154,202

148,858

1,245

11,728,556

3,182

640,140

1,290,944

2,919,274

(2,919,274)

(119,432)
(60,531)

(89,063)
208,426

(47,625)
1,075,097

(57)
576

(588,707)
3,409,830

-
(50,224)

(588,707)
3,359,606

(305,210)
2,630
(51,942)
15,411

(54,714)
2,815
(204,791)
8,231

991,854
8,248
-
(210,795)

(851)
1,141
-
(292)

1,706,361
295,152
(265,621)
(432,680)

(40,682)
(265,621)
265,621
11,646

1,665,679
29,531
-
(421,034)

(326,688)

(317,333)

840,543

1,902

1,358,188

(97,058)

1,261,130

4,225,510

2,471,958

1,870,993

45,774

21,675,203

(4,418,027)

17,257,176

(103,642)

(390,615)

(219,940)

(3,474)

(2,047,852)

The allocation of total revenue by territory is based on the location of end customers who purchased the Group’s
products. The Group’s total revenue from external customers by geographical area for the years ended
December 31, 2013, 2012 and 2011, is as follows:

Russia
European Union
Middle East, including Turkey
North America
Asia and Oceania
Other regions

For the year ended
December 31, 2013

For the year ended
December 31, 2012

For the year ended
December 31, 2011

4,373,360
2,073,889
875,412
1,558,876
794,218
1,233,687

4,398,398
2,538,793
902,346
1,646,819
1,364,965
1,305,271

4,462,871
2,771,159
1,238,150
1,189,609
997,546
1,069,221

10,909,442

12,156,592

11,728,556

Geographically, all significant assets, production and administrative facilities of the Group are substantially located
in Russia, USA and Europe.

(a)

RISKS AND UNCERTAINTIES

Operating environment of the Group

The Russian Federation’s economy continues to display some characteristics of an emerging market. These
characteristics include, but are not limited to, the existence of a currency that in practice is not freely convertible in
most countries outside the Russian Federation and relatively high inflation. The legal, tax and regulatory
frameworks continue to develop and are subject to varying interpretations (Note 23(f)).

135OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

RISKS AND UNCERTAINTIES (continued)

The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic,
financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political
developments. Management believes it is taking all the necessary measures to support the sustainability and growth
of the Group’s business.

The political and economic turmoil witnessed in the region, including the developments in Ukraine have had and
may continue to have a negative impact on the Russian economy, including weakening of Russian ruble. At
present, there is an ongoing threat of sanctions against Russia and Russian officials the impact of which, if they
were to be implemented, are difficult to determine at this stage. The financial markets are currently uncertain and
volatile. These and other events may have a significant impact on the Group’s operations and financial position, the
effect of which is difficult to predict.

In 2013, the global economic situation remained negative and this had a corresponding impact on steel markets,
including European markets, which has resulted in, among other things, a lower level of customer demand for steel
products, lower utilization rates and a downturn in steel prices.

The major financial risks inherent to the Group’s operations are those related to market risk, credit risk and liquidity
risk. The objectives of the financial risk management function are to establish risk limits, and then ensure that
exposure to risks stays within these limits.

(b)

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk comprises of three types of risk: interest rate risk, foreign currency risk and
commodity price risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates.

The risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating
interest rates. To manage this risk the Group analyzes interest rate risks on a regular basis. The Group reduces its
exposure to this risk by having a balanced portfolio of fixed and variable rate loans.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.

The export-oriented companies of the Group are exposed to foreign currency risks. To minimize foreign currency
risks the export program is designed taking into account potential (forecast) major foreign currencies’ exchange
fluctuations. The Group diversifies its revenues in different currencies. In its export contracts the Group controls
the balance of currency positions: payments in foreign currency are settled with export revenues in the same
currency. At the same time standard hedging instruments to manage foreign currency risk might be used.

The net foreign currency position as at December 31, 2013 is as follows:

US dollar

Euro

Other currencies

Cash and cash equivalents
Accounts receivable and advances given
Short-term investments
Long-term investments
Accounts payable and other liabilities
Current income tax liability
Short-term borrowings
Long-term borrowings
Other long-term liabilities

525,891
231,859
350,303
-
(167,925)
(20,352)
(460,582)
(1,400,000)
(9,996)

164,358
422,620
107,565
490,829
(97,416)
(700)
(170,673)
(682,761)
(29,648)

3,862
44,549
-
-
(33,592)
(13)
-
-
-

136OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

RISKS AND UNCERTAINTIES (continued)

Commodity price risk

Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their
impact on the Group’s future performance and the Group’s operational results.

The Group minimizes its risks, related to production distribution, by having a wide range of geographical zones for
sales, which allows the Group to respond quickly to changes in the situation on one or more sales markets on the
basis of an analysis of the existing and prospective markets.

One of the commodity price risk management instruments is vertical integration. A high degree of vertical
integration allows cost control and effective management of the entire process of production: from mining of raw
materials and generation of electric and heat energy to production, processing and distribution of metal products.

(c)

Credit risk

Credit risk is the risk when counterparty will not meet its obligations under a financial instrument or customer
contract, leading to a financial loss.

The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its
financing activities, including deposits with banks and financial institutions, foreign exchange transactions and
other financial instruments. Customer credit risk is managed by each business unit subject to the Group’s
established policy, procedures and control relating to customer credit risk management.

The Group structures the levels of credit risk it undertakes by assessing the degree of risk for each counterparty or
groups of parties. Such risks are monitored on a revolving basis and are subject to a quarterly, or more frequent,
review.

The Group’s management reviews ageing analysis of outstanding trade receivables and follows up on past due
balances.

(d)

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities. The Group is exposed to daily calls on its available cash resources.

The Group monitors its risk to a shortage of funds using a regular cash flow forecast. The Group’s objective is to
maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans,
debentures, finance leases. To provide for sufficient cash balances required for settlement of its obligations in time
the Group uses detailed budgeting and cash flow forecasting instruments.

(e)

Insurance

To minimize risks the Group concludes insurance policies which cover property damages and business
interruptions, freightage, general liability and vehicles. In respect of legislation requirements, the Group purchases
insurance of civil liability of organizations operating hazardous facilities, compulsory motor third party liability
insurance. The Group also buys directors and officers liability insurance, civil liability insurance of the members of
self-regulatory organizations, voluntary health insurance for employees of the Group.

RELATED PARTY TRANSACTIONS

Related parties relationships are determined with reference to ASC No. 850, Related Party Disclosures. Balances as
at December 31, 2013, 2012 and 2011 and transactions for the years ended December 31, 2013, 2012 and 2011 with
related parties of the Group consist of the following:

137OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

RELATED PARTY TRANSACTIONS (continued)

Sales to and purchases from related parties

(a)

Sales

Sales to associates (NBH group in 2013 and SIF group in 2011) were $227,697 and $726,627 for the years ended
December 31, 2013 and 2011, respectively. Sales to other related parties were $9,079, $11,320 and $12,807 for the
years ended December 31, 2013, 2012 and 2011, respectively.

Accounts receivable and advances given to related parties equaled $330,986 ($294,213 out of that amount relate to
NBH group), $39,930 and $45,978 as at December 31, 2013, 2012 and 2011, respectively.

Purchases

Purchases from companies under common control (transportation services rendered by companies of Universal
Cargo Logistics Holding
the years ended
$411,256, $521,331
December 31, 2013, 2012 and 2011, respectively. Purchases from other related parties were $16,334, $11,366 and
$81,100 for the years ended December 31, 2013, 2012 and 2011, respectively.

and $342,493

group) were

for

Accounts payable to related parties were $21,512, $6,837 and $3,453 as at December 31, 2013, 2012 and 2011,
respectively.

(b)

Financial transactions

Loans, issued to NBH group companies (Note 19(b)) and accounted for under short-term and long-term
investments, amounted to $185,595 as at December 31, 2013.

Deposits and current accounts of the Group companies in banks under significant influence of the Group’s
controlling shareholder (OJSC Bank ZENIT and OJSC Lipetskcombank) amounted to $92,449, $77,079 and
$56,395 as at December 31, 2013, 2012 and 2011, respectively. Related interest income from these deposits and
current accounts for the years ended December 31, 2013, 2012 and 2011 amounted to $3,344, $1,361 and $873,
respectively.

(c)

Financial guarantees issued

As at December 31, 2013 guarantees issued by the Group for borrowings of NBH group companies’ amounted to
$790,618, which is the maximum potential amount of future payments. Corresponding guarantees were accounted
for within the Group as at December 31, 2012 and 2011. As at December 31, 2012 and 2011 the Group did not have
guarantees issued for the loans of companies outside the Group. No amount has been accrued in these consolidated
financial statements for the Group’s obligation under these guarantees as the Group assesses probability of cash
outflows, related to these guarantees, as low.

(d)

Common control transfers and disposal of investments

In June 2011, the Parent Company has completed disposal of 100% of its interest in NTK to an entity under
common control for a cash consideration of $325 million (as at the date of payment) (Note 16).

(e)

Contributions to non-governmental pension fund and charity fund

Total contributions to a non-governmental pension fund and charity fund amounted to $6,517, $13,151 and $6,589
in 2013, 2012 and 2011, respectively. The Group has no long-term commitments to provide funding, guarantees or
other support to the abovementioned funds.

(a)

COMMITMENTS AND CONTINGENCIES

Anti-dumping investigations

The Group’s export trading activities are subject from time to time to compliance reviews of importers’ regulatory
authorities. The Group’s export sales were considered within several anti-dumping investigation frameworks. The
Group takes steps to address negative effects of the current and potential anti-dumping investigations and
participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any
possible agreements as a result of anti-dumping investigations has been made in the accompanying consolidated
financial statements.

138OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

(b)

COMMITMENTS AND CONTINGENCIES (continued)

Litigation

The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal
actions. The management of the Group believes that any ultimate liability resulting from these legal actions will not
significantly affect its financial position or results of operations, and no amount has been accrued in the
accompanying consolidated financial statements.

Initiated in January 2010 by the non-controlling shareholder of OJSC Maxi-Group (Note 13) court proceeding at
the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian
Federation (hereinafter, ICA Court) regarding the enforcement of the additional payment by the Parent Company
for the shares of OJSC Maxi-Group ended in January 2012 in favor to the Parent Company.

Initiated in December 2012 by the non-controlling shareholder of OJSC Maxi-Group court proceeding at ICA Court
regarding the loss of assets in connection with a share-purchase agreement ended in January 2014. Arbitrators
stated that ICA Court lacks jurisdiction to adjudicate the claim of Maxi-Group’s non-controlling shareholder
against the Parent Company and terminated examinations.

No further appeal is possible in these claims.

Recently there are still few court proceedings initiated by the non-controlling shareholder of OJSC Maxi-Group
going on in certain European courts and related to the claim filed to ICA Court in January 2010. The Group’s
management considers the probability of unfavorable outcome in connection with these court proceedings is low
and accordingly, no accruals in relation to these claims were made in these consolidated financial statements.

(c)

Environmental matters

The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of
government authorities is continually being reconsidered. The Group periodically evaluates its obligations under
environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities,
which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be reasonably
estimated. In the current enforcement climate under existing legislation, management believes that the Group has
met the Government’s federal and regional requirements concerning environmental matters, therefore there are no
significant liabilities for environmental damage or remediation.

(d)

Capital commitments

Management estimates the outstanding agreements in connection with equipment supply and construction works
amounted to $498,557, $712,527 and $1,396,561 as at December 31, 2013, 2012 and 2011, respectively.

(e)

Social commitments

The Group makes contributions to mandatory and voluntary social programs. The Group’s social assets, as well as
local social programs, benefit the community at large and are not normally restricted to the Group’s employees. The
Group has transferred certain social operations and assets to local authorities, however, management expects that
the Group will continue to fund certain social programs through the foreseeable future. These costs are recorded in
the period they are incurred.

(f)

Tax contingencies

Russian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur
frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group
may be challenged by the relevant regional and federal authorities. Recent events within the Russian Federation
suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities, including certain operation of intercompany
financing of Russian subsidiaries within the Group, that have not been challenged in the past may be challenged. As
a result, significant additional taxes, penalties and interest may be assessed, and certain expenses used for profit tax
calculation may be excluded from tax returns. Fiscal periods remain open to review by the authorities in respect of
taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer
periods.

139OJSC Novolipetsk Steel
Notes to the consolidated financial statements
as at December 31, 2013, 2012 and 2011
and for the years ended December 31, 2013, 2012 and 2011 (thousands of US dollars)

COMMITMENTS AND CONTINGENCIES (continued)

Russian transfer pricing legislation was amended starting from January 1, 2012. The new transfer pricing rules
appear to be more technically elaborate and, to a certain extent, better aligned with the international principles. The
new legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose
additional tax liabilities in respect of controlled transactions (defined by applicable legislation), provided that the
transaction price is not arm’s length. Management exercises its judgment about whether or not the transfer pricing
documentation that the entity has prepared, as required by the new legislation, provides sufficient evidence to
support the entity’s tax positions. Given that the practice of implementation of the new Russian transfer pricing
rules has not yet developed, the impact of any challenge of the Group’s transfer prices cannot be reliably estimated;
however, it may be significant to the financial position and the results of the Group’s operations.

As at December 31, 2013, management believes that its interpretation of the relevant legislation is appropriate and
the Group’s tax, currency and customs positions will be sustained. Where management believes it is probable that a
position cannot be sustained, an appropriate amount has been accrued for in these consolidated financial statements.

SUBSEQUENT EVENTS

The Group’s management has performed an evaluation of subsequent events and did not find any through the
period from January 1, 2014 to March 27, 2014, which is the date when these consolidated financial statements
were available to be issued.

140