ABOUT NLMK
SUSTAINABILITY
CORPORATE
GOVERNANCE
Report 2015
EFFICIENCY
LEADERSHIP
CONTENT
2015 HIGHLIGHTS ......................................................................................................................................................................................................................................................................................................1
CEO STATEMENT .........................................................................................................................................................................................................................................................................................................3
NLMK PROFILE ..............................................................................................................................................................................................................................................................................................................4
WHERE WE OPERATE ............................................................................................................................................................................................................................................................................................6
PRODUCTS AND BRANDS ...............................................................................................................................................................................................................................................................................8
BUSINESS MODEL ................................................................................................................................................................................................................................................................................................10
INNOVATION ..................................................................................................................................................................................................................................................................................................................12
STRATEGY .......................................................................................................................................................................................................................................................................................................................14
STRATEGY IN ACTION .......................................................................................................................................................................................................................................................................................16
MARKET REVIEW ....................................................................................................................................................................................................................................................................................................18
FINANCIAL AND OPERATING REVIEW 2015 .......................................................................................................................................................................................................................20
5-YEAR HIGHLIGHTS .......................................................................................................................................................................................................................................................................................24
NLMK’S SUSTAINABILITY REVIEW .................................................................................................................................................................................................................................................25
CEO STATEMENT ....................................................................................................................................................................................................................................................................................................27
STAKEHOLDER ENGAGEMENT ............................................................................................................................................................................................................................................................28
OUR EMPLOYEES .................................................................................................................................................................................................................................................................................................30
OCCUPATIONAL HEALTH AND SAFETY ....................................................................................................................................................................................................................................36
ENVIRONMENTAL SAFETY .......................................................................................................................................................................................................................................................................38
ENERGY EFFICIENCY .......................................................................................................................................................................................................................................................................................40
COMMUNITY DEVELOPMENT ...............................................................................................................................................................................................................................................................42
COMMUNICATIONS ............................................................................................................................................................................................................................................................................................46
CORPORATE GOVERNANCE REVIEW ..........................................................................................................................................................................................................................................49
MANAGEMENT COMPOSITION ..............................................................................................................................................................................................................................................................51
CORPORATE GOVERNANCE ...................................................................................................................................................................................................................................................................58
OPERATIONAL CONTROL AND RISK MANAGEMENT................................................................................................................................................................................................72
INFORMATION FOR SHAREHOLDERS .........................................................................................................................................................................................................................................78
FINANCIAL STATEMENTS AND APPENDIX
ABOUT US/ REPORT 2015
2015 HIGHLIGHTS
Record high sales: 15.9 m t (+5% y-o-y)
Largest steel manufacturer in Russia with a share of 22%
Revenue: $8 bn (–23% y-o-y)
EBITDA*: $1.9 bn (–18% y-o-y)
EBITDA margin: 24% (+1 p.p. y-o-y)
Net cash fl ow: $1 bn
Net Debt: $1.1 bn (–32% y-o-y)
Net debt/EBITDA: 0.6x (–0.1 y-o-y)
NLMK GROUP SALES
15.9 m tonnes
15.2
14.8
15.1
12.8
2011
2012
2013
2014
2015
REVENUE BY REGION
10%
39%
Russia
Europe
$8.0
bn
20%
North America
Middle East
Asia
Other markets
REVENUE BY PRODUCT
8%
37%
HVA products
Standard products
Semis to associated
companies
Semis
Other operations
$8.0
bn
27%
5%
9%
17%
19%
9%
* EBITDA is calculated as operating profi t adjusted to loss from impairment of investments,
fi xed assets and intangible assets (including goodwill) and depreciation and amortization.
Utilization of production
capacities:
93%
Our fl exible business model, diversifi ed product mix and
sales geography enable us to maintain high capacity
utilization rates
EBITDA margin:
24%
(+1 p.p. y-o-y)
Structural increase of business effi ciency, low-cost
steel production and vertical integration allowed
NLMK to achieve growth of EBITDA margin despite a
more challenging situation in the industry
Net Debt/EBITDA:
0.6x
(–0.1 p. y-o-y)
The ratio is below the target envisioned in Strategy
2017. NLMK Group is consistently fi nancially stable
due to low debt leverage. The Company’s fi nancial
security is based on high liquidity and its ability to
operate without raising considerable banking loans
$197 million
Operational effi ciency gains
outstripped target by 100%
Total savings between 2014 and 2015 amounted
to $364 million. The number of initiatives increased
from 29 in 2013 to 1,817 in 2015
ABOUT US/ REPORT 2015
Sustainability performance
LABOUR PRODUCTIVITY
(TONNES OF STEEL/PERSON)
LTIFR (NLMK’S RUSSIAN ASSETS)*
SPECIFIC AIR EMISSIONS
(KG/TONNE OF STEEL)
463
0.43
406
420
437
329
0.87 0.87
0.86
20.9
27.9
22.6
21.9
21.1
0.55
0,60 ВАТ**
18.9 ВАТ
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
SPECIFIC ENERGY INTENSITY
(LIPETSK SITE, GCAL/T)
SHARE OF EMPLOYEES
WHO RECEIVED PROFESSIONAL
TRAINING (%)
ENVIRONMENTAL INVESTMENTS
(CUMULATIVE $ M)
5.66
6.10
5.74
5.67
5.72
84
5.10 ВАТ
69
77
68
71
612
505
364
230
153
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
* Lost-time injury frequency rates. For more information refer to ‘Social Responsibility’ of NLMK report.
** Hereinaſt er BAT (best available technologies) refers to the level of best available technologies for integrated steelmakers.
KEY EVENTS OF 2015
CAPITAL MARKETS DAY 2015
CHANGES IN THE DIVIDEND POLICY
NLMK top managers provided the Strategy 2017
status update along with the changes in the Capex
budget.
ENHANCEMENT OF INDEPENDENT
DIRECTORS’ ROLES IN THE COMPANY’S
BODIES
The number of independent directors on the
NLMK’s Board increased in 2015. Independent
Board members now chair the Audit Committee
and the HR and Remuneration Committee.
The Company updated its dividend policy in 2015 to
ensure higher visibility of dividend payments. From
2015 dividends are paid on a quarterly basis subject
to meeting the targets on net profi t and free cash
fl ow.
ACTIVE STAGE IN CONSTRUCTION OF THE
PELLETIZING PLANT
In 2015, construction of the pelletizing plant at
Stoilensky entered an active stage. This is a key
investment project in Strategy 2017. The Company
expects to launch the plant in the second half of
2016. The capacity of the pelletizing plant is 6 million
tonnes of pellets per year; at the current iron ore
prices the annual impact will be $180 million.
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
3
CEO
STATEMENT
have strengthened the company’s fi nancial
stability with net debt/EBITDA of 0.6x at
the end of 2015, which is four times below
the average for metals companies.
DIVIDENDS
NLMK’s fi nancial fl exibility was bolstered by
the structural increase of business profi tability
and the completion of the capital-intensive
investment phase of the company’s
development. In the last year we updated the
Company’s dividend policy in order to provide
maximum transparency to shareholders and
stakeholders on our corporate strategy for
distribution and allocation of NLMK’s net profi t.
We began paying dividends on a quarterly basis
and changed the basis for the calculation of
dividends to include free cash fl ow on top of
net profi t.
Based on the results of the fi rst three quarters
of 2015 and in accordance with the updated
dividend policy we have already paid over
$400 million to our shareholders, which is
equivalent to a dividend yield of 5.5%.
CONCLUSION
I would like to extend my gratitude to our
employees for their commitment; to the
management for their astute direction during
this diffi cult time; and to our shareholders
for their belief in the sustainability of our
business model.
FORECAST
The year ahead will be extremely challenging
for the company and the metals industry as a
whole. The gap between demand and supply in
the steel market will remain, and the equitable
conditions of international trade will grow more
complicated still. These factors are exacerbated
by the absence of fundamental drivers of
the sustainable increase in the price of raw
materials and fi nished products.
The key success factors in this challenging
environment will include the fl exibility and
versatility of the business model, operational
effi ciency and fi nancial stability. These facets
are the competitive advantages that NLMK
Group enjoys, which enables us to look to the
future with confi dence.
Oleg Bagrin
President of NLMK Group,
Chairman of the Management Board
Dear Colleagues,
In 2015 NLMK demonstrated strong
performance driven by an ongoing
increase in operational effi ciency, and in
spite of a signifi cant slow-down of the
market for steel.
SITUATION IN THE INDUSTRY
The market is oversupplied as a result
of unprecedented growth in production
which has been further aggravated by the
global economic downturn. Excess global
steelmaking capacity was ten times the total
volume of steel produced in Russia. China
made almost as much steel in 2015 as all
other countries combined, and accounted for
the lion’s share of this increased production
capacity. More than 100 million metric tons a
year of cheap Chinese steel exports led to a
collapse in prices, sending them crashing to a
twelve-year low.
The international trading environment
became more complicated as a result.
The US and the EU have begun to impose
protective import tariff s in a bid to support
their steelmakers. Around 20 investigations
have been launched into steel companies
from various countries, including Russia, since
the beginning of 2015. The US re-introduced
protective tariff s on hot-rolled steel from
Russia. Europe launched an investigation
into cold-rolled steel imports and introduced
minimum prices for electrical steel, which
has impacted upon NLMK Group products.
Russian companies were forced to address
challenges in international markets, while
domestic demand showed a double-digit
decline. For example, demand for steel
products used in construction fell by 14% in
the fi rst nine months of 2015. The slowdown
in Russian demand in 2015 was worse than
in any other country, and will continue in
2016 in almost all sectors of the Russian
economy.
NLMK PERFORMANCE
Despite this extremely challenging
environment, NLMK Group has managed
to not only complete all the projects
envisioned by Strategy 2017 whilst
maintaining almost 100% utilization; but
also to increase sales by 5% to a record
15.9 million tonnes and achieve greater
profi tability at the same time. Our profi t
margin in 2015 displayed 24% growth to
reach twice the global industry average.
Our strong operational performance and
conservative investments have allowed
the company to maintain free cash fl ow
of $1 billion, which is almost fl at year-
on-year, despite a 30% reduction of the
global steel prices. Our operating results
4
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
NLMK PROFILE
NLMK Group is the largest
steelmaker in Russia and one of
the most effi cient in the world.
NLMK is the only Russian company
that is part of TOP 20 leading
global steelmakers.
NLMK’s production assets are located in
Russia, Europe, and the United States.
The Company’s liquid steel production
capacity is over 17 million tonnes per year, of
which about 16 million tonnes are produced
in Russia. NLMK has modern production
capacities that are on par with leading
international manufacturers in terms of
technology.
NLMK’s metal products are used in various
industries, from construction and engineering
to the manufacture of power-generating
equipment and off shore wind turbines. NLMK
has the most competitive cash cost among
global manufacturers; and one of the highest
profi tability levels in the sector.
The company generated $8 billion in revenue;
$1.95 billion in EBITDA; and a net profi t of
$967 million in 2015. Net Debt/EBITDA is 0.6x.
The company has a BBB- credit rating.
NLMK’s ordinary shares are traded on the
Moscow Stock Exchange (ticker symbol: NLMK),
and its global depositary shares are traded on the
London Stock Exchange (ticker symbol: NLMK:LI).
22%
Share in Russian steel
production
ABOUT US/REPORT 2015
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
5
WIDELY DIVERSIFIED VERTICALLY INTEGRATED BUSINESS MODEL
CAPTIVE COST-
EFFICIENT RAW
MATERIAL AND ENERGY
PRODUCTION
COST-EFFICIENT
STEEL PRODUCTION
ROLLED PRODUCTS
MANUFACTURED
CLOSE TO END
CUSTOMERS
Control over key resources
Steel production model
Product supplies**
Iron ore concentrate
Coke
70%
Scrap
в коксе
57%
Energy*
в металлоломе
100%
100%
t
/
$
,
n
o
i
t
c
u
d
o
r
p
f
o
t
s
o
c
h
s
a
c
b
a
S
l
600
500
400
300
200
100
0
NLMK
35%
65%
15.9
mt
0
0
0
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
6
0
0
7
0
0
8
Cumulative capacity, mln t
To local markets
Export to other regions
Cost-effi cient steel production
Capacity utilization in 2015
Rolling capacity breakdown**
20%
93%
9%
17
mtpa
BOF
EAF
Key highlights
80%
70%
21%
70%
NLMK
Global
average
16
mtpa
Steel sheets
Plates
Long steel
Revenue, $ m
EBITDA margin
11,729 12,157
10,818 10,396
23%
24%
19%
8,008
16%
14%
70+
7%
93%
56.7
K
2011
2012
2013 2014 2015
2011
2012
2013 2014 2015
countries of sale
people employed by NLMK**
Russia
Other regions
* At the Lipetsk site.
** Including NBH performance.
6
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
WHERE
WE OPERATE
NLMK Group has assets on three
continents. We sell our high-quality
products to buyers in more than
70 countries worldwide.
Legend
Raw materials
producing assets
BF/BOF steelmaking
EAF mini-mill
Rolling assets
0
0
0
0
NLMK Divisions
NLMK Russia
NLMK RUSSIA FLAT PRODUCTS
1 . 2 m t
NLMK USA
17
16 18
1
Novolipetsk
2
VIZ-Steel
Intragroup supply of slabs
NLMK RUSSIA LONG PRODUCTS
3
5
NSMMZ
4
NLMK Metalware
NLMK Kaluga
NLMK RUSSIA RAW MATERIAL PRODUCTION
Novolipetsk to NLMK USA
Novolipetsk to NLMK Europe
Stagdok
7
Altai-Koks
8
Stoilensky
“Domestic” sales of finished steel
6
9
Dolomit
NLMK EU
10
NLMK DanSteel
11
NLMK Coating
12
NLMK La Louviere
14
NLMK Clabecq
13
15
NLMK Strasburg
NLMK Verona
16
NLMK USA
16
Sharon Coating
17
NLMK Indiana
18 NLMK Pennsylvania
ABOUT US/REPORT 2015
53%
NLMK Russia
NLMK Europe
NLMK USA
92%
100%
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
7
13
Over 100%
countries where NLMK
assets are located
run rate of the core
assets of NLMK
Up to100%
of needs in semis covered by
supplies from Parent company
(Lipetsk)
NLMK RUSSIA
3
42
7
10
12
14
13
11
NLMK EU
15
2 . 6 m t
6
1
5
9
8
Revenue by region in 2015
Steel product sales by region in 2015
Russia
21%
11%
39%
$8.0
bn
17%
9%
9%
5%
9%
4%
15%
15.9
mt
22%
EU
39%
North America
Central and SE Asia
Middle East
Other markets
8
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
PRODUCTS
AND BRANDS
NLMK makes a wide range of steels, from
semi-fi nished (slabs and billets) to high-end,
high value added products (electrical steels).
Our balanced product mix comprises 20% of
long products and 80% of fl at products.
Long products for construction
purposes are produced by NLMK
Group’s Russian companies and sold
all across Russia. Our wide mix of fl at
products includes hot-rolled steel,
cold-rolled steel, galvanized steel and
pre-painted steel. NLMK is also a global
leader in electrical steel and a regional
leader in thick plates used in machine
building. The company’s balanced
product mix encompasses standard
and high value added products,
including high-end steels.
NLMK PRODUCTS IN RUSSIA
NLMK is a leading provider of high-quality
steel products in key sales markets.
Our range of high value added products
includes cold-rolled steel, pre-painted
steel, electrical steel (transformer and
dynamo) and a wide range of long
products for the construction sector,
including metalware. Our Russian plants
off er a wide range of slabs, a large
portion of which is processed into fi nished
products at our rolling mills in Europe
and the USA. NLMK is one of the largest
suppliers of semi-fi nished rolled products
(slabs) for large-diameter pipes in the
domestic market.
We sell up to 100% of our high value
added products locally, that is, in the
markets where they were produced.
NLMK PRODUCTS IN EUROPE
Our European plants produce a wide
range of plates; most of them are made
from Novolipetsk slabs. We make both
commercial steel for machine building,
pipe manufacturing and shipbuilding, and
high-end thick plates used in wind power
engineering and supporting structures for
corrosive and high-pressure environments.
NLMK Clabecq also produces unique
abrasion-resistant (Quard) and high-
strength (Quend) plates for heavy equipment
manufacturing, machine building and other
industries.
NLMK PRODUCTS IN THE USA
NLMK Group’s US companies focus on fl at
products made from semi-fi nished steel
sourced from the Group’s plants in Russia:
hot-rolled steel, cold-rolled steel, galvanized
steel and others.
NLMK PRODUCTS WORLDWIDE
▪ Transformer steel: NLMK is one of
the world’s major suppliers of transformer
steel, accounting for 11% of the global
market. Electrical steels are supplied to
manufacturers of power-driven machines,
transformers and instruments.
▪ Semi-fi nished products (slabs): NLMK is
the leading supplier to the global slab market,
with a market share of nearly 15% (net of
intragroup sales). The company’s products
are in high demand thanks to their high
quality, competitive prices and convenient
logistics.
QUALITY OF NLMK PRODUCTS
Tailored to meet customers’ needs, NLMK
products have been certifi ed as compliant
with international quality standards. For a
complete list of products, please visit our
website at http://nlmk.ru/our-business/
products-and-innovations/products/. We are
actively working with our customers and R&D
centres to expand our range and enhance
product quality.
ABOUT US/REPORT 2015
s
t
c
u
d
o
r
p
d
e
h
s
i
n
fi
’
s
K
M
L
N
NLMK PRODUCTS AND USES
▪ Construction: supporting structures
and facing materials, reinforced concrete
structures, fences and other profi led sheet
structures, roof tiles, air conditioning
systems, etc.
▪ Infrastructure projects: guard rails,
bridges, light poles, railway infrastructure,
etc.
▪ Automotive manufacturing: body
panels, power and other components for
cars and commercial vehicles.
▪ Pipes: pipelines, large-diameter pipes
for the oil and gas industry, water and gas
pipes.
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
9
NLMK product mix in 2015
NLMK’s share in the Russian market
29%
25%
15.9
mt
13%
33%
Semi-finished products
Slabs to subsidiaries
Standard grades
HVA products
27%
100%
100%
19%
24%
20%
26%
19%
6%
22%
21%
0%
16%
36%
25%
8%
22%
17%
HRC
CRC
HDG
Pre-painted
steel
Rebar
Transformer
steel
Share in consumption
Share of import in consumption
Share in production
▪ Machine building: mining equipment,
agricultural and construction (yellow)
machinery, liſt ing and transport equipment,
railway engineering, shipbuilding, wind power
engineering, off shore drilling platforms.
▪ Electrical equipment and instrument
making: transformers, electric motors,
generators, bodies of electrical machines and
appliances.
▪ White goods: gas and electric ovens,
washing machines, refrigerators,
dishwashers, extractor fans, household
boilers, etc.
10
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
NLMK BUSINESS MODEL
Self-suffi ciency in Key Raw
Materials
100%
115%
85%
70%
57%
Raw Materials
Production
Iron ore
Coke
Scrap
Energy
of mining capacity
is located in Russia
One of the most
cost-effi cient iron ore
producers in the world
The largest scrap
collecting network
in Russia
NLMK Capacity (mt/y)
Steel Production Cost in 2015 ($/t)
4.3
320
206
Steel
Production
12.8
BOF operations
EAF operations
One of the most
cost-effi cient
steel producers
in the world
NLMK
World
average
Wide Product Range
Rolling capacities (mt/y)
13%
49%
3.2
Russia - Long products
Finished steel
production
38%
Semi-finished products
Flat products
Long products and metalware
6.2
Russia - Flat products
3.2
NLMK Europe
2.9
NLMK USA
ABOUT US/REPORT 2015
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
11
BUSINESS MODEL
NLMK’s business model is leveraging
grade, NLMK Indiana, NLMK Verona*), and
80% is manufactured using basic oxygen
furnaces (Lipetsk site).
The Company’s products are used in sec-
tors such as construction, pipe manu-
facturing, machine building and energy
sector, including wind power engineering.
The Company supplies rolled products
and billets to Russia, EU, North America,
the Middle East, Asia and other regions.
the geographical location of our
assets. Mining and steel production
assets (the most material- and resource-
intensive part of the integrated process)
are located in Russia, a low-cost region.
Production of fi nished products is
concentrated in the key sales markets
in close proximity to our customers in
Russia, North America, and the EU.
UPSTREAM
How we do it
NLMK resource base is located in Russia.
NLMK raw material assets are among the
most effi cient facilities in Russia and globally.
Effi cient vertical integration has enabled
stable supply of raw materials to further
production stages and secured minimum steel
production costs.
Advantages
Stoilensky is one of the most effi cient iron
ore producers with a reserve of over six billion
tonnes and iron ore concentrate production
cost of approximately $10 per tonne. Stoilen-
sky is situated 250 km from the main plant in
Lipetsk, enabling maximum logistic effi ciency.
Stoilensky supplies up to 80% of concentrate
produced by the Group.
Captive coke production (covering more than
100% of the Group’s demand) enables high
quality of coke products, which in turn boosts
effi ciency of blast furnaces, the next stage in
production.
NLMK’s scrap processing division is the lar-
gest in Russia, securing stable supply of scrap
to the Group’s steelmaking plants.
The Lipetsk site is 57% self-suffi cient in elec-
trical energy generated by plants run mainly
on by-product gases from coke and blast
furnace operations.
Advantages
Advantages
The capacity utilization rate at the Lipetsk site
(accounting for 80% of the Group’s steel-
making capacity) is 100% regardless of the
production cycle on the back of effi cient verti-
cal integration with the raw material assets,
technological superiority of equipment, advan-
tageous geographical location and a diversi-
fi ed product mix. These factors have helped to
guarantee the lowest production cost in the
global industry. In 2015, steel production cost
was $206 per tonne while the global average
fi gure was $320 per tonne.
NLMK’s rolling facilities are located in
the key sales markets, close to end users.
This ensures competitive advantages of
our product during customer interaction,
enhancing stability of quality, just-in-time
deliveries and on-top customer service.
Approximately 80% of fl at products
are sold in the region where they are
produced.
NLMK Russia slab sales (mt)
Production capacity (mt/y)
6.5
6.4
6.5
6.8
17.1
0.8
0.2
16.1
12.3
2.9
3.2
6.2
USA
EU
Russia
3.2
3.2
Steel
production
Flat
products
Long
products
EAF-based plants (NSMMZ and NLMK
Kaluga) produce long products for the con-
struction industry, ensuring prompt response
to seasonal changes of demand in the Rus-
sian market.
2.4
3.0
3.9
3.6
4.1
3.8
2.6
2.8
2012
2013
2014
2015
3rd-party consumers
Affiliates and associated companies
Finished rolled products are made from
semi-fi nished products produced in Russia,
ensuring consistently high quality of rolled
products and expediency in production.
The Company’s European and US rolling
capacities process 75% of semi-fi nished
products exported from the Group’s Rus-
sian assets.
The Company’s global presence in the
major sales markets is supported by a
diversifi ed product mix and fl exible sales
policy. NLMK is therefore in position to
timely channel products to most promising
markets maintaining full utilization of the
entire supply chain.
MIDSTREAM
How we do it
DOWNSTREAM
How we do it
The Company’s steelmaking capacities are
over 17 million tonnes per year. 95% of the
capacities are located in Russia.
NLMK has a fl exible production chain. Ap-
proximately 20% of our steel is manufactured
using electric arc furnace technology (NLMK
NLMK’s rolling facilities are located in Russia,
Europe, and the USA. The total HVA produc-
tion capacity exceeds 15 million tonnes
of fl at and long products, which enables
processing of up to 90% of steel produced at
our own rolling mills.
* Inclusive of NBH capacities
12
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
INNOVATION
A commitment to innovative ideas lies at the heart
of our business culture. NLMK has historically
provided a platform where new technologies are
developed which may be later adopted by other
companies and spread around the world. We work
with our customers to design new solutions or
adapt existing ones – offering them the best ways
to improve their competitiveness.
NLMK has a comprehensive approach
to innovation. We are consistently
developing our product mix, optimizing
our production and auxiliary processes
to increase operational effi ciency, and
mastering new technologies to boost
equipment productivity.
PROCESS INNOVATION
The key goal of Strategy 2017 is to
develop NLMK Production System as a
single business process aimed at achieving
strategic objectives by optimizing the
use of the Company’s material and
intellectual resources. Developed in-house,
the Production System brings together
NLMK’s unique technology and knowledge
base, leveraging the best elements and
advantages of systems used by leading
global manufacturers.
Our system is based on the principles
of continuous improvement and lean
manufacturing as well as on incentives
which encourage initiatives and best
practices from around the world.
NLMK Production System covers processes
across all NLMK Group operations:
production, energy, M&R, logistics,
occupational health and safety, and
investment. The main elements of the
system are already in use at practically
all key NLMK Group companies, including
international assets.
Despite its gradual implementation
process, NLMK Production System has
already proved to be highly effi cient. For
instance, thanks to the active involvement
of all NLMK Group companies in the
continuous improvement process in 2015,
the impact from operational effi ciency
programmes (the key element of NLMK
Production System) was double the target.
For more details, please see Strategy in
Action.
ABOUT US/REPORT 2015
INNOVATION IN TECHNOLOGY
NLMK is implementing new technological
solutions either developed internally or
by bringing in the expertise of third party
R&D contractors.
Coke operations: Over the last few years,
NLMK has introduced a new technology
for producing coke with high CSR without
using imported coals or coals that are
in short supply in the Russian market.
In pig iron manufacturing, NLMK now
uses small-sized coke and sinter, thus
boosting resource use effi ciency. Fine-
tuning of pulverized coal injection modes
continued at blast furnaces No. 4 and 5,
which helped cut down the consumption of
expensive coke, expand the production of
pig iron with a silicon content of 0.3–0.5%,
and reduce the possibility of deviations
from the target chemical composition
range.
Blast furnace operations: In 2015,
innovative technology enabled an increase
in pig iron production by 0.7 million tonnes,
while improving its quality and reducing
specifi c metallurgical coke consumption
by 5%. Innovations made our blast furnace
No. 7 launched in 2011 one of the most
effi cient in the world; its production
capacity exceeded 4 million tonnes vs. the
base level of 3.4 million tonnes.
Steelmaking operations: The use of
new process solutions and optimization of
steelmaking operations supported a record
level of steel production at the Lipetsk site
in 2015 (12.9 million tonnes). Innovations
brought steel consumption during rolling
operations down, and at the same time
improving product quality and boosting
equipment productivity.
Other Russian and international NLMK
Group companies are also introducing
innovative technologies.
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PRODUCT INNOVATION
Strengthening our position in niche and HVA
markets is one of NLMK’s Strategy 2017
goals. This explains our focus on expanding
the product mix and improving product
quality. The two key product innovation
projects that stood out in 2015 were
fi rstly the adoption of high-permeability
transformer steel production technology and
the onset of serial production; and secondly
the expansion of our high yield strength
and abrasion resistant Quard® and Quend®
range.
High-permeability transformer steel
As one of the leading global suppliers of
transformer steel, NLMK interacts closely
with its key customers, carefully monitoring
all new trends in the sector. As demand
for powerful, energy effi cient transformers
(for which energy losses are a key issue)
increased, the market has developed a need
for transformer steel with high magnetic
permeability and minimal specifi c magnetic
losses. To satisfy the demand in this
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
13
growing segment, NLMK began developing
its own technology for making a new type
of product: high-permeability transformer
steel.
To this end, an ambitious set of initiatives
was implemented across all production
stages at the Lipetsk site, including the
commissioning, reconstruction and upgrading
of the existing steelmaking and rolling
equipment.
In 2015, NLMK technical experts carried
out the tests needed to adopt the new
production process. Also, the Company
developed a technology to produce pig iron
and steel which meet stringent chemical
composition requirements; tested new hot
rolling modes; and performed a wide set of
initiatives to develop new process modes and
use new materials.
At the beginning of 2016, NLMK produced
its fi rst series batches with specifi c magnetic
losses in line with those of its international
peers. The product is in high demand from
leading global transformer manufacturers.
High strength and abrasion resistant
plates
In 2015, we continued active promotion of
our premium products: abrasion resistant
Quard® plates and high strength Quend®
plates. Both these products are produced by
our European plant NLMK Clabecq from slabs
supplied from Novolipetsk.
Quard® is a martensitic abrasion resistant
steel produced in a variety of hardness
options from 400 to 500 HB and available
in thickness ranging from 4 to 64 mm.
Key advantages of this steel grade include
a unique combination of high strength,
hardness and ductility achieved through
water quenching – a process that ensures
the required microstructure throughout the
thickness of the plate. For more information
about this product, please visit http://quard.
eu.nlmk.com/.
The high strength Quend® steel is
characterized by high yield strength: 700,
960 or 1,100 MPa; and it is also available
in thickness from 4 to 64 mm. One of the
key advantages of Quend® plates is their
guaranteed strength coupled with lower
weight. Higher strength means that when
ensuring a load bearing capacity similar to
standard steel grades, the plates can be
thinner. Their reduced weight helps lower
specifi c energy consumption, cut operating
costs, and leave a smaller environmental
footprint, which in turn increases our clients’
competitiveness.
For more detailed information on this
product, please visit http://quend.eu.nlmk.
com/.
NLMK supplied 71,000 tonnes of these
niche Quard® and Quend® plates in 2015.
The Company plans to further expand this
product range and introduce new grades of
high strength and abrasion resistant steel in
a wider variety of dimensions in 2016.
14
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
STRATEGY
In February 2014, NLMK Group
announced a new phase of development.
“Strategy 2017” is focused on
unlocking signifi cant internal potential
of the Group’s businesses by boosting
operational and process effi ciency 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 is centred on gaining
leadership in operational effi ciency,
developing a world-class resource base,
and achieving leading positions in strategic
markets. Special emphasis is placed on
industrial safety, sustainability and human
capital development.
“Strategy 2017” targets net gains
of $1.0 billion per annum and envisions
overall development capex of $1.0 billion.
ABOUT US/REPORT 2015
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
15
STRATEGY 2017: KEY TARGETS
Targeted annual net gains in 2018 vs 2013: $1,000 m
Leadership
in operational
effi ciency
World-class
resource base
80
80
$330
m
$480
m
250
How we do it
400
How we do it
Maximum use of potential to enhance
operational effi ciency through investment
programmes and NLMK Production System.
Increased self-suffi ciency in iron ore with a
fl exible charge structure and consequential
reduced consumption of expensive resources.
Leading positions
in strategic
markets
Leadership
in sustainability
and safety
40
$190
m
150
How we do it
Entering new or expanding presence in
attractive product niches, industries, and
regions; higher utilization rates at existing
capacities; growth in domestic sales; and an
increased share of HVA products.
Management
initiatives
Investment
projects
Note: all numbers include NBH unless otherwise stated.
8
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• Minimize environmental
footprint
• Promote safe operating
practices
• Develop motivated and
engaged workforce
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
for the sector supported by empowered and
motivated staff .
Creation of the conditions for high labour
productivity through provision of opportunities
for professional training and through fostering
of a strong corporate culture.
16
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
STRATEGY IN ACTION
In 2014–2015, structural net gain for NLMK Group
as a result of Strategy 2017 totalled $477 million
per year (using 2015 prices, vs. 2013 base-level),
or 48% of the total Strategy 2017 target the Group
plans to achieve by 2018. Over 85% of the savings
in 2014–2015 came from operational effi ciency
programmes that did not require any capital
outlay; whilst the remaining 15% came from
investment projects.
In 2015, net gains totalled $256 million
(from 2014 base-level).
LEADERSHIP IN OPERATIONAL
EFFICIENCY
▪ As a result of the implementation of this
strategy in 2014–2015, the net gain from
dedicated projects totalled $280 million per
year.
▪ In 2015, NLMK undertook extensive
development of the Group’s Production
System, with the total number of projects
growing by over 500 to exceed 1,800 by the
end of the year. Additional structural net gain
from operational effi ciency projects exceeded
the target eff ect almost two-fold year-on-
year, totalling $145 million per year (to 2014
base level).
▪ As a result of these projects, in 2015 the
productivity of steelmaking equipment at the
Lipetsk site increased by 300,000 tonnes per
year; and the production capacity of the hot-
strip mill increased from 5.9 million tonnes
per year to 6.0 million tonnes per year in
2015, among other improvements.
▪ In the Mining Segment, the productivity of
benefi ciation equipment in 2015 increased
by 0.8 million tonnes of concentrate per year.
Over the entire strategy implementation period
in 2014–2015, productivity of Stoilensky’s
benefi ciation plant increased by 1.3 million
tonnes per year to 15.2 million tonnes per
year. In 2016, operational improvements are
expected to boost productivity by a further
300,000 tonnes per year.
WORLD-CLASS RESOURCE BASE
▪ As a result of the implementation of this
strategy in 2014–2015, the net gain from
dedicated projects totalled $100 million
per year.
▪ Structural gain from operational
effi ciency programmes and investment
projects in 2015 totalled $61 million from
2014 level.
▪ In 2016, Stoilensky plans to complete
the construction of its pelletizing plant,
with launch scheduled for H2 2016. This
will provide an annual eff ect on the Group’s
operating performance in excess of
$180 million (to be fully achieved in 2017).
▪ Stoilensky continues to pursue its
programme aimed at boosting the
productivity of its benefi ciation plant, in
order to supply the pelletizing plant with
suffi cient iron ore concentrate used as
a feedstock for pellets manufacturing.
The programme includes an entire
range of debottlenecking projects. By
2018, output of iron ore concentrate
will increase by 1.6 million tonnes per
year (from 2015 level), including by
600,000 tonnes per year in 2016. It has
been estimated that project investment
during the period of 2014 to 2017 will
be $120 million. As a result, production
capacity will reach 17.3 million tonnes of
concentrate by 2018.
Note: all fi gures are shown inclusive of NBH, unless specifi ed otherwise.
ABOUT US/REPORT 2015
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$477 m
Net gains of NLMK Group
from achievement of strategic
objectives in 2014–2015
LEADERSHIP ON STRATEGIC
MARKETS
▪ As a result of the implementation of this
strategy in 2014–2015, net gains from
dedicated projects totalled $97 million per year.
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
17
▪ In 2015, net gain from delivering on this
goal totalled $50 million from 2014 level.
▪ In 2015, steel sales increased by 5% year-
on-year to 15.9 million tonnes, supported by
high utilization rates at the Group’s Russian
assets and increased productivity of main
equipment.
▪ Sales in the Russian market totalled 6.2
million tonnes, or 39% of total sales (43% in
2014).
▪ Deliveries of slabs to Russian pipe
manufacturers increased in 2015 by 27%
to 0.9 million tonnes. Over the same
period, NLMK DanSteel increased sales
of niche plates by 9% to 400,000 tonnes.
NLMK Kaluga competed successfully with
international suppliers and local long steel
manufacturers in Central Russia, ensuring an
83% run rate at its rolling capacities.
LEADERSHIP IN SUSTAINABILITY
AND SAFETY
▪ LTIFR at NLMK Russian assets declined
by 22% year-on-year to 0.43 in 2015 (above
target level).
▪ Specifi c air emissions reduced by 1% year-
on-year to 20.9 kg/t.
▪ Labor productivity grew 6% year-on-year
across the Group.
DIVIDEND POLICY
High profi tability, and low debt and capex
resulted in increased free cash fl ow
available to NLMK Group shareholders. In
2015, NLMK adopted a new dividend policy
that provided for quarterly dividends in the
amount of 50% of net income or free cash
fl ow if Net debt/EBITDA is less than or
equal to 1.0.
▪ Dividend cash fl ow in 2015 totalled $395
million (vs. $226 million in 2014), including
a part of 2014 dividends, and Q1 and Q2
2015 dividends.
▪ 9M 2015 accrued dividends totalled
$427 million.
▪ Dividend yield at the end of 2015
exceeded 10%.
OLEG BAGRIN, NLMK GROUP CEO,
SAID
“The key goal of Strategy 2017 is to
transform NLMK from a growing steel
manufacturer into one of the most effi cient
steel companies in the world.
“We made substantial progress over the last
two years, with long-term fi nancial gains
from the implementation of our strategy
totalling $477 milllion per year. The bulk of
the gains are the result of the success of
our operational effi ciency programmes,
which are based on consistent application
and development of NLMK Group’s
Production System and so do not require
investment.
“In 2016 and 2017, we expect that
more of the gains will be created by
investment projects and commercial
strategy programmes that strengthen
NLMK’s market positions in niche value
added segments where we have created
competitive advantages in technology,
quality and cost of production.
“Despite the challenging market
conditions, we’ve delivered on the
objectives we set; increasing steel
output to a record high, maintaining high
utilization rates and boosting profi tability.
NLMK’s debt leverage is four times lower
than the sector average.
“Substantial cash fl ow from operations
and conservative investment have
supported a free cash fl ow level of
$1 billion in 2015, increasing the
Company’s fi nancial stability, ensuring
fl exibility and high dividend yields.
“The consistent and successful
implementation of our strategy
ensures a high and stable return for our
shareholders.”
18
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
MARKET REVIEW
THE GLOBAL MACROECONOMIC
SITUATION AND THE WORLD STEEL
MARKET
Global economic growth slowed down to
2.4% in 2015 from 2.6% a year before due
to the weakening emerging economies,
a considerable drop in commodity prices,
declining world trade and high volatility in
the capital markets.
Global steel production fell by 2.8% to
1,589 million tonnes, which aff ected
all the key producing regions. Capacity
utilization was declining throughout the
year, dropping to 64.6% as of late 2015,
according to estimates by the World Steel
Association (a 5 p.p. decrease from the
year before).
Chinese steel consumption went
down 5.4%, to 672 million tonnes (the
country accounts for 45% of the world
consumption). Steel production fell by 2.1%
yoy, to 801 million tonnes. The sharper
decline in demand led to an unprecedented
increase in exports, which grew by 22%
and reached 112 million tonnes. This
factor, together with slumping prices for
iron ore and excessive mining resulted
in lower steel prices and more intense
competition. A number of developed
countries launched trade investigations to
support domestic producers.
Global steel production in 2011–2015, mt
1,635
1,635
1,604
1,604
1,589
1,589
1,515
1,515
1,489
1,489
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
Russia’s share of the global steel production
in 2015 remained unchanged from the
previous year (4.5%). Russian steel production
fell by 0.8%, to 70.9 million tonnes.
Global apparent steel consumption fell
by 3.2% in 2015, to 1,495 million tonnes
(in 2014, it rose by 0.9%).
The fi gure for the USA decreased by 10.6%
in the same year, to 95.7 million tonnes
(in 2014, consumption grew by 11.8%). This
was due to the large reserve stock built up
earlier coupled with declining demand from
the energy sector.
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Steel production by region
Prices for hot-rolled steel in the domestic markets ($/t, excl. VAT) in 2014–2015
800
700
600
500
400
300
200
2.2% 1.7% 3.1%
2.8%
4.5%
6.9%
1,589
mt
10.4%
68.4%
South America
Other European
countries
Middle East
Other regions
Asia
EU-28
North
America
Russia
ABOUT US/REPORT 2015
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2015
USA
ЕU
China
Source: Metal Bulletin.
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
19
Domestic prices for hot-rolled steel in Russia, excl. VAT
650
600
550
500
450
400
350
300
250
200
28
26
24
22
20
18
16
14
12
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2014
2015
2016
H/r steel ($/t)
H/r steel (‘000 RUB/t)
The EU countries saw a 1.9% increase in
apparent steel consumption, to 151.4 million
tonnes, which was driven by growth in the
key industries except for pipe manufacturing
(–5.6%). The automotive industry grew
by 7.8%; construction, by 1.8%; and home
appliances, by 3.7%.
The decline in global consumption of steel,
falling prices for iron ore and increasing
exports from China were the key drivers of
the 30–40% decrease in steel prices.
RUSSIAN MARKET
Russia’s economic growth slowed down
by 3.7% due to slumping commodity
prices, high infl ation and falling consumer
purchasing power. Investments in fi xed
assets fell by 8.4%: construction levels went
down 7%, and production of certain types of
construction materials decreased by 19%.
A 5.4% decline in manufacturing industries
also adversely aff ected the steel market.
Apparent fi nished steel consumption fell
by 8.3% in 2015, decreasing by 14% in the
long steel sector and by 5% in the fl at steel
sector. The decline was partially off set by
growing demand for steel used in pipes.
this was due to stable steel supply to
the domestic market and a rise in steel
exports accompanied by a 30% decrease
in imports.
Russian steel production decreased by only
0.5% in 2015 yoy, to 71 million tonnes;
The changes in Russian steel prices
in 2015 were driven by the exchange
Source: Metal Bulletin.
rate volatility. Prices rose signifi cantly
in the middle of the second quarter
from the previous quarter as the ruble
strengthened, but the resumed fall in oil
prices and devaluation of the national
currency made them go down again in a
decline lasting through the year end.
20
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
FINANCIAL AND OPERATING
REVIEW 2015
In 2015, NLMK shareholders approved a new
dividend policy that presupposes quarterly
dividend payments. In 2015, NLMK paid
$395 million in dividends. NLMK’s Board of
Directors will review management’s dividend
recommendations for Q1 2016 in April 2016.”
OPERATING REVIEW
2015 operating highlights
Production, m t
2015
2014
YoY
Crude steel production
15.866
15.921
0%
Capacity utilization, %
93%
96%
–3 p.p.
Consolidated sales
Semi-fi nished steel
Finished steel
Flat
Long
Total consolidated sales
Sales to Russian market
Sales to external markets, incl.:
Export from Russian companies
Slab sales to NBH
Foreign subsidiaries sales
6.070
9.793
7.704
2.089
4.903
10.222
7.886
2.336
15.863
15.126
39%
61%
34%
13%
14%
43%
57%
28%
13%
16%
24%
–4%
–2%
–11%
5%
–4 p.p.
+4 p.p.
+6 p.p.
0 p.p.
–2 p.p.
For information: slab sales to foreign subsidiar-
ies and affi liates
3.829
4,051
–5%
Segment sales
Russian Flat Products
13.165
12,260
6%
Russian Long Products
2.375
2,636
–10%
Mining
Foreign rolled products
For information: NBH sales
17.014
16,209
2.199
1.991
2.407
1.807
5%
–9%
10%
2015 Group crude steel output remained stable yoy at 15.9 million tonnes; capacities were
running at 93%.
COMMENT FROM NLMK GROUP CFO
GRIGORY FEDORISHIN
“In 2015, global steel consumption continued
to decline, exacerbating the supply/ demand
imbalance in the global market. Key factors
behind the slump in steel product prices
included an unprecedented spike in steel
exports from China on the back of the
continuing fall in demand and the dip in raw
material prices.
The deteriorating economic situation in
Russia had a negative impact on steel
consumption in the local market where
demand dropped by approximately 9%.
“NLMK’s competitive advantage in terms
of production costs and a presence in key
sales markets supported a 5% increase in
sales to a record 15.9 m t, while maintaining
maximum utilization rates at key facilities.
In 2015, NLMK continued to implement its
large-scale operational effi ciency programme,
rolling it out to all Group sites. 1,800
optimization projects ensured a structural
profi t increase of $197 million yoy in 2015,
more than double the level that was planned
initially.
Higher sales volumes and gains from
optimization programmes allowed
maintaining the EBITDA margin at a high
level of 24% (+1 p.p. yoy).
In 2015, active construction began of our
new pelletizing plant at Stoilensky. Launch
is planned for H2 2016. This factor pushed
capex up to $595 million.
Signifi cant cash fl ow and conservative
investment supported a positive free cash
fl ow of $1.0 billion, consolidating the
company’s fi nancial stability and ensuring the
possibility of high dividend payout.
2015 net debt decreased by 32% to
$1.1 billion; Net debt to EBITDA was 0.6х,
one of the lowest ratios in the sector.
We continue to actively manage our debt
portfolio: at the end of the year NLMK issued
ruble bonds for a total of 10 billion rubles
and closed a 4-year $400 million loan facility
secured by export revenue.
ABOUT US/REPORT 2015
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
20 Financial and operating
24 5-Year highlights
review
review 2015
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FINANCIAL REVIEW
2015 fi nancial highlights
k t/$ million
2015
2014
Sales volumes
Revenue
EBITDA
EBITDA margin
Profi t for the period
Free cash fl ow
Net debt
Net debt/EBITDA
15,863
8,008
1,948
24%
967
997
1,091
0.56x
15,126
10,396
2,381
23%
773
1,153
1,598
0.67x
YoY
5%
–23%
–18%
+1 p.p.
25%
–14%
–32%
Revenue
2015 revenue declined by 23% to
$8,008 million due to the 30–40% yoy
reduction in prices that was partially
off set by a 5% yoy increase in sales.
Pressured by the price factor, revenue from
sales to international markets decreased
by 18% yoy to $4.9 billion, with the bulk of
deliveries going to the EU (20%), the USA
(17%), Middle East and Turkey (9%). The
share of revenue from sales to the Russian
market fell to 39% (–4 p.p. yoy) due
to a 6% yoy decrease in shipments to
Russia and the signifi cant devaluation
of the Russian ruble.
Sales of semi-fi nished products to
external consumers accounted for
19% of the revenue (+3 p.p. yoy);
sales of semi-fi nished products to
related parties accounted for 9% (fl at
yoy); sales of HRC and long products
accounted for 27% (–4% yoy).
The share of revenue from sales of
HVA products was 37% (+1% yoy).
There was an increase in revenue
from sales of premium products, with
revenue from transformer steel sales
increasing by 22% yoy.
Operational effi ciency
programmes
In 2015, NLMK continued to
implement its operational effi ciency
programmes. Over 1,800 optimization
projects across all NLMK business
divisions ensured an economic eff ect
of $197 million (vs. the 2014 cost
base).
22
1 2015
Highlights
3 Ceo
statement
4 NLMK
profi le
6 Where we
operate
8 Products
and brands
10 Business
model
Operating profi t
Russian Flat Products
2015 operating profi t fell by 13% yoy to
$1,388 million due to the narrowing of
spreads between raw material and fi nished
product prices. This factor was partially off set
by the eff ect from operational effi ciency
programmes, a 5% yoy increase in sales, as
well as the weakening of the ruble against
the dollar.
The 28% yoy decrease in general and
administrative expenses was driven by
optimizing management expenses, as well as
the fall in the ruble exchange rate.
The 13% yoy decrease in commercial
expenses was associated mainly with the
currency factor that was partially off set by
a 5% yoy increase in sales and an increase
in the share of shipments to international
markets with higher transportation costs.
Net profi t
2015 net profi t was $967 million (+25% yoy),
the increase being associated with the low
base of 2014 when signifi cant impairment
losses were accounted for ($657 million vs.
$86 million in 2015). The decrease in NBH
losses ($103 million in 2015 vs. $193 million
in 2014) also had a positive eff ect on the
profi t.
Free cash fl ow
2015 free cash fl ow was $997 million
(–14% yoy).
Debt management
Net debt in 2015 declined by 32% yoy to
$1.09 billion due to NLMK’s conservative
fi nancial policy and signifi cant free cash fl ow.
k t/$ million
2015
2014
YoY
Steel product sales, incl.:
sales to third parties
Revenue, incl.:
external customers
intersegmental operations
EBITDA
EBITDA margin
13,165
9,324
6,065
4,719
1,346
1,581
26%
12,258
8,180
7,872
5,684
2,188
1,609
20%
7%
14%
-23%
-17%
-38%
-2%
+6 p.p.
was driven mostly by higher semi-fi nished
product shipments: +0.7 m t of commercial
pig iron (vs. 0.3 m t in 2014) and +3.0 m t of
slabs (vs. 2.4 m t in 2014).
Total Segment revenue was $6.1 billion
(–23% yoy), including $4.7 billion (–17% yoy)
from sales to third parties. The 20–30%
slump in prices was partially off set by an
increase in the volume of sales.
Structural gain from operational effi ciency
programmes and the devaluation of the
Russian ruble supported an increase in
Segment profi tability to 26% (+6 p.p. yoy),
at the same time practically off setting
the impact from the narrowing of spreads
between steel and raw material prices. While
steel prices dipped 20–30%, 2015 EBITDA
declined by 2% yoy to $1,581 million.
Russian Long Products
Segment sales declined by 10% to
2.38 m t, an improvement on the trend
seen in the Russian long product market
where consumption dipped by 17% yoy.
The decrease in demand in Russia was
partially off set by an increase in export sales
to 0.28 m t (+37% yoy).
Total Segment revenue in the reporting
period was $1,152 million (–36% yoy) due
to the decrease in sales volumes and a
negative pricing trend for long products.
2015 EBITDA was $49 million (–68%
yoy) due to the decrease in sales and the
narrowing of spreads between long product
and scrap prices. EBITDA margin was 4%
(–4 p.p. yoy).
Net debt/EBITDA stood at 0.6х as at the end
of 2015 (vs. 0.7x at the end of 2014).
Russian Long Products
k t/$ million
2015
2014
YoY
Net changes in fi nancial liabilities in 2015
totalled $97 million.
NLMK Group’s total debt in 2015 decreased
by 3% to $2.68 billion, including 21% of
short-term debt comprised mainly of ruble
bonds and revolving credit lines for working
capital fi nancing.
Interest expenses in 2015 totalled $119 million
(–34% yoy), including $32 million of capitalized
interest expenses accounted for as part of
capex.
Russian Flat Products
Steel product sales, incl.:
sales to third parties
Revenue, incl.:
external customers
intersegmental operations
Segment sales in 2015 were 13.2 m t
(+7% yoy), including 9.3 m t (+14% yoy)
shipped to third parties. This increase in sales
EBITDA
EBITDA margin
ABOUT US/REPORT 2015
2,375
2,239
1,152
859
293
49
4%
2,636
2,619
1,815
1,447
368
152
8%
–10%
–15%
–36%
–41%
–20%
–68%
–4 p.p.
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
20 Financial and operating
24 5-Year highlights
review
review 2015
23
Mining Segment
k t/$ million
2015
2014
Iron ore concentrate and sinter ore sales, incl.:
17,014
sales to Lipetsk plant
12,380
16,209
11,942
1,068
346
722
640
60%
589
184
405
297
50%
YoY
5%
4%
–45%
–47%
–44%
–54%
–10 p.p.
Segment revenue was down by 28% yoy to
$1,442 million due to the yoy fall in average
sales prices and reduced sales volumes.
2015 EBITDA loss was –$96 million. This was
associated mainly with the use of expensive
slabs accumulated at the end of 2014 and
beginning of 2015. Without this factor
(assuming slabs were purchased at current
market prices) Segment EBITDA would have
been +$25 million.
NBH (associated company) results
Increased demand for steel from key sectors
in the European market in 2015 drove NBH
sales up by 10% to 2.0 m t.
NBH revenue declined by 18% yoy to $1.3 billion
due to the fall in prices for fi nished products.
Revenue, incl.:
external customers
intersegmental operations
EBITDA
EBITDA margin
Mining Segment
Iron ore concentrate and sinter ore sales
in 2015 increased to 17 m t (+5% yoy)
on the back of improved equipment
productivity and an increase in iron ore
shipments to the Lipetsk site (by 4% yoy
to 12.4 m t).
A two-fold reduction in global iron
ore prices determined the Segment’s
downward revenue trend: in 2015 it
totalled $589 million (–45% yoy).
Pressured by the price factor that
was partially off set by the eff ect from
operational effi ciency programmes
and higher sales volumes, EBITDA was
$297 million (–54% yoy); and EBITDA
margin was 50% (–10 p.p. yoy).
Foreign Rolled Products Segment
2015 segment sales totalled 2.2 m t
(–9% yoy) due to intensifi ed competition
with import deliveries and a drop in
demand from OCTG and machine-building
companies in the US market.
2015 EBITDA loss of $92 million
(vs. $115 million in 2014) was determined by
narrow spreads between prices for semi-
fi nished and fi nished products, the latter
being partially off set by the increase in sales
volumes and the eff ect from operational
effi ciency programmes.
Foreign Rolled Products Segment
k t/$ million
2015
2014
YoY
Steel product sales
Revenue, incl.:
external customers
intersegmental operations
EBITDA
EBITDA margin
2,199
1,442
1,442
–
(96)
–7%
2,412
2,015
2,015
–
104
5%
–9%
–28%
–28%
0%
–193%
–12 p.p.
24
12 Innovation
14 Strategy
16 Strategy
in action
18 Market
review
20 Financial and operating
24 5-Year highlights
review 2015
5-YEAR HIGHLIGHTS
Financial indicators, US$ m
2011*
2012*
2013
2014
Revenue
Profi t for the period attributable to NLMK shareholders**
EBITDA
EBITDA margin
Cash fl ow from operations
Capital expenditures
Net debt
Dividends per share
11,729
1,315
2,254
19%
1,315
2,048
3,355
12,157
596
1,900
16%
1,825
1,453
3,574
10,818
10,396
145
1,480
14%
1,333
756
2,736
773
2,381
23%
1,806
563
1,598
0,0627
0,0193
0,0243
0,1289
2015
8,008
967
1,948
24%
1,651
595
1,091
n/a
Production indicators, ‘000 t
2011
2012
2013
2014
2015
Liquid steel output
Total steel product sales
Sales of HVA products
11,968
12,840
4,508
14,923
15,184
5,428
15,429
14,831
5,223
15,921
15,126
4,700
15,866
15,863
4,530
Sustainability indicators
2011
2012
2013
2014
2015
Headcount, ‘000 people
Labour productivity, t of steel/person (Lipetsk operations)
LTIFR at Russian assets of NLMK Group
Air emissions, kg/t of steel
60.0
329
0.87
26.1
62.5
406
0.87
22.6
62.1
420
0.86
21.9
60.1
437
0.55
21.1
56.7
463
0.43
20.9
* Financial data in line with IFRS. 2011–2012 data in line with US GAAP.
** For 2011–2012: net profi t attributable to NLMK shareholders.
ABOUT US/REPORT 2015
SUSTAINABILITY – REVIEW / REPORT 2015
NLMK’s SUSTAINABILITY REVIEW
NLMK Group headcount: 56,700 people
Labour productivity at Novolipetsk increased by 6%
Cumulative environmental investment since 2001: $1.3 billion
Emission rates dropped to 20.9 kg/t
Specifi c energy consumption decreased by 1% yoy
The number of occupational accidents decreased by 29% yoy
Over 50% of employees are involved in training initiatives
each year
NLMK Group’s investments in the regions of presence:
$54 million
Active stakeholder engagement: over 370 meetings
with shareholders and investors were held
EMPLOYEES BY GEOGRAPHY
4% 2% 0.4%
56.7
K
Russia
Europe
USA
93%
Other countries
VISUALLY COMPELLING AND EFFECTIVE PROMOTION
OF OCCUPATIONAL HEALTH AND SAFETY
I'm using
a safety harness.
What about
you?
I observe
traffic rules.
What about
you?
Safety is easy!
Safety is easy!
STRUCTURE OF INVESTMENT IN SOCIAL PROJECTS
20%
12%
6%
5%
3.3
RUB billion
Sports
Healthcare
Education
Culture
14%
43%
Work with children and young
people
Charity
6%
yoy increase in productivity;
a 41% improvement from 2011
0.43
Lost time injury frequency
rate (LTIFR) at NLMK
Group’s Russian companies:
a yoy decrease of 22%
In 2015, NLMK Group increased
the investment in social projects
by 13%
to RUB 3.3 billion
SUSTAINABILITY – REVIEW / REPORT 2015
Key sustainability indicators
LABOUR PRODUCTIVITY (LIPETSK
SITE) TONNES OF STEEL PER PERSON
LTIFR (NLMK’S RUSSIAN ASSETS)*
SPECIFIC ATMOSPHERIC EMISSIONS
(KG/TONNE OF STEEL)
463
0.43
406
420
437
329
0.87 0.87
0.86
20.9
27.9
22.6
21.9
21.1
0.55
0.60 ВАТ**
18.9 ВАТ
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
SPECIFIC ENERGY INTENSITY
(LIPETSK SITE, GCAL/T)
SHARE OF EMPLOYEES
WHO RECEIVED PROFESSIONAL
TRAINING (%)
ENVIRONMENTAL INVESTMENT
(CUMULATIVE $ M)
5.66
6.10
5.74
5.67
5.72
84
69
77
68
71
5.10 ВАТ
612
505
364
230
153
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
* Lost-time injury frequency rates.
** Hereinaſt er BAT (best available technologies) refers to the level of best available technologies for integrated steelmakers.
Corporate sustainability-related events in 2015
CERTIFICATION OF THE ENVIRONMENTAL
MANAGEMENT SYSTEM
In 2015, the Environmental Management System
at NSMMZ and NLMK Metalware was certifi ed as
compliant with ISO 14001:2004 by BSI
APPROVAL OF NLMK’S HR STRATEGY
NLMK Group’s HR strategy was designed based
on the Strategy 2017 targets. Development of the
talent management system is a key aspect of the
HR strategy
PRIZE IN THE ENVIRONMENTAL COMPETITION
NLMK Group topped the Urban Ecology nomination in
the Vernadsky National Environmental Competition for
the successful implementation of its environmentally
friendly waterless BF slag cooling technology
RECOGNITION OF NLMK GROUP’S PLANTS AS
REGIONAL LEADERS IN LABOUR PRODUCTIVITY
NLMK Kaluga, Novolipetsk and Altai-Koks became
winners in the fi rst national «Labour productivity –
Industrial Leaders 2015» award and were recognized
as leaders in labour productivity in their respective
regions
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
27
CEO
STATEMENT
The Company’s ongoing eff orts to minimize
its environmental impact also continue
apace. We believe this is a key element
serving to improve the quality of life of
our employees and the wider community.
NLMK Group invested more than $100
million into environmental projects across
all production sites in 2015. Implementation
of environmental projects has helped us to
signifi cantly reduce the environmental impact
of our production activities. In 2015 we were
able to cut specifi c air emissions and water
consumption, even though in terms of the
latter NLMK had already surpassed the level
of global best practice. NLMK Group will
continue to further reduce its environmental
footprint, regardless of output growth and
the steel market environment.
Priority areas of NLMK Group’s social policy
over the past year included enhancement of
the health and welfare of NLMK’s employees
and their family members; organization of
sports and cultural events; co-fi nancing of
non-state pensions for workers; and support
for vulnerable social groups. The Company
allocated more than $50 million for these
activities.
I am certain that the achievement of the
sustainability targets envisioned by Strategy
2017 will drive the continued dynamic
development of the Group and improve
confi dence in the Company yet further; as
well as providing a foundation for even
closer cooperation with all NLMK Group’s
stakeholders.
Best regards,
Oleg Bagrin
President of NLMK Group,
Chairman of the Management Board
Dear ladies and gentlemen,
Our company is a socially responsible
business. We understand that our
responsibility encompasses not only the
output of high-quality products, but also
the development of society; protection of
the environment; provision of comfortable
and safe working conditions; creation of
opportunities for career growth for our
employees; as well as support for the
health and welfare of not only NLMK
Group employees but also their families
and those in the communities where we
operate.
As a result, leadership in sustainability and
safety is one of the key targets of Strategy
2017. We continued our eff orts towards
achieving this target in 2015 by investing
in social projects, occupational health and
safety and development of the potential of
our employees.
In 2015, NLMK Group’s Management Board
approved our HR Strategy for the next two
years. It was devised on the basis of the
goals set out in Strategy 2017 and the
volatile economic situation. Today, as never
before, the company’s success depends on its
employees’ personal performance and ability
to tackle challenging tasks. Therefore, the
development of the talent management
system is at the core of our new HR
Strategy.
Identifying, developing and promoting
talented employees has been a priority for
NLMK Group for several years now. We
train our staff starting from their school
years and work to continuously improve
their knowledge. Tens of thousands of
employees undertake retraining; study for
a second qualifi cation; and improve their
skills. Approximately 90% attend the Group’s
Corporate Training Center.
Injury free and zero incident production,
achieving best global OHS standards and
ensuring leadership in production culture
are important elements of Strategy 2017.
In the last two years we have implemented
our top priority programmes for risk
management; and personnel training,
involvement, and awareness; which have
driven a considerable injury rate reduction.
Today, all NLMK Group plants are covered
by the integrated occupational health and
safety programme and the Lost Time Injury
Frequency Rate (LTIFR) has declined by 20%
from the 2014 level, bringing it in line with
the level of global best practice.
28
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
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
benefi cial for all parties.
In identifying key stakeholders, the
Company considered the extent of their
infl uence 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
specifi c 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.
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Stakeholders’ interests
Tools for bilateral dialogue
Feedback
Company employees
Salary, social package and social guarantees,
career growth, safety and working conditions
Trade unions
Opinion polls, Dial 06 counselling service, union
meetings, appointments to discuss personal
issues, change-of-shift meetings, corporate
media, incl. corporate magazines, newspapers
Salary indexation, swift response to
applications, possibilities for further career
development, improvements in working
conditions
Compliance with sectoral tariff agreement,
compliance with collective agreements,
observance of employment legislation, awareness
of the Company’s operations, employee salary
level and social protection, working conditions
and occupational safety
Meetings and negotiations, discussion and
conclusion of collective agreements, labour
dispute commissions, Joint Commission
involving administration and union, social
insurance commission, occupational safety
commission, qualifi cation and staff review
commissions
Strict application of all social benefi ts
and guarantees specifi ed in collective
agreements, joint implementation of
measures, response to applications,
following unions’ recommendations
Shareholders and investors
Operational and fi nancial performance, Company
strategy, dividend payments, corporate
governance issues, number of ordinary NLMK
shares fl oating freely on Russian stock
exchanges, number of shares issued by NLMK
and traded at the London Stock Exchange of
Global Depositary Shares
SUSTAINABILITY / REPORT 2015
Meetings with the Company’s senior
management, annual reports and fi nancial
statements, quarterly performance
presentations, teleconferences to discuss
quarterly, six-month and annual results, media
publications, Company website
Dedicated services for shareholder and
investor relations, dedicated section
for shareholders and investors on the
Company website
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
29
Stakeholders’ interests
Tools for bilateral dialogue
Feedback
Consumers
Fulfi lment of contractual obligations, product
quality and price, timely review and settlement
of customer complaints and claims, technical
upgrades and development, operational and
fi nancial performance, fi nancial and nonfi nancial
risks
Annual reports and fi nancial statements,
conferences, forums, business meetings,
Russian and international professional
associations and organizations, media
publications, Company website
Local communities
Use of customer satisfaction monitoring
results for future contracts
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
Media, representatives of public organizations,
members of representative and legislative
bodies at different levels, career guidance
events, conferences, meetings
Funding to support sports, healthcare,
education and culture, fi nancing child
healthcare programmes and projects to
promote a healthy lifestyle, charitable aid
to disadvantaged social groups
Government authorities
Compliance with applicable laws, tax liabilities,
regional social and economic development,
environmental protection
Public organizations
Compliance with applicable laws, the environment,
regional social and economic development,
charitable activities
Suppliers
Participation in the work of state authorities
including legislative bodies, participation in
international and Russian professional and
public organizations, meetings, dialogues,
media
A dedicated service for communication
with representatives of state and local
authorities, Company participation
in different federal and regional
programmes
Conferences, clubs, meetings and other events,
media, letters, Company website
Handling of all issues, participation in the
implementation of joint projects
Possibility of long-term development, fulfi lment
of contractual obligations, timely review and
settlement of supplier complaints and claims of
customers, operational and fi nancial statements
of the Company
Annual reports and fi nancial statements,
conferences, forums, business meetings,
Russian and international professional
associations and organizations, media
publications covering Company activities,
Company website
Open tenders, contact information for
procurement department on the Company
website
30
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
OUR EMPLOYEES
Our team is our greatest asset, and our
highly-qualifi ed employees are a key factor
in delivering strong performance.
Working at NLMK is an opportunity
to create a new future with one
of the world’s most effi cient steel
companies.
NLMK is building a team of professionals
off ering comprehensive support to
talented and ambitious employees who
bring new ideas to life and are focused on
result.
NLMK’S HR POLICY
▪ Foster an honest and attractive culture
that provides equal career opportunities
▪ Improve the organization’s effi ciency by
consistently promoting high-potential
employees
▪ Build a learning organization
Our Motivation project aims to:
▪ Align remuneration principles across the
Group
The three pillars of our HR strategy and
our mission on each of them:
▪ Establish clear rules for setting fi xed salary
rates, depending on job attributes (grades)
Employee
We are striving to ensure that every job
position within NLMK Group is fi lled by
a properly qualifi ed, motivated and loyal
member of staff .
Company
We are striving to make NLMK Group the
preferred employer in the markets where
we operate, and to off er the best career
opportunities to employees with high
potential for advancement. We regard
cost-eff ectiveness as our priority and
believe that our personnel costs should
not exceed our labour productivity growth.
Our aim is to replicate and develop best
practices and be able to adapt quickly to
the changing environment.
HR
We are striving to ensure that our HR
function uses advanced expertise to become
a leader in our Employee and Company
mission, while being a reliable business
partner and one of the most cost-effi cient
functions in the industry.
The foundation and four strategic
projects aimed at fulfi lling the mission
Our Talent Management project aims to:
▪ Proactively identify and train qualifi ed
staff
▪ Fully unlock employees’ potential and
help them achieve job fulfi llment
SUSTAINABILITY / REPORT 2015
▪ Make sure that the variable pay is clearly
linked to performance
▪ Create a perfect balance between the
Company’s competitiveness in the labour
market and cost control
Our Structure and Process Optimization
project aims to:
▪ Align organization principles across the
Group
▪ Achieve labour effi ciency with the number
of employees clearly linked to the volume
of work
▪ Clearly defi ne the responsibilities for each
task within processes and functions
▪ Ensure optimal timing of organizational
and structural changes through a single
point of accountability for project
coordination
Our Employee Engagement project will
lead to:
▪ Positive attitude: our employees always
speak positively of the Company when
talking to their potential or existing
colleagues or clients
▪ Loyalty: our employees want to stay with
the Company for a long time and seek to
be part of it
▪ Focus on improvement: our employees
proactively seek to contribute to the
Company’s success
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Case study: NLMK Group’s HR
policy for the next two years
was approved in 2015. The
policy is in line with the goals
set out in the Group’s Strategy
2017 and adapted to changing
economic conditions. Its key
aim is to build an effective
talent management system,
as employees’ individual
performance and ability to
meet challenges determine the
Company’s success or failure.
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
31
The main goal of NLMK’s HR policy is to
develop and manage talent eff ectively,
building a cohesive team capable of
delivering success and consistent
growth.
To this end, the Company pursues an
active policy aimed at attracting and
retaining the most talented young
employees, providing equitable salary
increases, utilizing a range of diff erent
incentives, conducting professional
training and staff development
programmes, ensuring a safe working
environment and improving social
safeguards for employees.
We are striving to make NLMK Group
the preferred employer in the markets
where we operate, off ering the best
career opportunities and ensuring that
all NLMK Group employees are properly
qualifi ed, motivated and loyal, as our
leadership depends on what each of us
contributes to the common cause.
HR POLICY KPI
Each year NLMK Group sets ambitious
personnel and labour productivity targets,
measuring KPIs both at the Group and
individual company level.
Almost all the targets set for 2015 at both levels were met. Below are some typical
examples of KPIs.
Level
Targets for 2015
Unit
Target
Actual
performance
Progress
2015
NLMK Group
Labour productivity growth
Novolipetsk
Attrition rate
%
%
5.0
6.0
6.0
2.6
Achieved
Achieved
Stoilensky
Requests for professional
training granted
Scrap collection
and processing
division
Development and
introduction of Regulations
on Young Employees
Altai-Koks
Senior management talent
pool: competence profi les
for all candidates at Altai-
Koks approved
people
1,395
2,177
Achieved
–
–
–
–
–
–
Achieved
Achieved
Aſt er the new HR strategy was adopted, we added some employee advancement KPIs.
KPI
Unit
Target for 2016
Share of appointments from within the talent pool
Share of key positions to be fi lled with candidates from
within the talent pool
%
%
75
50
32
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
OUR EMPLOYEES
Average NLMK Group headcount during
2015 was 56,700 people (–6% year-
on-year), of which 53,200 people were
employed at Russian sites; 2,400 people
were employed at NLMK’s European
divisions; around 1,000 people were
employed at NLMK USA; and around 300
people were employed in other countries
where NLMK Group assets are located,
including India, China, etc.
Over 50% of NLMK Group personnel
are directly involved in the mining and
steel production process; whilst 23%
are involved in repair and maintenances;
and approximately 3% are involved in
research and innovative development.
The remaining 24% are administrative
and management personnel, including
services.
both colleges and universities and among
those that have completed their service in
the armed forces of Russia. As a result, the
Company hires over 1000 young qualifi ed
workers each year that later form the
Company’s pool of professional talent, future
managers and experts.
NLMK Group has no gender limitations.
NLMK has an active HR policy aimed at
attracting prospective young workers from
LABOUR PRODUCTIVITY
Personnel structure by asset
geography
Personnel structure by age
4% 2% 0.4%
26%
21%
NLMK consistently enhances the effi ciency
of its business by increasing the level of
motivation and professionalism of its
employees; through equipment upgrades;
by implementing new technologies; and
rationalizing production processes.
The Company is currently on par with
leading global steel companies in terms
of operational effi ciency; and NLMK
continues to develop. The strategic
target for the next few years is further
increases in labour productivity through
both process optimization initiatives and
equipment productivity increases; with active
involvement of personnel in the process.
Continuous development has become the
cornerstone of NLMK’s corporate culture.
93%
Russia
Europe
53%
STRUCTURE AND FUNCTIONALITY
OPTIMIZATION
USA
Under 30
Over 50
Other countries
30–50
In 2015, NLMK Group continued
implementing a programme aimed at
improving effi ciency and identifying cost
saving opportunities. We launched a set of
Personnel structure by function
Personnel structure by gender
Labour productivity
24%
40%
27%
3%
23%
11%
Steelmaking
Mining and raw materials
Repair and maintenance
Research and development
Services, management,
administration and other functions
Men
Women
SUSTAINABILITY / REPORT 2015
406
420
437
463
239
249
268
283
329
198
73%
2011
2012
2013
2014
2015
Labour productivity,
Novolipetsk
Labour productivity,
NLMK Group
y
k
s
n
e
l
i
o
t
S
,
r
e
b
m
e
m
ff
a
t
s
,
v
e
h
z
o
r
o
t
S
.
V
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
22 Communications
33
initiatives, including a successful pilot project
to outsource Novolipetsk’s steelmaking
equipment maintenance and repairs to
SMS Siemag Services. Some of the service
functions, including catering and cleaning
services were also outsourced.
Large-scale outsourcing enabled NLMK
Group to improve service quality, bring down
costs and cut personnel by moving support
staff to external providers.
PERSONNEL MOTIVATION
Personnel motivation is one of the topmost
priorities stated in NLMK Group’s HR policy.
Our motivation system helps us improve the
quality of work and achieve more. NLMK
Group uses fi nancial motivation, social
motivation and psychological motivation.
The most eff ective technique currently
employed by NLMK Group is result-
oriented motivation, in which employee
performance is measured with the help
of key performance indicators (KPIs). By
identifying KPIs for senior management and
cascading them throughout the organization
we can greatly improve labour effi ciency
and productivity across the Group. This
principle serves as the basis for management
by objectives (MBO), a system actively
implemented across all NLMK Group
companies in 2015.
Seeking to protect our employees from
infl ation, we index wages to keep up with
the increase in price levels each quarter.
The average monthly salary at NLMK Group
companies increased by about 8% yoy in
2015, reaching 47,400 rubles at the Russian
plants.
To attract and retain people, improve job
satisfaction and generate internal motivation,
we off er a number of non-fi nancial incentives:
badges or certifi cates of appreciation for
employees who performed exceptionally
well; stories about the best employees in the
corporate newspaper; their portraits on the
Recognition Board; free rides to work and
back for employees from other cities; and
management talent pool opportunities for
successful and talented employees.
3,000 Novolipetsk employees received
awards in 2015, including:
▪ 2,877 corporate awards
▪ 51 regional and city awards
▪ 55 industry awards
▪ 2 state awards
34
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
Contests and competitions are important
elements of the incentive system. They
help increase employee commitment to
professional development and provide ample
career growth opportunities. Novolipetsk
alone held 37 skills competitions with over
2,000 participants in 2015.
Case study: The Young Leader
contest held by Altai-Koks had
32 participants in 2015 and included
corporate training that covered
management and leadership skills, as
well as a special module titled ‘Mini
Project Management’. More than
5,000 young employees participated
in similar contests across NLMK
Group companies in 2015.
NLMK Group companies annually hold
Young Leader contests for young employees
to stimulate their personal and professional
development.
SOCIAL PACKAGE
As a responsible employer, NLMK
continuously supports its employees by
providing benefi ts.
All NLMK Group employees have access
to such social benefi ts as provisions for
employee health and welfare, catering and
recreation, occupational health and safety,
motherhood and childhood support, support
for pensioners and veterans and further
social incentives for the best workers as well
as a variety of social payments.
Our female employees enjoy additional
benefi ts beyond those required by law:
fl exible working hours for women with
small children and professional training
and development programmes following
maternity leave.
NLMK Group also implements a
comprehensive youth programme to provide
additional support to young employees.
Graduates of partner colleges and
universities are off ered a guaranteed average
salary and kickoff bonuses upon employment.
NLMK has another good tradition: we give
New Year presents to our employees’ children
and off er discounts on package holidays to
children’s summer camps.
Case study: Winners of the
Housing for Young Steelworkers
2015 programme who work at
Novolipetsk received keys to their
new apartments in a ceremony
that took place in July 2015. The
programme is an annual not-for-
profi t social project targeted at
top-performing employees aged
below 35. The 32 young families
will all live in the same section of a
new apartment block in Lipetsk’s
28th district. Four hundred
and one young families of our
employees have already been
provided with housing since the
start of the programme in 2005.
HEALTH AND WELFARE
The health and welfare of NLMK employees
is a priority focus of the company’s
social activities. The health and welfare
of its employees is a priority for NLMK
Group, which focuses close attention on
developing a strong corporate health culture,
establishing the conditions for a healthier
lifestyle and improving mental and physical
health.
NLMK Group runs 3 medical units and over
25 fi rst aid facilities to provide medical
support. NLMK employees have the
opportunity to make visits to health resorts
and spas, both locally at 10 NLMK health
resorts and spas, and in other regions of the
country. NLMK allocated 100 million rubles
($2 million) in 2015 towards health resort
treatment for employees.
Healthy lifestyle programmes are aimed at
involving as many employees as possible in
sports activities; and at popularizing healthy
life choices. Employees have the opportunity
to use gyms located at NLMK facilities, to
get discounts on memberships to swimming
pool and fi tness centres.
Case study: More than 3,500
employees participate in the
‘NLMK Olympics’ each year. The
Olympics are held throughout
the year in 19 different sports.
The event also offers a chance to
take GTO physical fi tness tests.
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
35
The Company organizes regular sports and
cultural events.
Summer camps are organized each year for
the children of NLMK employees. Employees
benefi t from discounted trips to three
diff erent children’s camps owned by the
Сompany, as well as camps located on the
coast of the Black Sea.
TALENT DEVELOPMENT
NLMK sees investment into personnel
development as a prerequisite for the
Сompany’s long-term competitiveness,
dynamic development, an increased potential
of its human capital; and, ultimately, the
increased fundamental value of the Сompany
as a whole. In line with its Strategy 2017,
NLMK Group continues to improve its
professional development procedures.
Professional training at NLMK Group is a
complex project that provides the level of
employee qualifi cation necessary for solving
professional challenges. It also increases
employee loyalty, forms a favourable social
and psychological climate in the workplace
and has a direct impact on the development
of NLMK’s corporate culture. The primary
direction of our talent development eff orts
focuses on our talent pool – promising
employees, performance reviews of
managers and line personnel, mandatory
knowledge tests for workers (knowledge
checks), induction, coaching, leadership
initiatives and skills competitions.
The year of 2015 marked the beginning
of a new process for NLMK Group: we
are assessing our managers and line and
administrative personnel to determine
whether they meet our job requirements.
We look at how they perform their job duties
and what personal and professional qualities
they demonstrate. Following assessment,
we devise individual training plans aimed at
improving their performance and develop
incentives to encourage them to work more
effi ciently.
Our talent pool is one of the uppermost
priorities of the HR policy. We provide
training to employees who are able to
perform managerial work to get them ready
for specifi c job openings. The programme
includes theory (seminars and training
sessions) and practical training in the
prospective position.
NLMK places a great emphasis on working
with promising young employees. Also, we
have an induction programme that aims
at supporting newcomers through the
onboarding process and preparing them for
their new role: they should be able to perform
their tasks and meet deadlines, have a good
understanding of their duties, be committed
to them, and feel personally responsible for
their work.
Case study: The year of 2015
saw the start of the fourth stage
of ‘NLMK Group Leaders 2025’, a
strategic talent pool development
programme that provides high-
quality training to the most
promising employees. The training
is delivered by world-renowned
teachers and executives from
global companies. The programme
opens up new career and personal
development horizons, motivating
employees to reach what seemed
to be unattainable. More than
50% of participants have been
promoted – including to function
directors – since the start of the
programme.
About 90% of employees are trained in-
house, enabling them to benefi t from the
wealth of knowledge accumulated by NLMK
and providing for a more eff ective training
process. Highly qualifi ed managers and
specialists as well as professors from leading
Russian educational institutions are invited to
teach employees.
Investment into professional
development and training ($ m)
5.5
5.5
4.8
4.4
3.3
2011
2012
2013
2014
2015
Investment structure into professional
development by area
3% 2% 1% 1%
$3.3
m
6%
13%
24%
50%
Talent pool training
Mandatory occupational health
and safety certification;
special-purpose courses
Professional training and skill
enhancement
New placement trainings
IT Tranings
Targeted financing of education
in colleges/universities
Participation in conferences
Advanced training workshops
36
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
OCCUPATIONAL
HEALTH AND SAFETY
The Company aims to be a world leader in
occupational health and safety (OHS) among
steel companies through applying best available
OHS practices, effi cient risk management,
through provision of incentives and by actively
involving employees in the occupational safety
programme.
NLMK’S OCCUPATIONAL HEALTH AND SAFETY POLICY
OHS is the cornerstone of effi cient production
GOALS
PRINCIPLES
ACTIONS
RESPONSIBILITIES
OF MANAGEMENT
▪ Effi cient accident – and incident-free operations;
▪ Achieving global leadership in occupational health and safety.
▪ Employees are NLMK’s key value; their health and wellbeing are key to the
success of our operations;
▪ Occupational health and safety is an integral part of our business and the basis
for decisions on developing and improving our business processes;
▪ All accidents, incidents and professional illnesses can and must be prevented;
▪ Safe operations are the responsibility of each and every employee.
▪ Effi cient management of potential risks to the health and safety of our
employees, contractors and third parties;
▪ Strictly adherence to Russian and international occupational health and safety
requirements;
▪ Continuous improvement of employee skills in the area of occupational health
and safety;
▪ Ensuring the transparency of OHS indicators.
▪ To ensure safe working conditions in line with OHS norms and standards;
▪ To allocate resources to ensure OHS compliance;
▪ To take measures to prevent accidents, incidents and professional illnesses;
▪ To introduce advanced OHS methods and technologies;
▪ To consult employees and their representatives on OHS issues; to motivate
employees to work in a safe and incident-free environment;
▪ To regularly assess the quality of the Сompany’s risk management system and
ensure its constant improvement.
RESPONSIBILITIES
OF EMPLOYEES
▪ To take care of both one’s own safety; and the safety of others;
▪ To strictly adhere to established OHS requirements and use of safe working
methods;
▪ To actively participate in OHS programmes.
KEY OHS INITIATIVES IN 2015
NLMK Group’s Russian plants carried out a
routine assessment of working conditions
and used their fi ndings to plan improvements
and to reduce the adverse eff ects of working
in industrial settings.
They also made an earlier planned transition
to new corporate protective clothing designs
and state-of-the-art high-effi ciency personal
protective equipment.
Senior executives of Russian and
international NLMK Group companies
completed training in an NLMK programme
aimed at building a safety culture. The
Group continued implementing its ‘Risk
Management’ and ‘In Search of Safety’
programmes.
OHS COSTS
NLMK annually fi nances events aimed at
the continuous improvement of OHS and
working conditions. The Group spent a total
of 1.5 billion rubles ($25 million) on OHS
initiatives in 2015. Its OHS spending has
thus more than doubled since 2010, when
measured in US dollars – and increased four-
fold when expressed in rubles.
Breakdown of Occupational Health
and Safety Costs
21%
42%
$25
m
2%
18%
5%
12%
Personal protection equipment
Improvement of working conditions
Healthy meals
Occupational safety
OHS trainings
Other
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
37
NLMK GROUP’S OCCUPATIONAL
INJURY STATISTICS
NLMK Group achieved a signifi cant reduction in
occupational injury rates in 2015, as compared
with 2014 levels:
▪ The total number of lost time injuries
dropped 44 points, or 29% across all
NLMK Group plants
▪ The number of work days lost due to work-
related accidents fell by 34%
▪ Lost time injury frequency rate (LTIFR
per 1,000,000 hours worked) among
employees was down:
– by 27% for NLMK Group;
– by 22% for NLMK’s Russian assets;
– by 28% for NLMK’s international assets.
TARGET OHS KPI
▪ Lost time injury severity rate (LTISR
per 1,000,000 hours worked) among
employees was down:
– by 33% for NLMK Group;
– by 26% for NLMK’s Russian assets;
– by 37% for NLMK’s international assets.
Ten NLMK Group companies had no lost
time injuries at all in 2015.
Unlike 2014, when there was not a single
work-related fatality, we were regrettably
not able to avoid them in 2015. However,
their number was smaller than in 2011,
2012 or 2013: four fatalities in Russia and
one abroad.
Lost Time Injury Frequency Rate (LTIFR) –
Russian Assets
0.87
0.87
0.86
0.55
0.60 ВАТ
0.43
2011
2012
2013
2014
2015
The effi ciency of our OHS efforts is measured with the help of KPIs. Here is an overview of some of our OHS targets for 2015.
Key corporate
social responsibility
aspects
Occupational health
and safety
Targets for 2015
Performance in 2015
Progress
Targets for 2016
Ensuring that the lost time
injury frequency rate (LTIFR)
at NLMK Group’s Russian
companies remains unchanged
from 2014
Reducing lost time injury
frequency rate (LTIFR) at
NLMK Group’s international
companies by 10% from 2014
Lost time injury
frequency rate (LTIFR)
dropped 22% from 2014
Target exceeded
by 22%
Target exceeded
by 18%
The lost time injury
frequency rate (LTIFR)
at NLMK Group’s
international companies
decreased by 28% from
2014
Eliminating or reducing no
less than 50% of identifi ed
unacceptable risks
72% of identifi ed
unacceptable risks
eliminated or reduced
Target exceeded
by 22%
Ensure that no less than 20%
of employees (10,000) are
involved in the ‘In Search of
Safety’ programme
20,433 employees
became involved in the
programme
Target exceeded
by 104%
Keeping lost time injury
frequency rate (LTIFR) at
NLMK Group’s Russian
companies below or equal
to 0.60
Reducing lost time injury
frequency rate (LTIFR) at
NLMK Group’s international
companies by 10% from
2015
Eliminating or reducing
no less than 50% of
unacceptable risks identifi ed
in 2016 that were also
revealed in 2015
Ensure that no less than 20%
of employees (10,000) are
involved in the ‘In Search of
Safety’ programme
38
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
ENVIRONMENTAL
SAFETY
NLMK Group’s environmental efforts are focused on
preventing – or where not possible, then minimizing –
its negative environmental impacts, providing safe
working conditions and creating a good living
environment in the regions where it operates.
COMPREHENSIVE APPROACH TO
ENVIRONMENTAL PROTECTION
NLMK undertakes to meet regulatory
requirements and set higher environmental
standards for its companies, bringing them
in line with best environmental practices
from around the world. This approach is
part of our Strategy 2017, which aims at
reducing the Company’s emission rates
and achieving best-in-class environmental
performance.
Approved in 2015, NLMK Group’s
Environmental Policy describes the
Company’s environmental principles, targets,
actions and commitments.
NLMK Group consistently adopts the best
environmental safety management practices
from around the world. Seven of our key plants
have achieved international certifi cation, and
two more companies – NLMK Kaluga and
Altai-Koks – plan to do so in 2016.
ENVIRONMENTAL INVESTMENT
A reduced negative impact on the
environment is the result of NLMK Group’s
capex programme alongside planned
environmental and technological initiatives
outside of the investment process.
NLMK Group’s investment into projects to
ensure a reduced environmental impact
KEY ENVIRONMENTAL TARGETS
Targets for 2015
Performance in 2015
Reduce emission rate
by 0.2 kg per tonne of
steel compared with
2014 levels
Emission rate reduced
by 0.2 kg per tonne of
steel compared with
2014 levels
Progress
(analysis)
Target achieved
Reduce water
consumption by 0.4
cbm per tonne of steel
compared with 2014
levels
Water consumption
reduced by 0.5 cbm
per tonne of steel
compared with 2014
levels
Target exceeded
by 0.1 cbm per
tonne of steel
Targets for 2016*
Reduce emission rate
by 0.1 kg per tonne of
steel compared with
2015 levels
Reduce water
consumption by 0.1
cbm per tonne of steel
compared with 2015
levels
Increase NLMK
Group’s overall
recycling rate by 15%
of the 2011 levels
Recycling rate
increased by 17% of the
2011 levels
* with steel production remaining at the same level in 2016.
Target exceeded
by 2%
Increase recycling rate
to 15%
and the cost of environmental initiatives
in 2015 totaled 6.5 billion rubles
($107 million).
23.1 billion rubles (over $600 million) was
spent in total on environmental activities
between 2011 and 2015.
Examples of environmental initiatives
implemented in 2015
NLMK Group ran a number of major
environmental initiatives at diff erent
stages of completion in 2015. All of them
were aimed at reducing the Company’s
environmental impact.
NLMK’s environmental investments
($ m)
153
134
141
107
77
2011
2012
2013
2014
2015
For instance, an environmentally friendly
waterless BG slag cooling technology was
successfully implemented at the Lipetsk
site, resulting in an 8-fold reduction in
hydrogen sulphide content of emissions
produced during this process.
The refractory shop completed the
upgrading of dust collectors for rotary
furnaces, which helped reduce dust
emissions by about 200 tonnes a year.
Other NLMK Group companies also
implemented major environmental
initiatives, including:
▪ Equipment repairs and upgrades at Altai-
Koks’ coke batteries
▪ A new dust suppression system at
Stoilensky’s tailings pond (fi rst stage)
▪ Filtering equipment upgrades for
improved off -gas treatment at NLMK
Kaluga’s EAF.
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
39
REDUCTION OF ENVIRONMENTAL
FOOTPRINT
kg per tonne of steel, bringing the total
decrease over the past fi ve years to 25%.
NLMK’s systematic and consistent
approach to environmental protection,
alongside the high priority it gives to
environmental initiatives guarantees
continuous improvement of its environmental
performance.
Novolipetsk produces 81% of NLMK
Group’s steel, and accounts for more than
80% of all emissions. This explains the
plant’s heavy investment in environmental
initiatives at all stages of the production
process.
Air
In 2015, NLMK Group reduced its emission rate,
the key environmental performance indicator –
which is now very close to the best available
technology levels. While the Company’s steel
production was at the same level as in the
previous years, emission rates dropped to 20.9
The Lipetsk site is focused on
improving its environmental
performance and thus minimizing
its environmental footprint.
Hard work and massive
investment enabled the plant
to reduce its contribution to
air pollution by almost 50% in
the past 15 years. According to
Rosgidromet (Russian Federal
Service for Hydrometeorology
and Environmental Monitoring),
air pollution in Lipetsk is fi ve
times lower than 10 years ago,
bringing it in line with cities with
no industrial operations.
The Group’s mining companies
(Stoilensky, Stagdok, and Dolomit)
accounted for about 1% of the total
emissions.
NLMK Group will continue to reduce its
emission rate in 2016; the next target
is to cut the rate by another 0.1 kg per
tonne of steel.
Water
One of the key indicators which refl ects
the impact of production on water bodies
is the water consumption per tonne of
steel.
NLMK Group leads the way in this area,
outperforming its global peers. With
its unique technologies and effi cient
production, the Company was able to
reduce water consumption to 4.9 cbm
per tonne of steel in 2015 – compared to
the best available technologies level at
7.0 cbm per tonne for integrated world
producers.
This great care for one of the most
important natural resources was made
possible thanks to a closed loop water
system introduced by Novolipetsk,
Stoilensky, Altai-Koks, VIZ-Steel and NLMK
Specifi c air emissions (kg/t)
Specifi c water consumption (m3/t)
27.9
22.6 21.9
21.1
20.9
18.9
18.9 ВАТ*
6.6
7 ВАТ
5.5
5.4
5.4
4.9
2011
2012 2013 2014 2015
Target
2020
* BAT = best available technologies.
2011
2012 2013 2014 2015
Kaluga. The system enabled these facilities
to stop polluting discharges into water
bodies entirely.
NLMK Group will continue taking steps to
reduce its water consumption in 2016; the
next target is to cut it by another 0.1 cbm
per tonne of steel.
Waste management
NLMK Group produced 63 million tonnes
of waste in 2015 (just like the year before);
92% of this was attributed to Stoilensky.
Novolipetsk accounted for 7% of the waste
produced in 2015. It is worth saying that
the Group’s main production site was able
to reduce its waste by 11% yoy thanks to
a number of resource-saving initiatives.
While the other NLMK Group plants
accounted for only about 1% of waste,
they were also involved in the programme
aimed at making more use of recycled
materials.
The recycling rate at NLMK Group’s
steelmaking companies in Russia exceeded
90% in 2015. Novolipetsk increased
its recycling rate by 2 p.p., to 96%, and
a number of NLMK Group companies
managed to make use of accumulated
waste. With a recycling rate of 110% and
102%, respectively, NSMMZ and Dolomit
were among the most environmentally
responsible NLMK Group companies.
As part of Strategy 2017, Novolipetsk
plans to build a briquetting plant that will
recycle accumulated ferrous waste into
material used in pig iron manufacturing.
With a capacity of 700,000 t briquettes,
the new facility will make its contribution
to improving the Company’s recycling rate.
It is slated for launch in 2018.
PUBLIC APPRAISAL OF NLMK
GROUP’S ENVIRONMENTAL
ACTIVITIES
In 2015, NLMK Group received a silver
medal at Metal-Expo’2015 international
industry awards for the successful
implementation of its environmentally
friendly waterless BG slag cooling
technology at the Lipetsk site that resulted
in an 8-fold reduction in emission of
hydrogen sulfi de.
With the same innovation NLMK Group
topped the Urban Ecology nomination in
the Vernadsky National Environmental
Competition.
40
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
ENERGY EFFICIENCY
NLMK Group continued its efforts to increase
operational and energy effi ciency in 2015; the
initiatives generated a total impact of 1.3 billion
rubles ($21 million).
In 2015, NLMK Group signed long-
term agreements with NOVATEK for
the supply of natural gas to all of
NLMK Group’s Russian production
facilities. The contracts have been
signed for a term of 5 years and will
come into effect on January 1st,
2016. The agreements provide for
the supply of an annual volume of
2.8 billion cubic meters of natural gas
to NLMK Group’s production facilities.
This will cover 100% of NLMK
Group’s natural gas needs that were
previously met by other companies.
international standard. Stagdok, Dolomit and
NLMK Kaluga also successfully passed their
energy management effi ciency audits in 2015.
Currently, all of the main NLMK Group Russian
facilities have valid certifi cates of compliance
with the requirements of the ISO 50001
international standard. This is the result of
the Company’s consistent approach to the
generation, consumption and use of energy for
the production of goods.
Specifi c energy intensity of steel
production (Gcal/t)
6.1
5.74 5.67
5.72 5.66
5.1 ВАТ
2011
2012 2013 2014 2015
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These were achieved by a reduction in
natural gas costs by over 270 million
rubles through purchases at an organized
trading venue; long-term gas supply
contracts with NOVATEK that would meet
100% of the Russian companies’ natural
gas needs in 2016–2020; and improved
utilization of process equipment to avoid
downtime, etc.
The improvements helped NLMK Group’s
Russian companies achieve a 3% yoy
decrease in energy consumption in 2015
despite the fact that production remained at
the same level as it was in the previous years.
Key energy effi ciency investment projects
in 2015 included the launch of a 20 MW
top-pressure recovery turbine (TRT) for
Blast Furnace No. 7 at the Lipetsk site
and air separation unit No. 17. Among
other benefi ts, these projects increased
Novolipetsk’s self-suffi ciency in energy from
54% to 57%. Almost 77% of all in-house
energy was generated through the recovery
of by-product BF and coke gases.
Initiatives to boost energy effi ciency resulted
in a 1% year-on-year improvement in the
energy intensity of the Lipetsk site during
2015, to reach 5.66 Gcal per tonne of steel.
NLMK Group’s target energy effi ciency
level is equal to the level of best available
technologies (BAT). To achieve this target,
we plan to implement a series of low-cost
initiatives within the optimization programme,
as well as local energy savings programmes
at production sites and Strategy 2017
investment projects each year.
NLMK Group’s energy management effi ciency
during 2015 was endorsed by international
specialists. Representatives of the British
Standards Institute (BSI) confi rmed the
compliance of the energy management
system at Altai-Koks, Stoilensky, VIZ-Steel,
NSMMZ, NLMK Metalware, and Novolipetsk
with the requirements of the ISO 50001
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
41
Sergey Chebotarev, NLMK Group Vice President for Energy, said: “In order to reach
the level of best available technologies, in 2015 NLMK Group implemented a set of
investment projects and a signifi cant number of cost-effi cient optimization initiatives.
Key projects in the pipeline include the construction of a TRT for blast furnace No. 6;
improved reliability of the energy supply to BOF shops; replacement of turbine-driven
generator No. 5; completion of upgrades to bell-type furnaces at Novolipetsk rolling
operations; and establishing the energy supply for the Stoilensky pelletizing plant
currently under construction.”
42
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
COMMUNITY
DEVELOPMENT
SOCIAL RESPONSIBILITY MISSION
AND STRATEGIC OBJECTIVES
Social mission
The Company sees its social mission as
achieving sustainability goals, which meet
the long-term economic interests of the
business, contribute to community welfare,
along with conservation of the environment
and the observance of human rights within
the territories of its operation.
Social responsibility and sustainability:
NLMK’s strategic goals
The combined eff orts of the Company, its
employees and communities are aimed at
achieving the following strategic goals:
▪ Create a favourable and predictable
social and economic environment for its
employees and local communities;
▪ Improve corporate governance frameworks
for economic, environmental and social
activities of the Company;
▪ Comply with international environmental
protection standards. Focus on the best
state-of-the-art technologies;
▪ Observe business ethics principles, resist
corruption and terrorism;
▪ Develop new types of products to meet
customer expectations;
▪ Create an environment for the stronger
performance by Company employees;
▪ Ensure sustainable improvements in
welfare and social safety for Company
employees and safe workplace
environments.
IMPROVING THE SOCIAL
ENVIRONMENT
Improving the quality of life for people
that live in the regions in which the
Company operates is one of NLMK’s
key social responsibility goals. The
Company works with local communities;
and the authorities at diff erent levels;
to strive to create new opportunities
for using cutting-edge mechanisms for
development of the regions where NLMK
operates and to resolve the most burning
social issues.
The Company makes a signifi cant
contribution to local employment,
providing jobs with competitive salaries.
Almost all our employees are local
residents.
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Pursuing a policy of regional responsibility
produces economic benefi ts for the
Company including development of the
potential of the labour force; as well
as improved engagement with local
communities and creation of comfortable
living conditions for Company employees.
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NLMK creates comfortable and safe
working conditions in order to stimulate
personnel development; and strives
to provide workers with an adequate
standard of living. The level of salaries
at all Group companies exceeds average
The combined efforts of the Company, its employees and communities are aimed at achieving the following strategic goals:
Key aspects
of corporate
responsibility
2015 objectives
2015 results
Engagement with local
communities
Development of
regions where NLMK
operates
To implement initiatives
that promote the
sustainable development
of the regions where
the company operates
and maintain social and
economic stability in local
communities.
Investment in social needs and the
development of the regions where the
company operates totaled 3.3 billion rubles
($54 million) in 2015; whilst over 400 million
rubles ($7 million) was allocated to charity.
NLMK was ranked one of the top fi ve
socially responsible companies in a study
by the Agency of Political and Economic
Communications
Achievement of
set objectives:
analysis
2015 objective
achieved
NLMK Group actively
participated in the
development of the
regions where its
assets operate
2016 objectives
To continue
implementing
measures to
promote the
sustainable
development
of the regions
where the
Company
operates
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
43
income levels in the regions in which they
operate, which attracts new workers to
the Company. NLMK implements several
dozen social programmes.
NLMK GROUP’S INVESTMENTS
IN THE REGIONS IN WHICH IT
OPERATES
Financing for social programmes is a
key prerequisite of their effi ciency. The
Company is focused on projects that
ensure tangible improvement of the
quality of life for people in the regions in
which it operates.
NLMK consistently fi nances programmes
aimed at promoting education, healthcare,
and culture. Promotion of sport is an
important area for the Company, including
for children.
NLMK Investment in social projects
($ m)
2015 Investment structure in social
projects
73
75
70
20%
12%
43
54
2011
2012
2013
2014
2015
▪ Work with children and young people
$54
m
6%
5%
14%
43%
Sport
Healthcare
Education
Culture
Key areas of social investment:
▪ Charitable activities.
▪ Promotion of sport and healthcare
▪ Promotion of education and culture
NLMK Group’s social investment at its
Russian sites totaled 3.3 billion rubles
($54 million) in 2015.
Work with children and young people
Charitable activities
44
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
PROMOTION OF SPORT
AND HEALTHCARE
The Company sees the promotion of welfare
and a healthy lifestyle for its employees and
people in regions in which it operates as a
priority of its social responsibility. Special
focus is placed on involving children and
young people in regular sports activities.
NLMK provides 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.
NLMK fi nances the ‘Lipetsk Metallurgist’
sports club that is successfully promoting
sport in Lipetsk and creates the conditions
for Novolipetsk employees and the members
of their families, as well as all other Lipetsk
dwellers, to practice sports.
One of the most modern shooting clubs
in Russia; a shooting range; and the
‘Novolipetsky’ health and welfare centre for
summer and winter sports are all located in
Lipetsk. The shooting club is equipped with
top-notch equipment which means it can
host international competitions.
The Company has medical centres in
Lipetsk, Belgorod and Sverdlovsk Regions;
and in the Altai Republic; that provide high-
quality medical care for NLMK employees
and people living in the regions.
PROMOTION OF EDUCATION
AND CULTURE
NLMK has a comprehensive programme to
support the younger generation receiving a
quality education by creating its own talent
pool of driven and technically qualifi ed
personnel.
Colleges and universities NLMK supports
organize ‘Open Doors’ days for school
students. The Company organizes site
visits, competitions, contests, and scientifi c
conferences.
NLMK cooperates with over 30 colleges
and universities. Around 4,000 technical
college students take internships at
NLMK Group companies each year. NLMK
runs special scholarship programmes for
higher professional education students in
order to provide additional social support
to giſt ed students.
NLMK’s career guidance
programme involves school
students; and is aimed at helping
students to make conscious
career choices and to satisfy the
Company’s personnel requirements
in key areas by studying in
colleges and universities certifi ed
and supported by NLMK, with
subsequent employment at the
Company. Over 11,000 students
from 72 schools in Lipetsk and
Lipetsk Region participated in
career guidance initiatives in 2015.
NLMK provides comprehensive support
for its partner colleges and universities,
which started introducing a dual
education system on the Company’s
initiative in 2015. The programme
combines education at the college or
university with apprenticeships in the
Company.
Other NLMK Group companies also have
many youth programmes. For example,
Altai-Koks has partnered with three
local schools, and more than 200 school
students took part in career guidance
events.
NLMK provides support to children’s
creative clubs, studios, libraries, museums,
and art galleries, and also allocates
funds for the protection and proper
maintenance of cultural and architectural
monuments and other objects of cultural
and historical value.
WORK WITH CHILDREN
AND YOUNG PEOPLE
NLMK invests a lot of eff ort into
organizing healthy recreational activities
for children. During the summer vacation
the Company arranges trips for children
of its employees to summer camps; which
are also open to children from low-income
families and orphans.
Through sponsorship and charitable
assistance, NLMK invests in improving the
material and technical infrastructure of
preschools, schools, colleges, professional
schools, children’s creative centres,
children’s homes, and boarding schools.
Special emphasis is placed on patriotic
education. Together with organizations
of war veterans and trade unions, NLMK
organizes meetings with veterans and
visits to war memorials; as well as lessons
on bravery in schools and colleges.
CHARITABLE ACTIVITIES
NLMK contributes to charities through
its own charitable organizations as well
as through direct contributions to other
charities.
The ‘Miloserdiye’ (‘Mercy’) social
protection fund, founded by Novolipetsk,
runs 11 programmes that cover all
aspects of social support. Priority areas
include support for orphans, low-income
households, pensioners and diff erently-able
persons; as well as people that have found
themselves in challenging life situations
Over 30,000 people from Lipetsk Region
that require additional social support
receive help annually. Funds are allocated
to pay for long-term medical treatment,
medicine, technical rehab means, trips
to resorts and children’s camps and
preparation for the beginning of the
academic year; as well as other social
projects.
The ‘Zabota, pomoshch, miloserdiye’ (‘Care,
help, mercy’) charity fund in Sverdlovsk
SUSTAINABILITY / REPORT 2015
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
45
Region helps promote sports and
protect cultural heritage; also supporting
veterans and pensioners.
NLMK held a series of events to
celebrate the 70th anniversary of
the end of World War II. Celebrations,
meetings and concerts were organized
to honour the veterans and home-
front workers. All our veterans received
medals, letters of appreciation and
giſt s from employees of NLMK Group
companies.
NLMK allocated over 400 million rubles
($7 million) to charity programmes in
2015.
NLMK employees created the
www.Pobeda48.ru internet portal,
a regularly updated website that
has a database of NLMK and
Lipetsk Region veterans who
participated in the war. It is based
on archive documents about
those that participated in the war,
home-front workers, survivors
of the Leningrad blockade, and
concentration camp prisoners.
46
25 NLMK’s
sustainability review
27 Ceo
statement
28 Stakeholder
engagement
30 Our
employees
36 Occupational health
and safety
COMMUNICATIONS
TRANSPARENCY AND REPUTATION
MANAGEMENT
NLMK Group follows best global practice in
interacting with stakeholders: employees,
local communities, shareholders, investors,
customers, business partners, mass media,
government authorities and non-profi t
organizations. Constructive dialogue is
facilitated by transparency, which has
been traditionally maintained across the
Group. We use all available communication
channels to keep the public informed
promptly and in detail: websites of NLMK
Group and its companies, press releases,
comments in mass media, press tours,
press conferences, posts on social networks
and multimedia websites, our corporate
newspapers, portal and magazines, and
employee feedback channels.
NLMK Group strives to provide the public
with more information than it is required by
disclosure laws, because we are convinced
that openness and transparency strengthen
our reputation as a socially responsible,
effi cient and sustainable multinational
company.
EFFECTIVE EXTERNAL
COMMUNICATIONS
NLMK Group made more extensive use
of communication channels targeted at
external audience in 2015, publishing
about 600 press releases dedicated
to its investment, production, fi nancial,
social, environmental and other activities.
The management of NLMK Group
and its companies continued its open
communication with journalists and the
professional community through press
conferences, interviews and participation in
industry-related and economic conferences
and exhibitions.
Seeking to improve the quality of
information about the Company and
facilitate the process of obtaining and
analyzing this data, NLMK Group updated
its offi cial website (www.nlmk.com), adding
new and advanced functionality, and a wide
range of information about its activities.
We have had a lot of positive feedback
from our customers and partners about our
new product catalogues and our fi rst global
online website dedicated to NLMK products
(products.nlmk.com).
VOICE OF EMPLOYEES
NLMK Group continues developing
an eff ective internal communications
system that covers all production sites
and encompasses several advanced
communication channels:
▪ Extensive feedback network
▪ Corporate-wide intranet
▪ Corporate newspapers issued by NLMK
Group’s Russian companies
▪ NLMK Group corporate magazine available
in Russian and English
▪ Newsletters at NLMK Europe companies
▪ NLMK-TV with stories streamed on the
intranet
In 2015, NLMK Group’s corporate mass
media published over 1,700 items that helped
employees promptly get latest information
on the industry and company-related
events, operational and social programmes,
and development and career growth
opportunities.
An important corporate communications
trend seen in 2015 was the growing share of
news items based on employees’ feedback
received through telephone hotlines,
complaint boxes, and emails to newspapers
and the magazine, as well as through new
channels such as text messages and a
special service on NLMK Group’s corporate
portal. The new feedback channels expanded
employees’ opportunities for contacting
management on urgent issues and doing it
anonymously. The Company will continue to
develop its feedback channels, which play
an important role in improving employee
motivation and loyalty.
RECOGNITION
NLMK Group’s corporate media has always
been highly rated on top-lists and by media
awards.
NLMK Group corporate intranet:
▪ A project to develop NLMK corporate
portal’s media centre by a PR specialist
won Young People in Media Landscape
and was granted 100,000 rubles at an
SUSTAINABILITY / REPORT 2015
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M
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international corporate youth project
awards.
▪ NLMK’s project titled ‘Corporate portal:
platform for development of internal
communications’ was ranked among
the top three in the Best Internal
Communications and Corporate Media
Project category at the 19th Silver Archer
national public relations awards.
NLMK Group magazine:
▪ Named Best Corporate Media of the Year
2015.
▪ Recognized as best corporate media at
Metal-Expo’2015.
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
47
▪ Topped the list of the best corporate
▪ Named Best Digital Corporate Media at
magazines issued by industrial
companies, which was compiled by
Production Management magazine in
2015.
▪ Topped the Well-Written Media list in
2015.
The Big Ore newspaper (Stoilensky):
▪ Named Best Publication of an Ore Mining
Company at Metal-Expo’2015.
Metal-Expo’2015.
NLMK Group’s corporate videos:
▪ NLMK Group’s Made of Steel video
awarded the Grand Prix at the Moscow
International Festival of Corporate Videos
in 2015.
▪ NLMK Group’s Special Steel video won
Best Corporate Video. Corporate Image
and Best Infographics at Silver Threads
Awards in 2015.
▪ Steel Symphony, a New Year video, won
Best Cameraman and Best Musical
Score at Best Corporate Video 2016
Awards.
NLMK’S DIALOGUE WITH
INVESTORS AND ANALYSTS
Openness and transparency are at
the core of NLMK’s information policy.
This approach helps us maintain a high
level of trust between NLMK and all its
stakeholders.
NLMK-TV:
▪ Won Best Directing and Editing, and Best
Host at Silver Threads Awards in 2015.
▪ NLMK Group’s Special Steel video
won Best Audio Engineering at Metal-
Vision’2015.
NLMK shares are traded on the Moscow
Exchange, while its global depositary
shares are listed on the London Stock
Exchange. Furthermore, NLMK’s debt
48
38 Environmental
safety
40 Energy effi ciency
42 Сommunity
development
46 Communications
securities – bonds denominated in both
rubles and Eurobonds – are traded in the
Russian and foreign markets.
NLMK Group uses numerous eff ective tools
for communicating with investors and
analysts. Such tools range from regular
disclosure of the Company’s performance
data to meetings with partners and potential
investors.
Capital Markets Day 2015
On 30 March 2015, London hosted Capital
Markets Day 2015 where NLMK Group’s
key managers spoke about the Company’s
progress toward achieving its Strategy
2017 targets. The event was attended
by Independent Director Helmut Wieser,
who spoke about the effi ciency of NLMK’s
corporate governance. The meeting also
featured a presentation of NLMK’s updated
dividend policy – which was later approved by
the Group’s Board of Directors. http://nlmk.
com/en/investor-relations/cmd/
Disclosure of operating and fi nancial
performance
In the interests of keeping its investors
continuously informed, NLMK publishes its
operating and fi nancial performance data
each quarter.
Reports on the Company’s operating results
include overviews of industry trends, the
current situation in the steel and mineral
markets, and forecasts for the near future.
The Group discloses its consolidated fi nancial
results and reports under IFRS. Before the
third quarter of 2015, NLMK had reported
under US GAAP.
http://nlmk.com/en/investor-relations/
reporting-center/
Visits to production sites
For those who wish to get deeper insight
into our business model and steel production
process, we annually organize visits to
production sites where guests can see the
key production facilities and talk with the
management.
NLMK Group off ered tours of its key
production sites in 2015 as well. The Group
holds between three and six visits to its
production sites annually.
For the schedule of upcoming tours, please
contact our Investor Relations team (st@
nlmk.com).
Industry-related and analytical events
In 2015, the Company’s key managers
attended a number of industry conferences
held in Russia, the UK, the USA and
continental Europe. These events featured
over 370 group and face-to-face meetings
with investors where a wide range of issues
were discussed – including industry trends,
implementation of the strategy and NLMK’s
achievements.
Recognition
The Company’s eff orts to disclose as much
information on its activities and prospects as
possible are highly appraised by the market.
Extel Survey ranked NLMK among the top
ten European companies (in the metals and
mining sector) for investor relations in 2015.
Additionally, NLMK won IR magazine Russia
& CIS Awards as one of the best Russian
mid-cap companies for investor relations.
SUSTAINABILITY / REPORT 2015
CORPORATE GOVERNANCE / REPORT 2015
Corporate governance review
4 out of 9 Board members are independent directors
Corporate governance effi ciency assessed as high
Independent directors chair 2 out of 3 Board committees
2 out of 3 Remuneration committee members are
independent directors
100% of top managers are members of the Company’s
governance bodies
New dividend policy provides more transparency
and visibility, consistent with interests of all stakeholders
5
3
BOARD OF DIRECTORS’ STRUCTURE
Independent Board members
Board members
4
NLMK BOARD MEMBERS’ LENGTH OF TENURE
< 4 years
4-10 years
> 10 years
1
5
3
General Shareholders’
Meetings
12
Board meetings
PARTICIPATION OF TOP MANAGERS IN MEETINGS OF
THE COMPANY’S GOVERNING BODIES
0%
100%
Participation in meetings
Absence at meetings
(all reasons)
44
meetings of the Management
Board
CORPORATE GOVERNANCE / REPORT 2015
Key 2015 corporate governance events
CHANGES IN THE DIVIDEND POLICY
In 2015, the Company updated its dividend policy
to ensure higher visibility of dividend payments.
From 2015, dividends are paid on a quarterly basis
subject to meeting the targets on net profi t and
free cash fl ow.
ENHANCEMENT OF INDEPENDENT DIRECTORS’
ROLES IN THE COMPANY’S GOVERNANCE BODIES
The Board of Directors was elected at the Annual
General Shareholders’ Meeting in June 2015 and
included 4 independent directors (3 independent
directors in the previous Board composition). In 2015,
independent directors chaired 2 out of 3 Board
committees. This enabled NLMK to enhance the roles
of independent directors’ in the Company’s governance
bodies.
ADOPTION OF REVISED CORPORATE
DOCUMENTS
In 2015, corporate governance bodies approved
the revised versions of corporate documents,
including the Charter, Corporate Governance
Code, Regulations of General Shareholders’
Meeting, Regulations of the Board of Directors,
etc. The amendments in the documents mostly
refl ect the recommended corporate governance
practices, including the OECD principles of
corporate governance and recommendations of
Bank of Russia.
Modular Annuaal Report of NLMK for 22015
Modular Annual Report of NLMK for 2015
or 2
ABOUT NLMK
▪ NLMK Profi le
▪ Business model and value chain
▪ Geography of assets and sales
▪ Strategy in action
▪ Key highlights
SUSTAINABILITY
▪ NLMK employees
▪ Health and safety
▪ Environmental protection
▪ Engaging stakeholders
CORPORATE GOVERNANCE
▪ Leadership of NLMK
▪ Governance system
▪ Risk management
▪ Information for shareholders
You can download report modules here http://nlmk.com/en/investor-relations/reporting-center/annual-reports/?from=ru
49 Corporate governance review
51 Management composition
58 Corporate governance
51
MANAGEMENT
COMPOSITION
BOARD OF DIRECTORS
NLMK Board of Directors was elected
on 5 June 2015. There are 4 independent
directors on the Board.
▪ To assess risks
Related corporate documents:
▪ To approve budgets and business plans
▪ Charter of NLMK
▪ To set target indicators
▪ Corporate Governance Code
Main functions of the Board of Directors:
▪ To assess the performance of the
▪ Regulations of the Board of Directors
▪ To develop and implement the corporate
strategy
▪ To approve priority business areas for the
company
company and its bodies
▪ To control large-scale capital expenses;
asset acquisition and sale transactions,
etc.
▪ Remuneration and compensation to
members of the Board of Directors
Composition of the Board of Directors of NLMK as at 31 December 2015
Full name
Position
Years on the
Board
Independent
Participation
in Strategic
Planning
Committee
Participation
in Audit
Committee
Participation in
Human Resources,
Remuneration and
Social Policies
Committee
Vladimir
Lisin
Oleg
Bagrin
Chairman of the
Board of Directors
Member of the
Board of Directors
Benedict
Sciortino
Member of the
Board of Directors
Helmut
Wieser
Nikolai
Gagarin
Karl
Doering
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Karen
Sarkisov
Member of the
Board of Directors
Franz
Struzl
Member of the
Board of Directors
Stanislav
Shekshnya
Member of the
Board of Directors
19
11
4
5
14
9
6
5
1
Chairman
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Chairman
Chairman
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
52
49 Corporate governance review
51 Management composition
58 Corporate governance
Board of Directors
as at 31.12.2015
Executive director
Independent directors
1
2
4
6
8
3
5
7
9
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
53
1
Vladimir Lisin
Year of birth: 1956
Chairman of the Board of Directors
Participation in BoD committee
meetings
Member of the Human Resources,
Remuneration and Social Policies
Committee; and Chairman of the
Strategic Planning Committee.
Length of tenure
Board member since 1996, Chairman
of the Board since 1998.
Professional experience
Started career in 1975 as electrical
fi tter. Worked at Tulachermet, rising
through the ranks from assistant
steelmaker to deputy shop manager.
From 1986 worked in Kazakhstan, fi rst
as Deputy Chief Engineer, and later
Deputy CEO of the Karaganda Steel
Plant. Member of Boards of Directors
of several leading Russian steel
companies since 1993.
Education
Graduate of Ordzhonikidze Siberian
Metallurgic Institute, majored in Ferrous
and Non-Ferrous Foundries. In 1990,
graduated from the Higher School of
Commerce with the All-Russian Foreign
Trade Academy decorated with the
order of International Friendship. In
1992, graduated from the Academy of
National Economy under the Government
of the Russian Federation, majored in
Economics and Management. Ph.D.,
Tech.; Ph.D., Ec.; Professor, Associate
Fellow of Russian Academy of Natural
Sciences. Winner, USSR Council
of Ministers prize for Science and
Technology. Honorary Metallurgist of the
RF. Knight of the Order of Honor.
2
Oleg Bagrin
Year of birth: 1974
Member of the Board of Directors,
President (Chairman of the
Management Board)
Participation in BoD committee
meetings
Member of the Strategic Planning
Committee.
Length of tenure
Member of NLMK Group Board of
Directors (executive director) since 2004,
President (Chairman of the Management
Board) of NLMK since 2012.
Professional experience
Board member of a number of NLMK
subsidiary and affi liate companies: NLMK
International B. V. (Netherlands), NLMK
Pennsylvania LLC, NLMK Indiana LLC,
Sharon Coating LLC (USA).
Chairman of the Board of Directors
of investment company Libra Capital,
management company Libra Capital,
Moscow; Board member of Freight One,
a railroad transportation company.
Education
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.
3
Nikolai Gagarin
Year of birth: 1950
Member of the Board of Directors
Participation in BoD committee
meetings
Member of the Audit Committee.
Length of tenure
Board member since 2001.
Professional experience
In 2003 – being Managing Partner – he
was appointed Chairman of the Board at
Reznik, Gagarin, and Partners Law Offi ces.
Chairman of the Board, Managing Partner
at Reznik, Gagarin and Partners Law
Offi ces, Moscow, since 2009.
Education
Graduate of Moscow State University,
majored in Law.
4
Karen Sarkisov
Year of birth: 1963
Member of the Board of Directors
Participation in BoD committee
meetings
Member of the Strategic Planning
Committee and member of the Audit
Committee.
Length of tenure
Board member since 2010.
Professional experience
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 B.V.
From 2006 to 2007 Mr. Sarkisov
served as the Chairman of the Board of
Directors of VIZ-Steel. From the early
1990’s to 2008 he worked at steel
trading companies holding various
executive positions at a number of
international trading entities.
Education
Graduated from the Tashkent State
University majoring in Oriental Studies.
5
Karl Doering
Year of birth: 1937
Member of the Board of Directors
Participation in BoD committee
meetings
Member of the Strategic Planning
Committee.
Length of tenure
Board member since 2006
Professional experience
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 Industry
Ministry, German Democratic Republic,
supervised technology development
and capital expenditures.
Education
Graduated from the Moscow Institute of
Steel and Alloys. Ph.D., Tech.; Ph.D., Ec.
6
Helmut Wieser
Year of birth: 1953
Member of the Board of Directors,
Independent director
Participation in BoD committee
meetings
Member of the Strategic Planning
Committee and member of the Human
Resources, Remuneration and Social
Policies Committee.
Length of tenure
Board member since 2011
(independent director).
54
49 Corporate governance review
51 Management composition
58 Corporate governance
Professional experience
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 Pacifi c
region, with a focus on China, the
Australian rolled products businesses
and Alcoa’s operations in Russia. In
addition, Helmut 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 offi cer. Earlier, he held several
senior management positions with Voest
Alpine in Austria and Venezuela, including
President of Voest Alpine Venezuela.
Member of the Management Board at
AMAG Austria Metall AG since March
2014; and Chief Executive Offi cer since
April 2014.
Member of the Board of Directors
(Independent Director) at Rain Carbon
Inc. since 2014.
Education
Helmut Wieser received a Master’s
degree in Mechanical Engineering and
Economics in 1981 from the University
of Graz.
7
Franz Struzl
Year of birth: 1942
Member of the Board of Directors,
Independent director
Participation in BoD committee
meetings
Member of the Audit Committee and
member of the Strategic Planning
Committee.
Length of tenure
Board member since 2011.
Professional experience
In 1967 Franz Struzl joined Alpine
Steelgroup, later renamed Voestalpine
AG, based in Linz, Austria, serving the
Company for over four decades. During
CORPORATE GOVERNANCE / REPORT 2015
his career at Voestalpine Franz Struzl
held various positions in a number
of fi elds including strategic planning,
commercial and technical areas. In
1981 he was appointed Chief Financial
Offi cer before becoming Chief Executive
Offi cer of Voestalpine Long Products
Group and a member of the Executive
Board in 1991. From 1995 until 2001
he served as Vice Chief Executive
Offi cer of Group. In 2001 Franz Struzl
was appointed as Voestalpine Group
Chief Executive Offi cer and Chairman.
He held the position until 2004, when
he moved to become Chief Executive
Offi cer of Voestalpine, Brazil – Villares
Metals, remaining there until 2010.
From 2011 he is General Director of
RHI AG.
Education
Franz Struzl graduated from the
University of Economics, Vienna in
1964.
8
Benedict Sciortino
Year of birth: 1950
Member of the Board of Directors,
Independent director
Participation in BoD committee
meetings
Chairman of the Audit Committee and
member of the Strategic Planning
Committee.
Length of tenure
Board member since 2012
Professional experience
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. Now
he serves as a member of the Board of
Directors of Duferco S. A. responsible
for Duferco Group North American
and South African business as well as
trading operations, fi nance and legal
matters, mergers and acquisitions. Mr.
Sciortino serves as a director of several
operating companies.
Education
Mr. Sciortino 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.
9
Stanislav Shekshnya
Year of birth: 1964
Member of the Board of Directors,
Independent director
Participation in BoD committee
meetings
Chairman of the Human Resources,
Remuneration and Social Policies
Committee and member of the Audit
Committee.
Length of tenure
Board member since 2015.
Professional experience
From 1991 to 2002, Dr. Shekshnya
held the positions of Director of Human
Resources for Otis Elevator in Central
and Eastern Europe, President and CEO
of Millicom International Cellular in
Russia and CIS, Chief Operating Offi cer
of VimpelCom, and CEO of Alfa-Telecom.
He has served as Chairman of SUEK,
Vimpelcom-R and as Director of a number
of Russian and Ukrainian companies.
Stanislav was an independent director at
DTEK BV, Ilim Timber Industry and Ener1.
Currently Dr. Shekshnia is an independent
director at Dentsu Aegis Network Russia
Board of Directors. In 2002, Stanislav
Shekshnia co-founded Zest Leadership
International Consultancy.
Currently Stanislav Shekshnia is a Senior
Partner of Howell Zest, Talent Equity
Consulting Company, which has offi ces in
Moscow, Paris, St. Petersburg, Kiev, Almaty
and Riga. He focuses on leadership,
leadership development, corporate
governance and business in emerging
economies. Dr. Shekshnia also provides
personal coaching to business owners and
corporate executives.
Dr. Shekshnia is an Affi liate Professor
of Entrepreneurship at INSEAD. He has
over 15 years of graduate level teaching
experience in Russia, France and United
States; and is the author, co-author, or
editor of 7 books, and numerous articles,
executive commentaries, interviews
and case studies on entrepreneurship,
leadership, people management,
intercultural management and business
and management in Russia.
Education
Stanislav Shekshnia has a Master’s
Degree in Economics, a Ph.D. from
Moscow State University, and an MBA
from Northeastern University in Boston.
72 Operational control and risk management
78 Information for shareholders
55
MANAGEMENT BOARD
as at 31.12.2015
President (Chairman of the Management Board)
1
2
4
6
8
3
5
7
9
56
49 Corporate governance review
51 Management composition
58 Corporate governance
MANAGEMENT BOARD
Composition of the Management Board as at 31 December 2015
The NLMK Group Management Board
as at 31 December 2015 consists of 9
members and holds regular meetings.
Members of the Management Board
are in charge of the Group’s every-
day operations. They also monitor
subsidiaries and affi liates, and other
legal entities
Related corporate documents:
▪ Charter of NLMK
▪ Corporate Governance Code
Full name
Position
Oleg Bagrin
Brijesh Garg
Ilya Gushchin
Yuri Larin
Member of the Board of Directors President
(Chairman of the Management Board)
Vice President, Procurement
Vice President, Sales
Vice President, Technology Development & Operational
Effi ciency
Sergey Likharev
Vice President, Logistics
▪ Regulations on Management Board
Alexander Saprykin
Vice President, Strategic Raw Materials Division
Grigory Fedorishin
Vice President, Finance
Sergey Filatov
Stanislav Tsyrlin
Managing Director
Vice President, HR & Management System
2
Brijesh Garg
Year of birth: 1964
Vice President, Procurement
3
Ilya Gushchin
Year of birth: 1976
Vice President, Sales
Length of tenure
Length of tenure
Member of the Management Board
since 2012
Member of the Management Board
since 2014.
Professional experience
Professional experience
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 steel industry and 13 year of
experience in industrial engineering.
Education
Holds a Bachelor of Engineering
degree with a major in Industrial
Engineering, has CPIM Certifi cation
from American Production and
Inventory Control Society (APICS) and
is a certifi ed SAP Solution Consultant.
From 2009 to 2013 he worked for
SIBUR Group, including as head of
SIBUR International; the group’s
export division.
From 2008 to 2009, he served
as Financial Director at Skolkovo
School of Management, Moscow.
From 2002 to 2007, he held various
positions at Microsoſt .
Education
Ilya Gushchin holds a Ph.D. in
Economics; and is a graduate of the
Faculty of Economics, Moscow State
University.
1
Oleg Bagrin
Year of birth: 1974
Member of the Board of Directors,
President (Chairman of the
Management Board)
Length of tenure
Member of NLMK Group Board of
Directors (executive director) since
2004, President (Chairman of the
Management Board) of NLMK since
2012.
Professional experience
Board member of a number of
NLMK subsidiary and affi liate
companies: NLMK International B. V.
(Netherlands), NLMK Pennsylvania
LLC, NLMK Indiana LLC, Sharon
Coating LLC (USA).
Chairman of the Board of Directors
of investment company Libra Capital,
management company Libra Capital,
Moscow; Board member of Freight
One, a railroad transportation
company.
Education
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.
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
57
4
Yuri Larin
Year of birth: 1952
Vice President, Technology
Development & Operational
Effi ciency
Length of tenure
Member of the Management Board
since 2006.
Professional experience
From 2007 to 2013, Mr. Larin was
NLMK Vice President for Long-Term
Development & 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.
Education
Graduate of the Voronezh Polytechnic
Institute. Ph.D., Tech. Honorary
metallurgist of Russia.
6
Alexander Saprykin
Year of birth: 1967
Vice President, Strategic Raw
Materials Division
8
Sergey Filatov
Year of birth: 1959
Managing Director
Length of tenure
Member of the Management Board
since 2006.
Professional experience
From 2007 to 2013, Mr. Saprykin
was NLMK Vice President, Head of
Coal Division. From 2006 to 2007,
he 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.
Education
Graduated from the Moscow State
Mining University.
Length of tenure
Member of the Management Board
since 2013.
Professional experience
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.
Education
Mr Filatov graduated from the Moscow
Institute of Steel and Alloys. He holds
a Ph.D. (Tech.), and is an Honorary
Metallurgist of Russia.
5
Sergey Likharev
Year of birth: 1964
Vice President, Logistics
7
Grigory Fedorishin
Year of birth: 1979
Vice President, Finance
9
Stanislav Tsyrlin
Year of birth: 1968
Vice President, HR & Management
System
Length of tenure
Length of tenure
Length of tenure
Member of the Management Board
since 2014.
Member of the Management Board
since 2012.
Member of the Management Board
since 2005.
Professional experience
Professional experience
Professional experience
Sergey Likharev joined NLMK in October
2013. From 2012 to 2013 he was
Aviation Business Director at Russian
Machines Group; and Chairman of the
Board of Directors of the Aviacor aviation
plant. Aſt er serving as CEO of Aviacor
Aviation Plant in Samara from 2004 to
2007, he became CEO of the Basel Aero
airport group from 2008 to 2012. From
1993 to 2004, he held senior positions
at Interros, Ostankino Meat Processing
Plant, Golden Telecom, Cannon
Associates and Coopers & Lybrand. From
1990 to 1993 he worked as a researcher
at Moscow State University.
Education
Sergey Likharev holds a PhD in Physics
and Mathematics; and a Masters of
Business Administration from Cornell
University.
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 PricewaterhouseCoopers
consulting company where he held
positions up to a director of business
restructuring practice.
Education
Graduated from Academy of Finance,
Moscow. Holds a master degree in
Business Administration from INSEAD
business school, France & Singapore.
a member of an association of
Certifi ed Financial Analysts (CFA).
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.
Education
Graduated from the Moscow Institute
of Physics and Technology and from
Stanford University.
58
49 Corporate governance review
51 Management composition
58 Corporate governance
the existing legislation of the countries where
the Company operates.
The Corporate Governance Code adopted by
the Company in 2015 is the basic document
describing all the key corporate governance
principles.
Key principles lying at the core of our Corporate
Governance are to:
▪ Ensure equal and fair treatment of all
shareholders when they use their right to be
involved in management processes, receive
dividends from the Company, participate in
meetings, vote on issues on the agenda and
get up-to-date information on the Company’s
activities and its governing bodies.
in hand with the most advanced practices
of corporate governance. We are constantly
striving to remain aligned with the high
standards of corporate governance that are
expected of a public company.
Vladimir Lisin,
Chairman of NLMK’s Board
of Directors
▪ Ensure equal treatment of all shareholders,
including foreigners and minority
shareholders.
GENERAL INFORMATION ABOUT
NLMK’S CORPORATE GOVERNANCE
As a public company, NLMK is constantly
improving its corporate governance
practices. In its activity, NLMK adheres
to best international practices and high
standards of corporate governance.
NLMK corporate governance system
is designed to ensure the Company’s
sustainable development and increase
return on investment in equity in the long
run. The Company maintains a policy of
maximum openness and transparency
that 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 a
grounded investment decision regarding
the Company’s securities.
In 2015, the Company continued to improve
its corporate governance in a broader eff ort
to revise its corporate actions procedures.
All corporate documents determining the
principles and rules of corporate governance
are freely accessible at NLMK Group’s
corporate website.
▪ Ensure reliable and eff ective registration of
title to shares and guarantee the opportunity
to alienate them freely and without
encumbrances.
▪ Ensure compliance with the existing laws,
principles of the Corporate Governance Code
and international corporate governance
standards.
▪ Strictly observe the rights of third parties,
including their creditors and employees, as
required by the law, the Charter and other
regulatory documents.
▪ Pursue a common corporate policy in respect
of subsidiary companies, affi liates and other
legal entities in which NLMK is the founder, a
participant or a member.
▪ Maintain a policy of open and transparent
communications, including by disclosing
full and up-to-date information about
the Company to give shareholders and
investors an opportunity to make informed
decisions, as well as by providing documents
(information) related to the Company upon
shareholders’ request.
▪ Promote a policy of complying with business
ethics in conducting its operations.
NLMK CORPORATE GOVERNANCE
SYSTEM
NLMK corporate governance system is
built on the requirements of the existing
Russian legislation, principles provided by
the Organization for Economic Co-operation
and Development and provisions of the
Corporate Governance Code approved by
the Central Bank of Russia, and fully meets
According to acting corporate documents, the
governance structure includes:
▪ General Meeting of Shareholders, which is
the supreme governing body of the Company
that makes decisions on the key business
issues.
▪ The Board of Directors, which is responsible
for strategic management of NLMK, controls
CORPORATE
GOVERNANCE
CHAIRMAN’S LETTER
Dear Shareholders,
Over the past twelve months, NLMK has
invested a lot of eff ort into enhancing its
corporate governance system and practices.
The process of improving corporate
governance practice included the revision
of the Company’s corporate documents to
refl ect amendments to corporate governance
legislation of the Russian Federation, as well
as guidance from the Central Bank of Russia.
NLMK’s Board of Directors was a focus of
the corporate governance improvement and
enhancement initiatives undertaken in 2015.
A new independent director, Stanislav
Shekshnya, joined the Board. Stanislav is
an expert in the areas of leadership and
corporate governance and his skills will
undoubtedly be a tremendous asset to
the Company in the future. The increase
in the number of independent directors
will ensure even greater eff ectiveness of
the Board, including in its duties related
to risk management and the protection of
shareholders’ interests.
We enhanced the role of independent
directors in 2015 and they now chair 2 of
the 3 Board committees.
We also updated the Company’s dividend
policy to refl ect the current stage of the
Company’s development.
Particular attention was paid to the
Company’s risk management system,
which covers all management levels, from
shareholders to line managers across all
NLMK Group companies.
In its relations with shareholders over the
past year, NLMK maintained its commitment
to the fundamental corporate governance
principles of fairness, accountability,
responsibility and transparency.
We focus all our eff orts to ensure that
NLMK’s leadership in performance goes hand
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
59
NLMK Corporate Governance Structure (as at 31 December 2015)
Independent
Auditor
Internal Audit
Commission
Corporate
Secretary
General Shareholders’ Meeting
Strategic Planning Committee
Human Resources, Remuneration
and Social Policies Committee
Audit Committee
Corporate Audit and Control Services
Board of Directors
President (Chairman
of the Management Board)
Members of the Management Board
Managing
Director
Vice President,
HR
and Management
System
Vice President,
Sales
Vice President,
Procurement
Vice President,
Finance
Vice President,
Technology,
Development
and Operational
Effeciency
Vice President,
Strategic Raw
Materials Division
Vice President,
Logistics
executive bodies, determines the principles
of and approaches to organization of
the Company’s risk management system
and internal control, develops NLMK’s
executive compensation policy, controls
corporate governance practices and plays
the key role in the Company’s signifi cant
corporate events.
▪ The executive bodies of the Company
including the President (Chairman of the
Management Board) and the Management
Board that manage day-to-day activities
of the Company and ensure its effi cient
operation, while implementing the
objectives set by the Board of Directors.
CORPORATE GOVERNANCE
EFFICIENCY IN 2015
▪ The Corporate Secretary, who ensures
interaction with shareholders, coordinates
the Company’s activities aimed at
protection of shareholders’ rights and
interests and supports the Board of
Directors and the Management Board.
▪ An independent auditor, the Internal Audit
Commission, Audit Committee and Internal
Audit department oversee fi nancial and
economic activities.
The Internal Audit Directorate carried
out several audits in 2015 to assess the
Company’s corporate governance for
compliance with all its principles. The
audits examined the following areas:
shareholders’ rights; the Board of Directors;
the compensation system for the Board
of Directors, executive bodies and key
managers; risk management, internal control
and internal audit; Corporate Secretary;
disclosure of information about the Company
60
49 Corporate governance review
51 Management composition
58 Corporate governance
and the Company’s information policy;
signifi cant corporate actions; and corporate
social responsibility, business ethics and
compliance.
The auditors assessed the existing corporate
governance practices for compliance with the
Corporate Governance Code recommended
by the Bank of Russia and mandatory
requirements set out in MICEX Stock
Exchange Listing Rules, and verifi ed the
information given in the Company’s external
corporate governance reports.
Overall, the corporate governance system
was highly rated by the auditors, which
means that the Company observes the
Russian corporate governance laws and
follows the majority of recommendations
provided in the Corporate Governance Code.
In March 2016, the effi ciency of the Board
of Directors was evaluated by means of
anonymous online survey. All Members of
the Board participated in the survey. The
results showed that the Board of Directors
owns diverse functional expertise (fi nance,
risk management, talent management)
and industry experience. The Board bases
its work on the Strategy, has an effi cient
decision-making process and follows up the
implementation of the decisions. The Board
of Directors eff ectively interacts with the
President and the management in general.
The evaluation has identifi ed some areas
of improvement, namely, in the work of the
Committees.
IMPROVEMENT OF CORPORATE
GOVERNANCE PRACTICES IN 2015
In 2015, the Company focused on improving
the quality of its corporate governance
system and practices.
Throughout the year, all the components of
the Company’s corporate governance system
were thoroughly assessed for compliance
with the Corporate Governance Code
recommended by the Central Bank of Russia,
as well as with the Moscow Exchange Listing
Rules.
By increasing the number of independent
directors in its Board of Directors, the
Company enhanced the effi ciency of the
Board, including with regard to its duties
related to risk management and protection
of shareholders’ interests.
According to the Moscow Exchange Listing
Rules and recommendations provided in
the Corporate Governance Code, the Audit
Committee and the Human Resources,
Remuneration and Social Policies Committee
shall be headed by independent directors.
Aiming to harmonize its internal
documents, NLMK approved in 2015 the
Company’s internal documents that refl ect
recent legislative changes in Russia and
follow the Corporate Governance Code
recommendations:
▪ In April 2015, the Company’s Board of
Directors approved the Dividend Policy
▪ In June 2015, the General Meeting of
Shareholders approved an updated version
of Regulations on Remuneration of
Members of the Board of Directors
▪ In December 2015, the General Meeting of
Shareholders approved an updated version
of the Charter of NLMK, Regulations on
the General Shareholders’ Meeting and
Regulations on the Board of Directors
▪ In December 2015, the Company’s Board
of Directors approved Regulations on
the Board of Directors Audit Committee;
Regulations on the Strategic Planning
Committee; Regulations on the Human
Resources, Remuneration and Social
Policies Committee; and the Corporate
Governance Code
Also, the Company adopted its fi rst time
ever Regulations on Corporate Secretary,
which govern the activities and detail the
procedures of the Corporate Secretary.
The Company is taking consistent steps
to ensure compliance with other principles
and recommendations of the Corporate
Governance Code.
GENERAL SHAREHOLDERS’
MEETING
NLMK corporate governance practices
The General Meeting of Shareholders is
NLMK’s supreme governing body responsible
for substantive issues related to the
Company’s activities. NLMK’s shareholders
are entitled to make decisions at the
General Meeting of Shareholders. Such
decisions include election to the Company’s
key governing bodies; approval of annual
reports; profi t distribution; amendments
and additions to the Company’s Charter or
approval of a new version of the Company’s
Charter; approval of internal documents
governing the activities of the Company’s
bodies, etc.
NLMK strives to ensure equal and fair
treatment of all shareholders when
they use their right to participate in the
Company’s management processes.
NLMK has Regulations on the General
Shareholders’ Meeting that comply with
the recommendations of the Corporate
Governance Code and determine the
key procedures for organizing, calling
and holding the General Meeting of
Shareholders (some of the procedures
for organizing, calling and holding the
General Meeting of Shareholders are also
regulated by the Charter of NLMK).
The procedure for holding the General
Meeting of Shareholders aims to ensure
that the rights of shareholders are
observed; it is fully compliant with the
current legislation and follows global best
practices in corporate governance.
The Company provides its shareholders
with easily accessible communication
channels such as a hotline or email so
that they can share their opinions and
ask questions concerning the agenda
during preparation for the General
Meeting of Shareholders.
We inform our shareholders about an
upcoming General Meeting by posting
an announcement on NLMK’s website
at least 30 days prior to the date of the
meeting (unless the Russian legislation
requires doing it earlier).
NLMK provides access to meeting
materials at least 30 days prior to
the date of the General Meeting of
Shareholders and supplies shareholders
with additional information and
materials, as recommended by the
Corporate Governance Code. In
addition, the Company publishes travel
information, a sample form for a
power of attorney that a shareholder
can give to his or her representative
for participation in the meeting, and
information on the procedure for its
attestation.
The information (materials) provided
to persons entitled to participate in
the General Meeting of Shareholders is
published on NLMK’s website (www.nlmk.
com).
The Company also publishes all the
information in English to ensure equal
treatment of all shareholders, including
foreigners.
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
61
In the course of preparation for a General
Meeting of Shareholders, NLMK Board
of Directors approves regulations that
determine the procedure for questions on the
Company’s activities from the shareholders to
members of the governing bodies, the person
responsible for the Company’s accounting, the
Company’s auditors and candidates for the
governing bodies.
Participants of the General Meeting of
Shareholders are entitled to freely contact
and consult each other on issues on the
meeting’s agenda without violating the
meeting procedure (regulations).
NLMK corporate governance system and
practices provide a level playing fi eld for
all shareholders, including foreigners and
minority shareholders, and ensure equal
treatment for all of them.
NLMK adheres to a policy that prevents unfair
redistribution of corporate control, because
NLMK does not have preferred shares and
there are no quasi-treasury shares on the
balance sheets of its subsidiaries and affi liates.
According to the corporate documents, a
meeting of shareholders is deemed valid (has
a quorum) if shareholders owing collectively
more than 50% of NLMK’s voting shares have
participated in it.
Activity in 2015
In 2015, NLMK updated its dividend policy
and shiſt ed to paying dividends on a quarterly
basis, which resulted in more frequent
meetings of the company’s shareholders,
since the payout is to be approved at the
General Meeting of Shareholders, according
to NLMK’s corporate procedures.
Three General Meetings of Shareholders (one
annual and two extraordinary meetings) were
held in 2015, including one meeting in person
and two meetings in the form of absentee
voting.
General Meeting of
Shareholders by status
Number
Annual meeting
Extraordinary meeting
1
2
NLMK’s Annual General Shareholders’
Meeting for FY2014 was held on 5 June 2015.
Shareholders and shareholder representatives
holding a total of 89.97% of NLMK’s
shareholder capital were present, meeting
62
49 Corporate governance review
51 Management composition
58 Corporate governance
the quorum requirements. During the
meeting, the following issues were reviewed
and decisions taken:
On approval of NLMK’s 2014 annual report,
annual fi nancial statements, including
the 2014 profi t and loss statement and
distribution of NLMK’s profi ts (including
announcement of dividends) based on the
results of the 2014 fi scal year, the following
decisions were made:
▪ Approve NLMK’s 2014 annual report,
annual fi nancial statements, including the
2014 profi t and loss statement.
▪ Approve distribution of NLMK’s profi ts
based on the results of the 2014 fi scal
year:
– Pay (announce) dividends for FY2014
in the amount of 2.44 rubles per
ordinary share. With consideration
of the interim dividends paid for H1
2014 in the amount of 0.88 rubles per
ordinary share, the amount outstanding
for payment is 1.56 rubles per ordinary
share. Set the date upon which the
shareholders entitled to receive
dividends are to be determined as June
16th 2015.
– Make the balance of profi ts not paid as
dividends available for NLMK.
On payment (announcement) of dividends
on the basis of Q1 2015 results, a decision
was made to pay (announce) dividends for
Q1 2015 in the amount of 1.64 rubles per
ordinary share. Set the date upon which the
shareholders entitled to receive dividends are
to be determined as June 16th 2015.
On declaring NLMK’s Dividend Policy
approved at NLMK’s Annual General Meeting
of Shareholders on 6 June 2014 invalid,
a decision was made to declare NLMK’s
Dividend Policy approved at NLMK’s Annual
General Meeting of Shareholders on 6 June
2014 invalid.
On election of NLMK’s Board of Directors,
a decision was made to elect the following
members to the Board of Directors:
▪ Oleg Bagrin
▪ Helmut Wieser*
▪ Nikolai Gagarin
▪ Karl Doering
▪ Vladimir Lisin
▪ Karen Sarkisov
▪ Stanislav Shekshnya*
▪ Benedict Sciortino*
▪ Franz Struzl*
On election of NLMK’s President (Chairman
of the Management Board), a decision
was made to elect Oleg Bagrin President
(Chairman of the Management Board).
On election of the members of NLMK’s
Internal Audit Commission, a decision was
made to elect the following members to
NLMK’s Internal Audit Commission:
▪ Vladislav Ershov
▪ Natalia Krasnykh
▪ Vladimir Markin
▪ Sergey Nesmeyanov
▪ Galina Shipilova
On payment of remuneration to the members
of NLMK’s Board of Directors, a decision was
made to approve payment of remuneration
to the members of NLMK’s Board of
Directors.
On approval of the revised versions of NLMK’s
internal corporate documents, a decision
was made to approve the revised version
of NLMK’s Regulations on Remuneration of
Members of the Board of Directors.
On approval of the base remuneration for
the members of the Board of Directors, a
decision was made to approve the base
remuneration paid to each member of
NLMK’s Board of Directors in the amount of
$160,000 (one hundred and sixty thousand
US dollars).
On approval of NLMK’s Auditor,
a decision was made to approve
ZAO PricewaterhouseCoopers Audit as
the Auditor of NLMK’s 2015 fi nancial
statements prepared in accordance
with Russian Accounting Standards
(RAS). ZAO PricewaterhouseCoopers
Audit was authorized to audit NLMK’s
2015 consolidated fi nancial statements
prepared in accordance with International
Financial Reporting Standards (IFRS).
At NLMK’s Extraordinary General Meeting
of Shareholders held on 30 September
2015, a decision was made to pay
(announce) dividends on the basis of the
Company’s H1 2015 results in the amount
of 0.93 rubles per ordinary share. The date
upon which the shareholders entitled to
receive dividends were to be determined
was set as 12 October 2015.
At the Extraordinary General Meeting of
Shareholders held on 21 December 2015,
the following decisions were made:
▪ Pay (announce) dividends based on
the results of nine months of 2015
in the amount of 1.95 rubles per
ordinary share. The date upon which
the shareholders entitled to receive
dividends were to be determined was
set as 8 January 2016.
▪ Approve the revised version of the
Company’s Charter.
▪ Approve Regulations on the General
Shareholders’ Meeting and declare
Regulations on Holding NLMK’s General
Shareholders’ Meeting approved
at the Annual General Meeting of
Shareholders on 6 June 2014 to be no
longer in force.
▪ Approve the revised version of NLMK’s
Regulations on the Board of Directors.
NLMK’s Extraordinary General Meetings of Shareholders were held in the form of
absentee voting:
Name
Date
Percentage of
shareholders participating
in the meeting
NLMK’s Extraordinary General Meeting
of Shareholders
30 September 2015
91.75%
* These members of NLMK’s Board of Directors were
elected as independent directors.
NLMK’s Extraordinary General Meeting
of Shareholders
21 December 2015
91.63%
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
63
▪ Declare NLMK’s Corporate Governance
Code approved at NLMK’s Annual General
Meeting of Shareholders on 6 June 2006
to be no longer in force.
BOARD OF DIRECTORS
NLMK corporate governance in action
The Board of Directors is a key element
of the Company’s corporate governance
system. The Company’s Board of Directors
is responsible for strategic management
of Public Joint Stock Company “Novolipetsk
Steel”, supervises activities of the
Company’s executive bodies, determines
principles of and approaches to the risk
management and internal control system,
the Company’s policy on remunerations for
members of the executive bodies, controls
the corporate governance practice and
plays a key part in the Company’s signifi cant
corporate events.
NLMK’s Board of Directors reports to the
Company’s shareholders.
NLMK’s Board of Directors is an effi cient and
professional governing body able to form
independent opinions and make decisions
serving the interests of the Company and its
shareholders.
NLMK’s Regulations on the Board of
Directors govern the procedures of the
Board of Directors and, in particular,
include the procedure for arranging and
holding meetings of the Board of Directors,
which allows the members of the Board
of Directors to prepare for the meetings
properly, and stipulates the following:
▪ The period of notice of an upcoming
meeting given to the members of the
Board of Directors
▪ The deadline for sending out documents
(ballots) for voting and receiving the fi lled-
in documents (ballots) when meetings are
held in the form of absentee voting
▪ A possibility for the members of the Board
of Directors who are absent at an in-
person meeting to send a written opinion
on issues included in the agenda of the
meeting of the Board of Directors
▪ A possibility for discussion and voting
by means of a conference call or video
conference
According to the current corporate
documents, the Board of Directors, acting
within its powers:
▪ Ensures execution of resolutions passed by
the General Meeting of Shareholders.
▪ Assesses political, fi nancial and other
risks impacting Company’s operations,
as well as operations of subsidiaries,
associates and other legal entities in which
the Company is a founder, participant or
member.
▪ Determines approaches to investment and
participation in other organizations.
▪ Assesses the performance of the Company
and its bodies.
▪ Determines the terms of dividend
payment.
▪ Develops remuneration incentive methods
and systems for company employees.
▪ Ensures the disclosure of information
about the Company.
▪ Supervises activities of the Company’s
executive bodies.
▪ Ensures the Company’s compliance with
the applicable legislation.
▪ Defi nes materiality criteria for the
subsidiaries, associates and other legal
entities in which the Company is a founder,
participant or member, for decision-
making concerning the issues that fall
within the powers of the Management
Board.
▪ Ensures compliance with corporate
governance principles.
The Board of Directors operates in the form
of meetings held in accordance with the
Schedule approved by the Chairman of the
Board of Directors. Meetings of the Board of
Directors are held on a regular basis at least
6 times a year.
The most important issues are resolved at
meetings of NLMK’s Board of Directors held
in person (convening and holding the Annual
General Meeting of Shareholders, including
recommendations on the distribution of
profi ts and payment of dividends, preliminary
approval of the Company’s annual reports,
fi nancial statements and budget, etc.).
The Board of Directors is guided by the
following principles in its decision-making
process:
▪ Prevent prejudice of shareholders’ legal
right to participate in the management of
the Company.
▪ Balance interests of diff erent shareholder
groups and make the most impartial
decisions in the interests of all
shareholders of the Company.
▪ Make informed decisions based on
reliable information about the Company’s
operations.
Chairman of the Board of Directors
The Chairman of the Board of Directors
organizes the work of this body and
contributes to the most effi cient performance
of its functions.
The Chairman of the Board of Directors
ensures a constructive environment at the
meetings and free discussion of issues on
the agenda, and supervises execution of
resolutions passed by the Board of Directors.
The Chairman of the Board of Directors is
elected by the members of the Board of
Directors among themselves by a majority
vote of the total number of the members.
The Chairman of the Board of Directors
has the most extensive experience,
professional expertise and authority among
the Company’s shareholders, members of
governing bodies and employees.
Independent board members
One of the essential prerequisites for effi cient
operation of the Board of Directors is its
independent directors who play a crucial part
in preventing internal confl icts in the Company
and carrying out signifi cant corporate actions
by the Company. Independent directors
also ensure that the Board forms impartial
opinions on the issues under discussion,
which, in its turn, helps build up investors’ and
shareholders’ confi dence in the Company.
The Company’s Board of Directors includes
four independent directors who contribute
to the implementation of one of the
fundamental corporate governance principles
developed by the Organisation for Economic
Co-operation and Development, according to
which the Board of Directors should be able
to pass independent impartial judgments
on corporate matters. Participation of
independent directors in the work of the
Board of Directors is a primary way to
ensure that such judgments are formed since
independent directors view the Company and
its management objectively.
Independent directors fully meet the
independence criteria recommended by the
Code. The Company’s Regulations on the
Board of Directors include the criteria to
determine independence of the members of
the Board of Directors which fully comply with
the recommendations specifi ed in the Code.
NLMK’s independent directors are people
with suffi cient professional expertise,
experience and independence to form their
64
49 Corporate governance review
51 Management composition
58 Corporate governance
own attitudes and pass objective and honest
judgments, which are not infl uenced by
the Company’s executive bodies, individual
groups of shareholders or other stakeholders.
Composition of the Board of Directors
qualifi cation, experience, knowledge and
business acumen. The members of the
Board of Directors have impeccable business
reputation, knowledge, skills and experience
in steelmaking, mining, science, economics,
business management, and law.
The composition of the Company’s Board
of Directors is balanced in terms of
As at 31 December 2015, the Board of
Directors consists of 9 people, including
4 members of the Board of Directors who
are independent.
The members of NLMK’s Board of Directors
conducted no equity transactions in 2015.
There was no confl ict of interests between
NLMK Board of Directors members
in 2015.
Composition of the Board of Directors of NLMK as at 31 December 2015
Full name
Position
Years on
the Board
Independent
Participation in
Strategic Planning
Committee
Participation
in Audit
Committee
Participation in
Human Resources,
Remuneration and
Social Policies
Committee
Vladimir
Lisin
Oleg
Bagrin
Benedict
Sciortino
Helmut
Wieser
Nikolai
Gagarin
Karl
Doering
Karen
Sarkisov
Franz
Struzl
Chairman of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Member of the
Board of Directors
Stanislav
Shekshnya
Member of the
Board of Directors
19
11
4
5
14
9
6
5
1
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Shares owned by members of NLMK Board of Directors*
Chairman
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Chairman
Chairman
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Full name
Vladimir Lisin
Oleg Bagrin
Position
Share of the authorized capital stock of NLMK
Chairman of the Board of Directors
Not an NLMK shareholder
Member of the Board of Directors
Not an NLMK shareholder
Benedict Sciortino
Member of the Board of Directors
Not an NLMK shareholder
Helmut Wieser
Nikolai Gagarin
Karl Doering
Karen Sarkisov
Franz Struzl
Member of the Board of Directors
Not an NLMK shareholder
Member of the Board of Directors
Not an NLMK shareholder
Member of the Board of Directors
Not an NLMK shareholder
Member of the Board of Directors
Not an NLMK shareholder
Member of the Board of Directors
Not an NLMK shareholder
Stanislav Shekshnya
Member of the Board of Directors
Not an NLMK shareholder
* The structure of the share capital with benefi ciary ownership specifi ed is available in the Information for Shareholders section.
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
65
Directors’ expertise and professional background
Directors’ expertise in the steel sector
9
8
5
Metals and Mining
Science
Economics
and Business
Administration
2
Law
Directors’ location
Directors’ length of tenure
4
5
3
1
5
5
2
2
Up to 15 years
Over 30 years
15-30 years
Composition of the Board of
Directors by director status
4
4
Russia
Europe
Under 4 years
Over 10 years
4-10 years
1
Independent director
Executive director
Other
The Board of Directors’ activity in 2015
In 2015 there were 12 meetings of the Board
of Directors of NLMK, 9 of which were held
by absentee ballot.
The following are the main issues that were
examined by the Group’s Board of Directors
in 2015:
▪ Reviewing proposals on the agenda of
the General Shareholders’ Meeting and
proposals on nomination of candidates to
NLMK’s governing bodies received from
NLMK shareholders
statements, including the 2014 profi t and
loss statement, as well as the NLMK’s
2014 annual consolidated fi nancial
statements prepared in accordance with
the US Generally Accepted Accounting
Principles (US GAAP)
▪ Providing recommendations to NLMK’s
Annual General Meeting of Shareholders
regarding the distribution of profi ts
▪ Chairman of the Board of Directors
▪ Formation of Committees under the Board
of Directors of NLMK
▪ Approving the plan for holding the
meetings of NLMK’s Board of Directors
▪ Approving the consolidated budget of the
Group
▪ Providing recommendations to the Annual
General Meeting of Shareholders regarding
the payment of remuneration to the
members of NLMK’s Board of Directors
▪ Restructuring the European assets of
NLMK Group
▪ Approving related party transactions
▪ Convening the Annual General
▪ Providing recommendations to the
▪ Approving the amount of payment for
Shareholders’ Meeting and approving the
date to provide a list of persons entitled to
participate in the Annual General Meeting
of Shareholders
▪ Approving the Company’s draſt annual
report for 2014, annual fi nancial
Annual General Meeting of Shareholders
regarding approval of NLMK’s Auditor
▪ Approving the agenda, draſt documents
and measures necessary for preparing
for and holding the Annual General
Shareholders’ meeting
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 (including
new participants))
66
49 Corporate governance review
51 Management composition
58 Corporate governance
▪ Approving the composition of the NLMK
Management Board
▪ Approving internal corporate documents of
NLMK
▪ Approving the Corporate Secretary of the
Company
▪ Convening an Extraordinary General Meeting
of Shareholders (EGM); approving the
agenda, draſt documents and events required
to prepare for and organize the EGM
▪ The members of NLMK’s Management
Board concurrently holding management
positions in other companies
▪ The long-term incentive program for NLMK
Group’s executives
Participation of Members of the Board of
Directors in the Meetings of this Body in
2015
Board of
Directors’
Member
Participation
in meetings
Vladimir Lisin
Oleg Bagrin
Benedict Sciortino
Helmut Wieser
Nikolai Gagarin
Karl Doering
Karen Sarkisov
Franz Struzl
Stanislav Shekshnya
12
12
12
12
12
12
12
12
8*
* Stanislav Shekshnya was elected to the Board of
Directors at the Annual General Shareholders’ Meeting
held on 5 June 2015.
COMMITTEES OF THE BOARD OF
DIRECTORS
One of the key instruments of the corporate
governance system and a prerequisite for
effi cient operation of the Board of Directors is
streamlined operation of its committees. Best
practices and the Corporate Governance Code
adopted in 2014 and recommended by the
Central Bank of the Russian Federation provide
for establishing a number of committees
within the Boards of Directors – the Audit
Committee, Human Resources, Remuneration
and Social Policies Committee, and Strategic
Planning Committee.
The committees are advisory bodies of the
Board of Directors; they are established
primarily for preliminary review and analysis of
the most signifi cant issues within the powers
CORPORATE GOVERNANCE / REPORT 2015
of the Board of Directors. The composition
of the committees is supposed to allow them
to hold in-depth discussions of the issues
involved taking into consideration various
opinions.
The members of the committees have
professional qualifi cations, knowledge and
experience in the committee’s area as well
as other specifi c expertise, ability and time
required to serve and fulfi ll their functions as
members of the committee.
The status, goals, objectives and functions of
the committees as well as their composition,
establishment and operation are set out in
regulations on committees approved by the
Company’s Board of Directors.
Strategic Planning Committee
Committee’s activities and powers
The Strategic Planning Committee draſt s
and submits recommendations to the
Board regarding priority areas for company
activities and its development strategy,
including long-term actions to improve
eff ectiveness, and to promote asset growth,
profi tability and a stronger investment case.
The main objectives of the Strategic Planning
Committee are:
1) To provide consulting support required by
the Board of Directors for:
▪ Setting strategic objectives aimed at the
long-term development of the Company
▪ Developing initiatives aimed at increasing
the Company’s profi tability and its
investment appeal
▪ Coordinating the activities of the
Company’s structural units and the Board
of Directors with regard to strategic
planning
Directors with regard to determining priority
directions for business development and
strategic planning;
3) To assess the Company’s investor and
shareholder relations policy.
The Committee membership had been
changed during 2015
The Committee membership before June 2015:
▪ Vladimir Lisin (Chairman of the
Committee);
▪ Oleg Bagrin
▪ Benedict Sciortino
▪ Karl Doering
▪ Helmut Wieser
▪ Franz Struzl
▪ Karen Sarkisov
▪ Aleksey Lapshin
The Committee membership between June
and December 2015:
▪ Vladimir Lisin (Chairman of the
Committee);
▪ Oleg Bagrin
▪ Benedict Sciortino
▪ Karl Doering
▪ Helmut Wieser
▪ Franz Struzl
▪ Karen Sarkisov
According to Regulations on the Strategic
Planning Committee approved in December
2015, the Strategic Planning Committee with
the following membership was established
at the meeting of the Company’s Board of
Directors:
▪ Vladimir Lisin (Chairman of the
2) To exercise control over the execution
of resolutions adopted by the Board of
Committee)
▪ Oleg Bagrin
Participation of committee members in committee meetings in 2015
Full name
Position
Participation in Committee
meetings in 2015
Vladimir Lisin
Chairman of the Committee
Oleg Bagrin
Member of the Committee
Karen Sarkisov
Member of the Committee
Karl Doering
Member of the Committee
Benedict Sciortino
Member of the Committee
Franz Struzl
Member of the Committee
Helmut Wieser
Member of the Committee
3
3
3
3
3
3
3
72 Operational control and risk management
78 Information for shareholders
67
▪ Benedict Sciortino
▪ Karl Doering
▪ Helmut Wieser
▪ Franz Struzl
▪ Karen Sarkisov
Secretary of the Committee: Grigory
Fedorishin (Vice President, Finance)
Results of the Committee’s activity in 2015
In 2015, the Strategic Planning Committee
held three meetings, including one meeting
in person and two meetings in the form of
absentee voting.
Resolutions on the following key issues were
passed at the meetings of the Committee:
▪ Updating NLMK’s dividend policy
▪ Developing NLMK Belgium Holdings’
assets
▪ Implementing NLMK Group’s investment
program, including the development of
Stoilensky
Audit Committee
Activity description, authority
The Audit Committee chaired by an
independent director was established to
contribute to eff ective performance of
functions related to supervision of the
Company’s fi nancial and business activities by
the Board of Directors.
The Committee’s main objectives are to
improve effi ciency of internal control, risk
management and corporate governance
systems, verify the accuracy of fi nancial
statements, supervise the internal and
external audit, and prevent fraud by
employees and other parties.
The Committee membership before June
2015:
▪ Benedict Sciortino (Chairman of the
Committee)
▪ Karen Sarkisov
▪ Nikolai Gagarin
▪ Karl Doering
▪ Franz Struzl
The Committee membership between June
and December 2015:
▪ Benedict Sciortino (Chairman of the
Committee)
▪ Karen Sarkisov
▪ Nikolai Gagarin
▪ Franz Struzl
According to Regulations on the Audit
Committee approved in December 2015,
the Audit Committee with the following
membership was established at the meeting
of the Company’s Board of Directors: (as at
31.12.2015):
▪ Benedict Sciortino (Chairman of the
Committee)
▪ Karen Sarkisov
▪ Nikolai Gagarin
▪ Stanislav Shekshnya
▪ Franz Struzl
Secretary of the Committee: Andrei
Dozhdikov (Head of Consolidated Financial
Statements Department)
Results of the Committee’s activity for
2015
In 2015 there were 6 meetings of the Audit
Committee held in-person, including 3 held
by conference call.
The Committee membership had been
changed during 2015
The Committee reviewed and passed
resolutions on the following key issues:
Participation of committee members in committee meetings in 2015
Full name
Position
Participation in meetings
in 2015*
Benedict Sciortino
Chairman of the Committee
Franz Struzl
Member of the Committee
Stanislav Shekshnya**
Member of the Committee
Nikolai Gagarin
Karen Sarkisov
Member of the Committee
Member of the Committee
6 (6)
6 (6)
–
6 (6)
6 (6)
* The number of the Committee’s meetings over the period of the person’s participation as a member of the Committee is
specifi ed in brackets.
** Elected to the Committee in December 2015.
▪ Review of the results of the audit of
NLMK’s 2014 US GAAP Consolidated
Financial Statements
▪ Review of the results of the audit
of NLMK’s 2014 IFRS Consolidated
Financial Statements
▪ Review of draſt interim abridged US
GAAP Consolidated Financial Statements
for Q1 and H1 2015; and IFRS
Consolidated Financial Statements for
9M 2015
▪ Review of potential auditors for
NLMK Group’s RAS and IFRS-based
consolidated fi nancial statements for
2015
▪ Review of the report on the progress of
the Risk Management, Internal Control
and Internal Audit business process
development
▪ Review of the results of risk
management activities and the risk
matrix for 2015
▪ Review of the report on the Internal Audit
Service performance in 2014, and the
audit plan for 2015
▪ Review of the reports on the interim
results of the Group’s Internal Audit
Service operation, risk management and
internal control activities
Human Resources, Remuneration and
Social Policies Committee
Committee’s activities and powers
The Human Resources, Remuneration and
Social Policies Committee chaired by an
independent director was established for
preliminary review of issues related to the
development of effi cient and transparent
practices of remuneration, human resource
planning (succession planning), areas of
expertise and performance of the Board
of Directors. The main purpose of the
Committee is to ensure effi cient decision
making by the Company’s Board of
Directors on the following issues:
▪ Appointment of members of the
Company’s governing bodies and other
key executives, and succession planning
for management and other key positions
in the Company
▪ Assessment of members of the
Company’s governing bodies and other
key executives
▪ Remuneration of members of the
Company’s governing bodies and other
key executives
▪ The Company’s social policy
68
49 Corporate governance review
51 Management composition
58 Corporate governance
The main objective of the Committee is to
review, develop and provide recommendations
to the Company’s Board of Directors on the
following issues:
▪ The priority areas for appointment,
assessment, development and remuneration
of members of the Company’s governing
bodies and other key executives
▪ Human resource planning, expanding
the range of expertise and improving
performance of the Company’s Board of
Directors
▪ Human resource planning and succession
planning for management and other key
positions in the Company
▪ Development of effi cient and transparent
practices of remuneration for members of
the Company’s governing bodies and other
key executives
▪ Other issues, including the development of
the social policy
The Committee membership had been
changed during 2015:
The Committee membership before June
2015:
▪ Vladimir Lisin (Chairman of the Committee)
▪ Oleg Bagrin
▪ Aleksey Lapshin
The Committee membership between June
and December 2015:
▪ Stanislav Shekshnya (Chairman of the
Committee)
▪ Vladimir Lisin
▪ Oleg Bagrin
▪ Helmut Wieser
According to the Regulations on the Human
Resources, Remuneration and Social Policies
Committee approved in December 2015,
the Human Resources, Remuneration and
Social Policies Committee with the following
membership was established at the meeting
of the Company’s Board of Directors: (as at
December 31, 2015):
▪ Stanislav Shekshnya (Chairman of the
Committee)
▪ Vladimir Lisin
▪ Helmut Wieser
Secretary of the Committee: Irina Bevz
(Director, Talent Management).
Results of the Committee’s activity for
2015
In 2015, there were four meetings of the
Human Resources, Remuneration and Social
Policies Committee, including one meeting
in person and three meetings in the form of
absentee voting.
The Committee reviewed and passed
resolutions on the following key issues:
▪ Approve the objectives, scope and schedule
of the Committee’s activities in 2015–2016
and the Secretary of the Committee
▪ Adopt the 2015–2016 HR Strategy
approved by the NLMK’s Management
Board
▪ Take into consideration the new MICEX
requirements related to criteria of
independent directors’ connection with the
issuer (the maximum length of tenure on
the Board of Directors cannot exceed seven
years)
▪ Identify the current best practices for
assessing a board of directors and develop
an assessment procedure on their basis.
Use the ideal target vision of the Board of
Directors’ performance as a benchmarking
criterion when assessing the Board of
Directors
▪ Recommend to NLMK’s Board of Directors
to approve the proposed methodology and
schedule for assessment of the Board of
Directors. Conduct the assessment of the
Board of Directors in accordance with the
proposed methodology and schedule
CORPORATE SECRETARY
NLMK’s Corporate Secretary ensures eff ective
interaction with shareholders, coordinates
Participation of committee members in committee meetings in 2015
Full name
Position
Stanislav Shekshnya
Chairman of the Committee
Vladimir Lisin
Member of the Committee
Helmut Wieser
Member of the Committee
Participation in meetings
in 2015
2 (2)
4 (4)
1 (2)
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
69
NLMK’s activities aimed at protecting the rights
and interests of its shareholders, and supports
the operation of the Board of Directors.
Functionally reporting to the Board of
Directors and administratively reporting
to NLMK President (Chairman of the
Management Board), the Corporate Secretary
is appointed and dismissed by NLMK
President (Chairman of the Management
Board) on the basis of a decision by the
Board of Directors.
NLMK’s Corporate Secretary ensures
interaction with shareholders, coordinates
NLMK’s activities aimed at protecting the rights
and interests of its shareholders, supports
the operation of the Board of Directors and
acts as the Head of the Management Board
Secretariat, which helps improve the effi ciency
of NLMK’s corporate governance. The duties
performed by the Corporate Secretary are in
line with recommendations given in the Code,
and the Corporate Secretary has suffi cient
resources to exercise his powers.
The Corporate Secretary’s main duties are to:
▪ Contribute to preparing for and organizing
of General Meetings of Shareholders
▪ Support the operation of the Board of
Directors and its Committees
▪ Contribute to the execution of NLMK’s
disclosure policy and oversee the storage
of NLMK’s corporate documents
▪ Support the interaction between NLMK
and its shareholders
▪ Support the interaction between NLMK
and regulators, brokerage fi rms, the
registrar and other players in the securities
market, as well as NLMK’s affi liates, within
the powers assigned to the Corporate
Secretary
▪ Secure compliance with the procedures
established by the law and NLMK’s
internal documents that provide for the
enforcement of rights and legitimate
interests of shareholders; and control their
execution
▪ Contribute to improving NLMK’s corporate
governance system and practices
The rights and duties of NLMK’s Corporate
Secretary are governed by Regulations on the
Corporate Secretary (which were approved
for the fi rst time in 2015), the Company’s
Charter and Regulations on the Board of
Directors.
Valery Loskutov has been the Company’s
Corporate Secretary from 2005.
The Corporate Secretary oversees the
Corporate Secretary Offi ce.
MANAGEMENT BOARD
NLMK corporate governance in action
According to NLMK’s current corporate
documents, the implementation of the
approved strategy and specifi c 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 effi ciently. In order to reach its
objective the Management Board is guided
by the following principles:
▪ Effi cient and objective decision-making
that favors the interests of the Company
and its shareholders
▪ Fair, timely and effi cient execution of the
decisions of the General Shareholders’
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:
▪ Devising and conceptualizing the
developmental steps, long-term plans and
core areas of activity for the Company
and its subsidiaries and affi liates; and
submitting them to the Board of Directors
for approval
▪ Developing modes of interaction between
the Company and other companies and
legal entities in which the Company
holds shares or interest or of which the
Company is a founder, participant or
member
▪ Approving proposals concerning the
agenda of the General Meetings of
Shareholders/participants as well as
the list of candidates to the governing
bodies which supervise the subsidiaries,
affi liates and other legal entities of
which the Company is a founder,
participant or member
▪ Approving the Company’s representatives
for participation in the General Meetings
of Shareholders and participants held
at subsidiaries, affi liates and other legal
entities of which the Company is a
shareholder, founder or member, as well
as approving guidelines for voting on
agenda items for those representatives
▪ Giving recommendations and opinions on
issues concerning approval of budgets,
key development trends, governance
structure, and other critical issues, which
are considered by the governing bodies
of subsidiaries, affi liates and other legal
entities of which the Company is a
founder, participant or member
▪ Advising the Board of Directors on
major and/or related party transactions
submitted for review by the Board of
Directors in accordance with its powers
▪ Approving transactions involving the
Company’s assets in cases where the
value of the deal or property in question
exceeds 10% of the Company’s asset
book value
▪ Deciding on Company participation or
termination of participation in other
organizations in cases where the value of
Composition of the Management Board as at 31 December 2015
Full name
Position
Oleg Bagrin
Brijesh Garg
Ilya Gushchin
Yuri Larin
Sergey Likharev
Alexander Saprykin
Grigory Fedorishin
Sergey Filatov
Stanislav Tsyrlin
Member of the Board of Directors, President
(Chairman of the Management Board)
Vice President, Procurement
Vice President, Sales
Vice President, Technology Development & Operational
Effi ciency
Vice President, Logistics
Vice President, Strategic Raw Materials Division
Vice President, Finance
Managing Director
Vice President, HR & Management System
There was no confl ict of interests between NLMK Management Board members in 2015.
70
49 Corporate governance review
51 Management composition
58 Corporate governance
the acquired (disposed) property is less than
2% of the Company’s asset book value
Board) cannot simultaneously be the Chairman
of the Board of Directors of the Company.
Participation of Members of the
Management Board in Meetings of this
body in 2015
▪ Setting up and dissolving Company’s
branches and representative offi ces, as
well as approving, revising and amending
regulations on branches and representative
offi ces
The make-up and structure of members of
the Management Board is approved by the
Board of Directors with consideration of the
opinion of the President (Chairman of the
Management Board). The composition of the
Management Board is approved by the Board
of Directors based on recommendations from
the President (Chairman of the Management
Board).
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.
According to the corporate documents,
President (Chairman of the Management
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 5 June 2015.
Full name
Oleg Bagrin
Brijesh Garg
Ilya Gushchin
Activity of the Management Board in 2015
Yuri Larin
In 2015, there were 44 meetings of the
Management Board, including 22 meetings
that were held using absentee ballots. The
following issues were considered at these
meetings:
▪ Meeting Group’s key performance indicators
in occupational health & safety
Sergey Likharev
Alexander Saprykin
Grigory Fedorishin
Sergey Filatov
Stanislav Tsyrlin
Participation in
meetings
44
44
44
44
44
44
44
44
44
▪ Group’s consolidated budget execution
▪ Achievement of NLMK Group’s KPIs
and implementation of its companies’
optimization programmes
▪ Participation / withdrawing participation of
the Group in other companies
▪ Approval of draſt decisions on matters
within the competence of the General
Shareholders’ Meetings of companies
in which the Group is the sole
participant / shareholder
▪ Execution of the development programmes
of NLMK’s divisions (functional areas)
▪ Recommendations to the Company’s
Board of Directors (with regard to approval
of related party transactions, dividend
payments and NLMK’s draſt annual report
for 2014)
▪ Recommendations to the governing bodies
of subsidiaries and affi liates
▪ Approval of transactions
▪ Effi ciency of sales portfolio management
▪ Comprehensive risk management system
▪ Approval of the Management Board’s
meeting schedule for 2015
REPORT ON REMUNERATION TO
GOVERNING BODIES
The levels of remuneration are suffi cient to
attract, motivate and retain competent and
properly qualifi ed executives. Remuneration
is paid to members of NLMK’s Board of
Directors in accordance with the approved
Regulations on Remuneration.
The Regulations on Remuneration contain
transparent mechanisms for determining
the levels of remuneration paid to members
of NLMK’s Board of Directors, and govern
all types of payments, benefi ts and perks
off ered to them.
Remuneration and compensation
of members of the Board of Directors
The remuneration system for members
of the Board of Directors serves to align
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
Brijesh Garg
Vice President, Procurement
Not an NLMK shareholder
Ilya Gushchin
Vice President, Sales
Not an NLMK shareholder
Yuri Larin
Vice President, Technology
Development & Operational
Effi ciency
0.00083 %
Sergey Likharev
Vice President, Logistics
Not an NLMK shareholder
Alexander Saprykin
Vice President, Strategic Raw
Materials Division
Not an NLMK shareholder
Grigory Fedorishin
Vice President, Finance
Not an NLMK shareholder
Sergey Filatov
Managing Director
Not an NLMK shareholder
Stanislav Tsyrlin
Vice President, HR & Management
System
Not an NLMK shareholder
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
71
their fi nancial interests with the long-term
fi nancial interests of shareholders.
The levels of remuneration and
compensation paid to members of NLMK’s
Board of Directors are determined on the
basis of Regulations on Remuneration
of Members of the Board of Directors of
Novolipetsk Steel approved by the General
Meeting of Shareholders on 5 June 2015
(Minutes of Meeting No. 40). The Regulations
outline the terms and conditions and the
procedure for payment of remuneration and
compensation for expenses to members of
NLMK’s Board of Directors related to their
performing the functions of members of the
Board of Directors during their term / from
their election to the Board of Directors till the
date of termination of offi ce of the member
of the Board of Directors.
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 to
members of the Board of Directors consists
of base remuneration and a bonus.
The amount of base remuneration is
determined on the basis of a resolution by
the General Meeting of Shareholders. The
Annual General Meeting decided to set
the base remuneration for 2014 paid to
each member of the Board of Directors at
$160,000 (one hundred and sixty thousand
US dollars).
A member of the Board of Directors may
receive a bonus that shall not exceed two
base remunerations. The amount of the
bonus is determined on the basis of the
member’s contribution to the work of the
Board of Directors and its Committees
and recommendations given by the Human
Resources, Remuneration and Social Policies
Committee.
Remuneration is paid following a decision by
NLMK’s General Meeting of Shareholders.
Regulations on Remuneration of Members of
the Board of Directors of Novolipetsk Steel
set the rules for reimbursing Board members’
work-related expenses. 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.
The maximum amount of a Board
member’s expenses reimbursed by NLMK
during a settlement period is determined
by a decision of the General Meeting of
Shareholders and shall not exceed 30% of
the base remuneration. The compensation
shall be paid only if the member of the
Board of Directors participated in more than
a half of meetings held by the Board of
Directors.
Since the Company does not have any
stock option programmes, members of the
Board of Directors are not provided with an
opportunity to participate in them, and their
right to sell their NLMK shares is not linked
to performance.
Remuneration and compensation of
members of the Management Board
The remuneration system for members
of NLMK’s executive bodies and other key
executives links the remuneration to NLMK’s
performance and their contribution to it.
NLMK is consistently implementing a long-
term motivation programme for members
of NLMK’s executive bodies and other key
executives.
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 as advised by 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 effi cient 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.
Remuneration paid to Board members in 2014–2015
2014
‘000 rubles
2015
‘000 rubles
2015
$ million
Payments to Board members, incl.:
Remuneration
Salary
Bonuses
Commission
Benefi ts
Refunded expenses
Other types of remuneration
125,585
123,605
162,549
160,054
–
–
–
–
1,980
–
–
–
–
–
2,495
–
2.67
2.63
–
–
–
–
0.04
–
Remuneration paid to Management Board members in 2014–2015
2014
‘000 rubles
2015
‘000 rubles
2015
$ million
Payments to Board members, incl.:
Salary
Bonuses
Commission
Benefi ts
Refunded expenses
Other types of remuneration
486,545
120,576
362,846
–
–
3,123
–
560,604
198,191
359,957
–
–
2,440
16
9.20
3.25
5.91
–
–
0.04
0.00
72
49 Corporate governance review
51 Management composition
58 Corporate governance
OPERATIONAL
CONTROL AND
RISK MANAGEMENT
SUPERVISION OVER THE FINANCIAL
AND BUSINESS ACTIVITIES
Transition to new consolidated fi nancial
reporting standards
Keeping up with the recent regulatory changes
in Russia, NLMK switched to reporting its
consolidated fi nancial results under the
International Financial Reporting Standards
(IFRS) starting from its report for the fi rst nine
months of 2015.
The date of the fi rst-time adoption of IFRS is
1 January 2013; the fi rst reporting under IFRS
was NLMK’s consolidated fi nancial statement
for the year ending on 31 December 2014,
with data for 2013 as the benchmark. The
timeframe for the transition to IFRS was due
to the narrowing gap between US GAAP and
IFRS principles in 2012–2014; this made data
reported under US GAAP and IFRS more easily
comparable and helped improve the transition
process.
The transition to IFRS had no signifi cant eff ect
on the Company’s fi nancial performance data.
External Auditor
According to the legislation of the Russian
Federation, the Group’s General Shareholders’
Meeting selects auditors on an annual
basis. The Audit Committee advances
candidates for Group auditor who are
recognized independent auditors with strong
professional reputation for consideration by
the Board of Directors.
The Audit Committee is guided by the
following core principles when making its
recommendations:
▪ The qualifi cations of the audit organization
and its professional reputation
▪ The quality of its services
▪ Its compliance with auditor independence
requirements.
AO PricewaterhouseCoopers Audit was
selected at the Annual General Shareholders’
Meeting held in June 2015, to conduct an
audit of fi nancial statements prepared
in accordance with Russian Accounting
Standards (RAS), the US Generally Accepted
Accounting Principles (US GAAP), and
International Financial Reporting Standards
(IFRS). 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
fi nancial statements of NLMK for H1 2015,
the IFRS consolidated fi nancial statements
of NLMK for 9M 2015, 12M 2015 and
Q1 2016, and the RAS Statements for 2015
to be US$ 1,000,000 and 32 million rubles
(excluding VAT).
Independence of external auditors
In 2015, AO PricewaterhouseCoopers Audit
performed audits of consolidated fi nancial
statements prepared in accordance with US
GAAP and IFRS; and fi nancial statements
of NLMK Group’s major companies in
accordance with RAS.
AO 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 AO
PricewaterhouseCoopers Audit and other
PricewaterhouseCoopers companies
(hereaſt er PwC) to provide consulting (non-
audit) services.
The management of NLMK has conducted
the necessary procedures, and is sure
that these services do not aff ect the
independence of the auditor and are not
related to fi nancial reporting. The share of
consulting (non-audit) services provided
CORPORATE GOVERNANCE / REPORT 2015
by ZAO PricewaterhouseCoopers Audit for
NLMK in 2015 did no exceed 10 % of the total
amount of services performed.
Internal Audit Commission
Corporate governance in action
The Internal Audit Commission is a full-
time internal control authority exercising
continuous supervision over the fi nancial
and business activities of the Company.
The Internal Audit Commission operates
under the Charter and the Internal Audit
Commission Regulations. It audits the
fi nancial and business activities of NLMK
Group in order to obtain adequate assurance
that the activities of NLMK Group comply
72 Operational control and risk management
78 Information for shareholders
73
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 until the next Annual General Meeting
of Shareholders. The Internal Audit
Commission report is an essential part of
NLMK’s RAS Financial Statements.
The members of the Internal Audit
Commission were elected on 5 June
2015 at the Annual General Meeting of
Shareholders. As of 31 December 2015
the Internal Audit Commission had the
following composition:
▪ Vladislav Ershov
▪ Natalia Krasnykh
▪ Vladimir Markin
▪ Sergey Nesmeyanov
▪ Galina Shipilova
Activities of the Internal Audit Commission
in 2015
The newly elected Internal Audit Commission
held one meeting in 2015 to discuss its
operation in 2015, elect its chairman and
approve an audit plan and programme.
The Commission reviewed the Group’s
fi nancial and business activities for 2015 in
accordance with its powers and on the basis
of the approved plan.
Remuneration
Remuneration to members of the Internal
Audit Commission is paid in accordance with
the Regulations on NLMK Group’s Internal
Audit Commissions approved by NLMK’s
President (Chairman of the Management
Board) on 25 November 2014. According
to the Regulations, the main criterion for
determining whether to pay the remuneration
is participation in audits of the Company’s
Remuneration paid to Internal Audit Commission members in 2014–2015
Payments to Commission members, incl.
Salary
Bonuses
Remuneration for participation in the Commission’s
activities
Refunded expenses
2014
‘000 rubles
2015
‘000 rubles
18,142
6,912
1,445
180
–
6,700
3,670
2,906
–
–
Other types of remuneration
9 605
124
74
49 Corporate governance review
51 Management composition
58 Corporate governance
fi nancial and business operations. The
remuneration paid to members of the
Internal Audit Commission shall be equal to
the amount of base remuneration, which is
determined by the Regulations.
The total remuneration paid to members of
the Internal Audit Commission for audits of
NLMK’s operations in 2015 was 220,000
rubles ($4,000).
Secretary of the Committee: Andrei
Dozhdikov (Head of Consolidated Financial
Statements Department).
Results of the Committee’s activity for
2015
In 2015 there were 6 meetings of the Audit
Committee held in-person, including 3 held by
conference call.
Audit Committee
Committee’s activities and powers
The Audit Committee chaired by an
independent director was established to
contribute to eff ective performance of
functions related to supervision of the
Company’s fi nancial and business activities
by the Board of Directors.
The Committee’s main objectives are to
improve effi ciency of internal control, risk
management and corporate governance
systems, verify the accuracy of fi nancial
statements, supervise the internal and
external audit, and prevent fraud by
employees and other parties.
According to Regulations on the Audit
Committee approved in December 2015,
the Audit Committee with the following
membership was established at the meeting
of the Company’s Board of Directors:
▪ Benedict Sciortino (Chairman)
▪ Karen Sarkisov
▪ Nikolai Gagarin
▪ Stanislav Shekshnya
▪ Franz Struzl
The Committee reviewed and passed
resolutions on the following key issues:
▪ Review of the results of the audit of
NLMK’s 2014 US GAAP Consolidated
Financial Statements
▪ Review of the results of the audit of
NLMK’s 2014 IFRS Consolidated Financial
Statements
▪ Review of the results of the audit of
NLMK’s 2014 RAS Financial Statements
▪ Review of draſt interim abridged US GAAP
Consolidated Financial Statements for
Q1 and H1 2015; and IFRS Consolidated
Financial Statements for 9M 2015
▪ Review of potential auditors for NLMK
Group’s RAS and IFRS-based consolidated
fi nancial statements for 2015
▪ Review of the report on the progress of
the Risk Management, Internal Control
and Internal Audit business process
development
▪ Review of the report on the Internal Audit
Service performance in 2014, and the
audit plan for 2015
Participation of committee members in committee meetings in 2015
Full name
Position
Participation in meetings
in 2015*
Benedict Sciortino
Chairman of the Committee
Franz Struzl
Member of the Committee
Stanislav Shekshnya**
Member of the Committee
Nikolai Gagarin
Member of the Committee
Karen Sarkisov
Member of the Committee
6 (6)
6 (6)
–
6 (6)
6 (6)
* The number of the Committee’s meetings over the period of the person’s participation as a member of the
Committee is specifi ed in brackets.
** Elected to the Committee in December 2015.
CORPORATE GOVERNANCE / REPORT 2015
▪ Review of the reports on the interim
results of the Group’s Internal Audit
Service operation, risk management and
internal control activities
Internal Audit
Practices
Internal Audit is an integral part of
NLMK’s internal control system, exercising
continuous supervision over the fi nancial
and business activities of the Company.
Internal auditing is an activity designed to
provide objective and impartial assurance
and consulting in order to enhance the
organizational activities. The key functions
of the Internal Audit Department are as
follows:
▪ Assess effi ciency of the internal control
system
▪ Assess effi ciency of the risk management
system
▪ Assess effi ciency of corporate governance
▪ Consulting
Internal auditing activity is performed by the
Internal Audit Department and local Internal
Audit offi ces of NLMK Group’s companies.
Head of Internal Audit interacts with the
local Internal Audit offi ces by undertaking:
▪ General functional management of local
Internal Audit offi ces
▪ Quality control
▪ Organization of consulting services
Internal Audit activities in 2015
In 2015, Internal Audit experts performed
the following activities:
▪ Audits of risk management effi ciency in
relation to material risks and assessments
of effi ciency of the internal control system
applicable to business processes. The
audits revealed both insignifi cant and
signifi cant defi ciencies. It confi rms that
the risk management system is in place,
yet certain organizational weaknesses
and/or control procedure compliance
issues exist which could have an impact
on achieving process objectives
▪ Assessment of NLMK’s corporate
governance effi ciency. The effi ciency was
assessed as high and complying with the
requirements of Stock exchanges
▪ Audits of Company’s fi nancial and
business activities; compliance with
▪ Review of the results of risk management
activities and the risk matrix for 2015
▪ Organization of methodological support
for Internal Audit activities
72 Operational control and risk management
78 Information for shareholders
75
fi nancial and tax accounting regulations;
and preparation of fi nancial (tax)
statements
practices in Russia and encouraging fair
competition and sustainable economic
growth.
stakeholders and the Company in general
through an effi cient risk management
system.
▪ Experts of Internal Audit Department
conducted internal audits in NLMK Group’s
companies in accordance with the laws
on joint-stock companies and charters of
limited liability companies. Internal audits
were conducted in 17 subsidiaries and
affi liates followed by reports on validity of
accounting (fi nancial) statements
▪ Consulting services: consulting services
were provided to business units of the
Lipetsk site and other NLMK Group’s
companies on issues related to taxation
and fi nancial and business activities;
auditors participated in meetings of
commissions and work groups and shared
their opinions on subject matters
▪ Audits of repair and construction activities
Following the audits, auditors provided
recommendations on how to improve NLMK
Group activities, including improvement
of the company’s risk management and
internal control system. Internal Audit
consistently monitors implementation of its
recommendations. In 2015, 95% of auditors’
recommendations were implemented.
Anti-corruption efforts
NLMK Group is guided by high ethical
standards and principles of business
transparency. Respect for existing legislation,
professionalism and honesty are essential for
all NLMK Group employees.
NLMK adheres to best corporate governance
practices and deems any form of corruption
to be unacceptable, including bribery,
collusion, corrupt payments, abuse of position,
facilitation payments, etc. Direct and indirect
involvement of NLMK Group employees
in corrupt activities is prohibited without
exception.
NLMK Group is a member of the Anti-
Corruption Charter of the Russian Business,
which was established by the Russian Union
of Industrialists and Entrepreneurs; this
underlines NLMK’s commitment to promoting
fair business and corporate governance
NLMK Group companies have an extensive
internal communications network that
enables all employees to report any
instances of corruption, past and future.
At Novolipetsk, concerns can be reported
to a special hotline; at a face-to-face
meeting with executives or the person in
charge of anti-corruption enforcement, or
to Asset Protection. Staff members can
also send e-mails to a special address,
anticorruption@nlmk.com, or use ‘help
boxes’ placed at entrance checkpoints.
NLMK Group adopted special practices
for operations with the highest risk of
fraud: confl icts of interest should be
declared, and employees should undergo
psychophysiological tests. Their Internal
Regulations were amended to include anti-
corruption responsibilities.
Acknowledgement of and compliance
with the principles and practices set out
in the Anti-Corruption Charter of the
Russian Business is one of the standard
qualifi cation criteria our potential
counterparties should meet to become
NLMK Group’s partners. The Roadmap
of the Charter is an integral part of the
standard contractual relationship between
NLMK Group companies and their partners.
Risk mitigation is one of the key
prerequisites for achieving our targets and
improving key performance indicators.
The Group has a number of regulations
concerning the risk management system
in general and the key risk management
methodologies and procedures.
The responsibilities within the risk
management system are allocated as
follows:
▪ The Management Board approves the
critical/signifi cant risk matrix and risk
management action plan and monitors
the performance of the risk management
system
▪ The Audit Committee approves the
critical/signifi cant risk management
programme and monitors the
performance of the risk management
system
▪ The Risk Management Committee
performs day-to-day risk management
duties, determines assessment
approaches and risk structure and
develops risk management and impact
mitigation measures
The formalization and implementation of
processes within our anti-corruption system
are expected to be completed in 2016.
▪ Risk owners identify new threats
and implement the approved risk
management programme
RISK MANAGEMENT
NLMK risk management system
NLMK Group’s business is exposed to
various risks. The Group has adopted a
risk management system to make optimal
decisions in the course of its activities.
The system includes risk identifi cation,
classifi cation and impact assessment
procedures, as well as development of risk
management measures and mitigation of
the negative impact of external factors.
Our risk management policy is aimed at
protecting the interests of shareholders,
Changes introduced to the risk
management system in 2015
The Company continued with integration
processes in 2015 to further develop its
risk management system. Specifi cally, it
appointed risk management and internal
control coordinators across NLMK Group
operations and functions. Their main task
is to communicate the approaches and
values of the risk management system to all
business units.
In 2015, NLMK Group approved its Credit
Policy, improved the Maintenance Schedule
and developed a draſt Anticorruption Policy.
76
49 Corporate governance review
51 Management composition
58 Corporate governance
Risks NLMK is exposed to
Risk
Impact level
Description
Mitigation measures
PRODUCTION RISKS
Business continuity risk
Critical risk
Risks related to downtime caused by
equipment failure, human errors, supply of
low-quality raw materials, or other sources
of risk, including acts of nature
Maintenance and repair programmes, a system for
controlling incoming raw materials and supplies
Equipment productivity
reduction risk and low
quality product risk
Signifi cant risk
Risks related to limited equipment
availability and lower equipment productivity
and quality of end products
Operational effi ciency programme
COMMERCIAL RISKS
Price risk
Critical risk
Credit risk
Critical risk
Risk of ineffi cient ready
inventory management
Critical risk
FINANCIAL RISKS
Currency risk
Critical risk
INVESTMENT RISKS
Investment risk
Critical risk
REGULATORY RISKS
Tax risk
Signifi cant risk
Risk associated with unfavourable changes
in market prices and the government’s
position on energy pricing
Risk caused by counterparty default on
payment or supply of products (accounts
receivable and advance payments) or
NLMK Group’s bank deposits
Risk caused by ineffi cient inventory
management: non-compliance with
(absence of) standards, unlawful actions by
inventory keepers or poor logistics chain
▪ Monitoring spreads between steel products and
key raw materials
▪ Development of a purchasing strategy by
category of material
The credit risk is minimized through credit security,
accounts receivable insurance, limits on certain
types of credit, and concentration risk management
Development of raw material and end product stock
keeping standards, audit and stock taking
Risks associated with fl uctuations in
currency rates. The Company receives
the majority of its revenues from exports
in foreign currency, while the majority of
expenditure is established in Russian rubles
Control of open foreign exchange position
Risk associated with failure to achieve
project KPIs, including completion deadlines,
project budget and surplus inventory
▪ Application of project management principles
▪ Assessment of risks related to each project
▪ Root cause analysis for key risks. Development
of preventive measures
When accounting, declaring and paying
taxes, the Company seeks to comply with
all requirements of the applicable legislation.
Nonetheless, changes in tax laws and
regulators’ enforcement practices, as well as
introduction of new business processes and
operations expose the Company to tax risks
▪ Continuous monitoring of tax legislation
▪ Regular diagnostic and strengthening of internal
control for tax accounting, declaration and
payment processes
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
77
Risk
Impact level
Description
Mitigation measures
Free trade restriction
risks
Signifi cant risk
The signifi cant volume of exports and
imports make the Company vulnerable
to tariff and non-tariff measures, as well
as other restrictions imposed by foreign
regulators on raw and other materials and
equipment purchased by the Company, and
the products the Company sells
▪ Monitoring of foreign regulators’ activities
▪ Promotion of the Company’s interests through
available legal tools, transparency and effective
interaction with regulators
▪ Sales channel management to minimize the
negative effect of sanction regimes
OPERATIONAL RISKS
Environmental risk
Critical risk
Risk of environmental changes or
unfavourable long-term consequences
of these changes resulting from negative
environmental impact
Occupational health and
safety risks
Signifi cant risk
Risks associated with the occurrence of
accidents and other incidents
Fraud, corruption and
asset theft risk
Signifi cant risk
Risk associated with illegal actions (fraud)
taken by employees, counterparties and
third parties to benefi t themselves to
the prejudice (at the expense) of NLMK’s
interests
IT risks
Signifi cant risk
▪ The Company is exposed to IT risks as
its processes and data fl ows are heavily
dependent on applied IT solutions.
There are two key areas of IT risk
management:
▪ Protection of information classifi ed
as trade secrets, personal data and
information intended for internal use
▪ Delivery of business process continuity
and high availability of IT systems and
infrastructure
The Company is implementing a comprehensive
investment programme aimed at upgrading
pollution prevention equipment, introducing new,
more eco-friendly production technologies and
ensuring compliance with environmental standards
▪ Development and implementation of a corporate
OHS management system with unifi ed standards
across all sites
▪ Development of NLMK Group’s preventative fi re
safety system
▪ Ensuring employees are supplied with the latest
personal protection and hygiene equipment
▪ OHS training for managers and experts.
▪ Promotion of principles stipulated in the
Anticorruption Policy and Ethics Code
▪ Declaration of absence of a confl ict of interests
by employees in positions that are most
vulnerable to the risk
▪ Development of the Company’s hotline as an
important and secure channel for informing the
Company about corruption and fraud
▪ Qualifi cation of counterparties engaged by the
Company with regard to their compliance with
anticorruption principles
▪ Regular diagnostic of the Company’s internal
control system
▪ Strengthening of NLMK Group’s regulations
concerning information security, business
continuity procedures and emergency response
plans
▪ Implementation of several projects aimed at
strengthening the Company’s information
security, including introduction of SAP GRC
access control tools, comprehensive roll-out
of information protection tools and a project to
improve the maturity of critical business system
change management
78
49 Corporate governance review
51 Management composition
58 Corporate governance
INFORMATION FOR
SHAREHOLDERS
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 8.56 % of share capital as of
31 December 2015.
The Company’s depositary bank is Deutsche
Bank Trust Company Americas.
ORDINARY SHARES
Share price
NLMK Global Depositary Shares on the London Stock Exchange
Price of GDS (US$)
Maximum
Minimum
Mean
End of year
Ordinary NLMK shares on MICEX
Share price (RUB)
Maximum
Minimum
Mean
End of year
2015
14.80
8.11
12.36
8.51
2015
92.00
58.29
75.21
62.6
2014
16.69
9.80
13.45
11.48
2014
71.02
39.30
51.66
67.41
NLMK GDS price on the London Stock Exchange (LSE) ($/GDS)
18
16
14
12
10
8
6
4
2
0
y
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NLMK GDS price on LSE, lhs
MICEX index (indicator of Russian companies’ share prices), rhs
2000
1800
1600
1400
1200
1000
800
600
400
200
0
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
NLMK
MICEX
(Moscow) Ticker
Code
NLMK
Bloomberg
Ticker Code
− NLMK LI for GDS
traded on the LSE
− NLMK RX for shares
traded on the MICEX
platform of the Moscow
Exchange
Reuters Ticker
Code
− NLMKq.L for GDS
traded on the LSE
− NLMK.MM for shares
traded on the MICEX
platform of the Moscow
Stock Exchange
Indices that include NLMK shares
▪ RTS Index (NLMK’s share as at 15.03.16 –
0.76%)
▪ MICEX index (NLMK’s share as at 15.03.16 –
0.76%)
▪ Moscow Stock Exchange Metals & Mining
(NLMK’s share as at 15.03.16 – 13.86%)
▪ FTSE Russia IOB index.
CORPORATE GOVERNANCE / REPORT 2015
72 Operational control and risk management
78 Information for shareholders
79
consolidated fi nancial statements, if Net
debt/ EBITDA is 1.0x or less.
▪ 30% of net profi t and 30% of free
cash fl ow calculated on US GAAP/IFRS
consolidated fi nancial statements, if Net
Debt/EBITDA exceeds 1.0x.
▪ Dividends are paid annually. If conditions
for fi nancial stability are maintained,
NLMK will strive to pay interim dividends
on a quarterly basis.
▪ The amount to be paid as a dividend for
a specifi c period is approved by company
shareholders in line with recommendations
by the Board of Directors.
Dividends payable to GDS holders
Any dividends paid on shares certifi ed 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.
The Board of Directors recommends that
the Annual General Meeting of NLMK
Shareholders pay (announce the payment
of) 2015 dividends for ordinary shares in
the amount of RUB 6.95 in cash per one
ordinary share. Taking into account that
interim dividends have been paid in the
amount of RUB 4.52 per one ordinary share,
the remaining balance to be paid per one
ordinary share is RUB 2.43.
The Board of Directors recommended
using the balance of profi ts aſt er payment
of dividends for funding investment
programmes and paying dividends in the
future.
NLMK share price on MICEX (RUB/share)
100
90
80
70
60
50
40
30
20
10
0
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5000
4000
3000
2000
1000
0
own advisors regarding the tax consequences
of investing in the Company’s shares, including
Global Depositary Shares (GDS).
DIVIDENDS
Dividend policy
The dividend policy was updated in 2015
to improve the transparency of dividend
payouts.
According to the current dividend policy,
dividends are to be paid with the payout in
the range of:
▪ 50% of net income and 50% of free cash
fl ow calculated based on US GAAP/ IFRS
Dividend history (US$ m)
NLMK share price on MICEX, lhs
MICEX Metals & Mining Index, rhs
Market capitalization
NLMK market capitalization in 2015 was
largely in line with the general trends seen
in capital markets and the global steel
market. Average market capitalization of the
Company on the London Stock Exchange
was US$ 7.4 billion (–8 % year-on-year). At
the end of 2015, NLMK share price was
US$ 0.85, or US$ 8.51 per GDS, consistent
with capitalization of US$ 5.1 billion.
Taxation
Legal entities
Tax treatment of organizations’ revenues
received as dividends on shares is
governed by Chapter 25 ‘Tax on
Organizations’ Profi t’ of the Russian Tax
Code. Dividends paid to organizations that
are Russian taxpayers are subject to a 0%
or 13% income tax (subclauses 1 and 2 of
Clause 3 of Article 284 of the Russian Tax
Code); foreign organizations are subject
to a 15% income tax (subclause 3 of
Clause 3 of article 284 of the Russian Tax
Code).
Individuals
The personal income tax rate is 13% for
Russian individuals (Clause 1 of Article
224 of the Russian Tax Code) and 15% for
foreign individuals (paragraph 2 of Clause 3
of article 224 of the Russian Tax Code).
Note: Information on taxation is provided for
general information purposes only. Potential
and existing investors should consult with their
800
600
400
200
0
738
660 683
60%
651
50%
386
471
379 376
304
125
62
43
116
115
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
draft
Declared dividends for the year
Dividend payout ratio (dividend/net profit), rhs
40%
30%
20%
10%
0% 0%
80
72 Operational control and risk management
78 Information for shareholders
CORPORATE DOCUMENTS
The Group’s corporate documents,
including the Company Charter, are
available at www.nlmk.com.
FINANCIAL REPORTING
AND DISCLOSURE
The Group posts announcements of
fi nancial 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 fi nancial results on a
quarterly basis. The annual report is
published in electronic form on the
Group website, www.nlmk.com, on
the day of its offi cial 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 offi ce of the
Register of Shareholders and NLMK
PR Consultants’ offi ce in London.
Financial calendar for 2016
Structure of share capital
as at 31 December 2015
14.5%
85.5%
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
Telephone: +7 (4742) 44-30-95
E-mail: info@a-rnr.ru
Fletcher Group Holdings Limited*
Depositary bank
Other free floating shares**
* The company’s benefi ciary is Vladimir Lisin, according to
the defi nition of ‘benefi ciary’ in the Russian legislation.
** All other free-fl oating shares, including global depositary
shares traded on the London Stock Exchange (Deutsche Bank
Trust Company Americas is NLMK’s depositary bank) and
shares traded on Moscow Exchange.
Date
Event
19 5 January 2016
Q4 2015 trading update
24 March 2016
24 March 2016
25 March 2016
14 April 2016
22 April 2016
17 May 2016
3 June 2016
14 July 2016
12M 2015 consolidated fi nancial results
NLMK Capital Markets Day
12M 2015 fi nancial results for the Group’s major companies
(under Russian Accounting Standards, RAS)
Q1 2016 trading update
Meeting of the Board of Directors (BoD)
Q1 2016 consolidated fi nancial results
Annual General Meeting of Shareholders
Q2 2016 trading update
25–29 July 2016
H1 2016 consolidated fi nancial results
8–12 August 2016
Meeting of the Board of Directors (BoD)
26–30 September 2016
Extraordinary General Meeting of Shareholders
13 October 2016
Q3 2016 trading update
31 October – 4 November 2016
9M 2016 consolidated fi nancial results
14–18 November 2016
Meeting of the Board of Directors (BoD)
19–21 December 2016
Extraordinary General Meeting of Shareholders
CORPORATE GOVERNANCE / REPORT 2015
Deutsche Bank Trust Company
Americas
New York Headquarters
60 Wall St., New-York, NY, 10005
USA
London Offi ce
Winchester House
1 Great Winchester St.
London EC2N 2DQ
United Kingdom
Contacts
London: +44 20 7547 6500
New York: +1 212 250 91 00
Moscow: +7 495 642-06-16
E-mail: adr@db.com
Valery Loskutov
Corporate Secretary
Tel.: +7 (4742) 44 49 89
E-mail: loskutov_va@nlmk.com
Sergey Takhiev
Head of Investor Relations
Tel.: +7 (495) 915 15 75
E-mail: tahiev_sa@nlmk.com
Financial statements
and appendix
RESPONSIBILITY STATEMENT
Financial statements and appendix
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 IFRS, as of December 31, 2015, 2014 and 2013, 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 2015, 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 2015 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
O.OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
No
Company name
Activity
NLMK subsidiaries and affiliates as of (cid:1007)(cid:1005)(cid:856)(cid:1005)(cid:1006)(cid:856)(cid:1006)(cid:1004)(cid:1005)(cid:1009)(cid:3)(cid:784)(cid:856)
Financial statements and appendix
Annex 1
Novolipetsk in
Charter Capital (%)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
VIZ-Steel, Limited Liability Company
Vtorchermet NLMK, Limited Liability Company
Zhernovsky-1 Mining and Processing Complex, Limited
Liability Company
Usinsky-3 Mining and Processing Complex, Limited Liability
Company
Hotel Metallurg, Limited Liability Company
SHANS Lipetsk Insurance Company, Limited Liability
Company
NLMK Information Technologies, Limited Liability Company
NLMK Kaluga, Limited Liability Company
NLMK-Metiz, Limited Liability Company
NLMK-Svyaz, Limited Liability Company
NLMK-Sort (NLMK Long Products), Limited Liability
Company
NLMK-Uchetniy Tsentr (Accounting Centre), Limited Liability
Company
NLMK Overseas Holdings, Limited Liability Company
Novolipetskaya Metallobaza, Limited Liability Company
Novolipetsky Pechatny Dom (Printing House), Limited
Liability Company
Novolipetsky Metallurg Resort, a subsidiary of Novolipetsk
NLMK Construction and Assembly Trust, Limited Liability
Company
NLMK Trade House, Limited Liability Company
Subsidiaries
Production and marketing of electrical steel.
Collection, processing and sales of ferrous and non-ferrous scrap
Entire range of works related to coal mining and processing
Entire range of works related to coal mining and processing
Hotel services
Insurance
IT, computing and telecom services.
Production of steel, re-rolling stock (billets), hot-rolled and forged flats, unpainted
and pre-painted cold-rolled flat steel
Production of pig iron, ferrous alloys, steel, hot and cold-rolled flat steel
Telecom services
Managing company, trading and procurement activities
Book-keeping and tax accounting services for NLMK Group businesses
Develops the growth strategy for NLMK Group companies, supports relations
between the Group’s Russian and international businesses
Manufacturing of plastic and steel products
Printing services
Rest and recreation services, health and rehabilitation facility.
Contracting of industrial, housing, utilities, cultural services and road construction
works. Construction of health facilities, household natural gas supply lines.
Consolidated purchases of raw materials and inputs, sale of NLMK Group by-products
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Report 2015 ............................................................................................................................................................................................................................................................ 3
Financial statements and appendix
19
20
21
22
23
24
25
Uralvtorchermet, Closely-held Joint-Stock Company
Ussuriyskaya Metallobaza, Limited Liability Company
Altai-Koks, Open Joint-Stock Company
Dolomit, Open Joint-Stock Company
Stoilensky Mining and Processing Plant, Open Joint-Stock
Company
Studenovskaya Joint Stock Mining Company, Open Joint-
Stock Company
Nizhneserginsky Metizno Metallurgicheskiy Zavod
(NSMMZ), Open Joint-Stock Company»
Lipetsky Gipromez, Limited Liability Company
26
27 Maxi-Group, Open Joint-Stock Company
Consulting services re commercial activities, management, investing in securities,
leasing of assets.
Acquisition, processing, storage and domestic sale of ferrous and non-ferrous metals.
Production and marketing of coke and by-products, generation and marketing of heat
and electric power
Mining and processing of dolomite
Mining and processing of iron ore and other minerals
Production of fluxing limestone for steel-making, process limestone for the sugar
industry, lime-containing materials and crushed stone for construction and roadwork
Production of long steel stock, hot-rolled and forged flat steel
Design and survey operations
Consulting services, corporate financial management
Affiliated companies
28
Neptune, Limited Liability Company
Wellness services
100
100
100
100
100
100
92,59
57,57
50,00005
25
Report 2015 ............................................................................................................................................................................................................................................................ 4
NOVOLIPETSK STEEL
CONSOLIDATED FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
AS AT AND FOR THE YEAR ENDED
31 DECEMBER 2015
(WITH INDEPENDENT AUDITOR’S REPORT THEREON)
Novolipetsk Steel
Consolidated financial statements as at and for the year ended 31 December 2015
CONTENTS
Independent auditor’s report
Consolidated statement of financial position
Consolidated statement of profit or loss
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
3
5
6
7
8
9
11
2
Novolipetsk Steel
Consolidated statement of financial position as at 31 December 2015
(millions of US dollars)
Note
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Assets
Current assets
Cash and cash equivalents
Short-term financial investments
Trade and other accounts receivable
Inventories
Other current assets
Non-current assets
Long-term financial investments
Investments in associates and other companies
accounted for using the equity method of accounting
Property, plant and equipment
Goodwill
Other intangible assets
Deferred income tax assets
Other non-current assets
Total assets
Liabilities and equity
Current liabilities
Trade and other accounts payable
Short-term borrowings
Current income tax liability
Non-current liabilities
Long-term borrowings
Deferred income tax liability
Other long-term liabilities
Total liabilities
Equity attributable to NLMK shareholders
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Non-controlling interests
Total equity
Total liabilities and equity
3
5
6
7
5
4
8
9
9
17
10
11
11
17
12(a)
23(f)
343.0
1,242.6
920.9
1,205.3
8.8
3,720.6
219.8
117.7
4,452.3
214.6
112.3
68.2
13.9
5,198.8
8,919.4
726.4
559.8
27.7
1,313.9
2,116.3
339.3
12.2
2,467.8
3,781.7
221.2
9.9
(6,988.4)
11,883.4
5,126.1
11.6
5,137.7
8,919.4
549.2
621.3
1,122.5
1,562.8
5.3
3,861.1
141.3
106.2
5,613.6
285.4
193.9
124.9
23.0
6,488.3
10,349.4
775.9
804.3
47.5
1,627.7
1,964.2
407.4
93.4
2,465.0
4,092.7
221.2
-
(5,491.9)
11,512.7
6,242.0
14.7
6,256.7
10,349.4
970.0
485.0
1,459.0
2,123.8
7.6
5,045.4
82.5
419.1
9,892.1
463.4
374.5
136.4
39.6
11,407.6
16,453.0
1,161.8
1,136.7
21.6
2,320.1
3,053.8
641.0
39.6
3,734.4
6,054.5
221.2
-
(839.9)
10,989.1
10,370.4
28.1
10,398.5
16,453.0
The consolidated financial statements as set out on pages 5 to 65 were approved on 23 March 2016.
The accompanying notes constitute an integral part of these consolidated financial statements.
5
Novolipetsk Steel
Consolidated statement of profit or loss for the year ended 31 December 2015
(millions of US dollars, unless otherwise stated)
Revenue
Cost of sales
Gross profit
General and administrative expenses
Selling expenses
Other operating income / (expenses)
Taxes, other than income tax
Operating profit before equity share in net losses of
associates and other companies accounted for using the
equity method of accounting, impairment and write-off of
assets
Loss on disposals of property, plant and equipment
Impairment losses and write-off of assets
Share in net losses of associates and other companies
accounted for using the equity method
Result of disposal of subsidiary
Income on change of restructuring provision
Gains on investments
Finance income
Finance costs
Foreign currency exchange gain, net
Other expenses, net
Note
14
16
4, 8
4
20
20
18
18
19
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
8,008.3
(5,495.7)
10,395.7
(7,389.0)
10,818.4
(8,665.9)
2,512.6
3,006.7
2,152.5
(261.1)
(801.6)
14.1
(75.7)
(364.3)
(923.1)
6.1
(137.5)
(456.9)
(945.6)
(6.6)
(134.6)
1,388.3
1,587.9
608.8
(7.6)
(85.5)
(103.0)
-
-
80.3
51.9
(95.3)
109.5
(17.5)
(11.9)
(657.2)
(193.1)
-
-
37.4
36.5
(136.8)
488.2
(15.0)
(23.0)
(21.0)
(54.0)
(51.4)
7.5
2.3
40.6
(121.9)
85.2
(53.9)
Profit before income tax
1,321.1
1,136.0
419.2
Income tax expense
17
(352.9)
(362.4)
(255.0)
Profit for the year
968.2
773.6
164.2
Profit attributable to:
NLMK shareholders
Non-controlling interests
Earnings per share – basic and diluted:
967.4
0.8
772.5
1.1
145.4
18.8
Earnings attributable to NLMK stockholders per share
(US dollars)
13
0.1614
0.1289
0.0243
Weighted-average shares outstanding:
basic and diluted (in thousands)
12(a)
5,993,227
5,993,227
5,993,227
The accompanying notes constitute an integral part of these consolidated financial statements.
6
Novolipetsk Steel
Consolidated statement of comprehensive income for the year ended 31 December 2015
(millions of US dollars)
Profit for the year
968.2
773.6
164.2
Note
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Other comprehensive loss:
Items that may be reclassified subsequently to profit or loss:
Cumulative translation adjustment
2(b)
(1,500.3)
(4,666.5)
(780.4)
Total comprehensive loss for the year attributable to
NLMK shareholders
Non-controlling interests
(532.1)
(529.1)
(3.0)
(3,892.9)
(3,879.5)
(13.4)
(616.2)
(634.5)
18.3
The accompanying notes constitute an integral part of these consolidated financial statements.
7
Novolipetsk Steel
Consolidated statement of changes in equity for the year ended 31 December 2015
(millions of US dollars)
NLMK shareholders
Note
Common stock
Additional
paid-in capital
Accumulated
other
comprehensive
loss
Retained
earnings
Non-controlling
interest
Total equity
Balance at
1 January 2013
Profit for the year
Cumulative translation
adjustment
2(b)
Change of non-controlling
interests in existing
subsidiaries
Disposal of other
comprehensive income as a
result of deconsolidation
20
Dividends to shareholders
12(b)
Balance at
31 December 2013
Profit for the year
Cumulative translation
adjustment
2(b)
Dividends to shareholders
12(b)
Balance at
31 December 2014
Profit for the year
Disposal of assets to an
entity under common
control
Cumulative translation
adjustment
23(f)
2(b)
Dividends to shareholders
12(b)
Balance at
31 December 2015
221.2
-
-
-
-
-
221.2
-
-
-
221.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9.9
-
-
-
-
11,008.8
(32.9)
11,197.1
145.4
18.8
164.2
(779.9)
-
(0.5)
(780.4)
-
(49.5)
42.7
(6.8)
(60.0)
-
-
(115.6)
-
-
(60.0)
(115.6)
(839.9)
10,989.1
28.1
10,398.5
-
772.5
1.1
773.6
(4,652.0)
-
(14.5)
(4,666.5)
-
(248.9)
-
(248.9)
(5,491.9)
11,512.7
-
-
(1,496.5)
967.4
-
-
14.7
0.8
6,256.7
968.2
(0.1)
9.8
(3.8)
(1,500.3)
-
(596.7)
-
(596.7)
221.2
9.9
(6,988.4)
11,883.4
11.6
5,137.7
The accompanying notes constitute an integral part of these consolidated financial statements.
8
Novolipetsk Steel
Consolidated statement of cash flows for the year ended 31 December 2015
(millions of US dollars)
Note
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Cash flows from operating activities
Profit for the year
Adjustments to reconcile profit for the year to net cash
provided by operating activities:
Depreciation and amortization
Loss on disposals of property, plant and equipment
(Income) / losses on investments
Finance income
Finance costs
Share in net losses of associates and other companies
accounted for using the equity method
Deferred income tax expense / (benefit)
4
17
Impairment losses
Unrealized gains on foreign currency exchange
Other adjustments
Changes in operating assets and liabilities
Decrease / (increase) in trade and other accounts
receivable
Decrease / (increase) in inventories
(Increase) / decrease in other current assets
(Decrease) / increase in trade and other accounts
payable
(Decrease) / increase in current income tax liability
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 of investments and loans given, net
Placement of bank deposits, net
Interest received
Contribution to share capital of the company accounted
for using the equity method
20
Advance VAT payments on imported equipment
Disposal of assets to an entity under common control
Cash received in course of bankruptcy proceedings
Disposal of investment in subsidiary
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
23(f)
24(b)
20
Repayment of borrowings and capital lease payments
Interest paid
Dividends to shareholders
Acquisition of additional stake in existing subsidiary
Net cash used in 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
3
3
968.2
773.6
164.2
560.0
7.6
(80.3)
(51.9)
95.3
103.0
51.8
85.5
(173.4)
(8.4)
98.2
82.8
(5.5)
(75.5)
(6.3)
1,651.1
(594.7)
10.8
(198.8)
(641.0)
43.6
(22.0)
(23.8)
9.8
16.8
-
793.5
11.9
(37.4)
(36.5)
136.8
193.1
(15.9)
657.2
(574.0)
31.5
(49.9)
(97.6)
(1.8)
(28.9)
50.1
1,805.7
(562.6)
15.0
(231.6)
(197.1)
30.7
-
-
-
-
-
(1,399.3)
(945.6)
675.6
(578.8)
(79.4)
(395.2)
-
(377.8)
(126.0)
(80.2)
549.2
343.0
110.2
(910.7)
(120.6)
(225.9)
-
(1,147.0)
(286.9)
(133.9)
970.0
549.2
871.1
23.0
49.1
(40.6)
121.9
54.0
87.7
-
-
14.2
(321.3)
(95.8)
7.4
396.4
2.1
1,333.4
(756.3)
5.8
(87.4)
(264.4)
40.4
-
-
-
-
46.2
(1,015.7)
2,000.7
(2,020.2)
(81.5)
(113.6)
(9.6)
(224.2)
93.5
(74.7)
951.2
970.0
The accompanying notes constitute an integral part of these consolidated financial statements.
9
Novolipetsk Steel
Consolidated statement of cash flows for the year ended 31 December 2015
(millions of US dollars)
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income tax paid
Placements of bank deposits
Withdrawals of bank deposits
Non cash investing activities:
Note
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
(320.9)
(1,594.7)
953.7
(352.4)
(1,997.8)
1,800.7
(143.3)
(1,232.0)
967.6
Fair value of assets disposed of in course of partial disposal of
investment
Conversion of debt to equity
20
20
-
109.5
-
270.4
867.3
-
The accompanying notes constitute an integral part of these consolidated financial statements.
10
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
1
Background
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 public 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 28 January 1993. On 12 August 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 and on 29 December 2015 the name of the Parent Company was changed to
public joint stock company due to changes in legislation of the Russian Federation.
The Group is vertically integrated steel company and the largest steel producer in Russia. The Group also operates
in the mining segment (Note 21).
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 Parent Company’s registered
office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation.
As at 31 December 2015 the Parent Company’s major shareholder with 85.54% ownership interest is Fletcher
Group Holdings Limited which is beneficially owned by Mr. Vladimir Lisin.
The major companies of the Group are:
Activity
Country of
incorporation
Share at
31 December
2015
Share at
31 December
2014
Share at
31 December
2013
Companies under the Group’s
control:
Russian flat products
LLC VIZ-Stahl
OJSC Altai-Koks
Novex Trading (Swiss) S.A.
Novexco (Cyprus) Ltd.
Foreign rolled products
NLMK DanSteel A/S
NLMK Indiana LLC
NLMK Pennsylvania LLC
Russian long products
OJSC Nizhneserginski
Hardware-Metallurgical Plant
LLC NLMK-Metalware
LLC NLMK-Kaluga
LLC Vtorchermet NLMK
Mining
OJSC Stoilensky GOK
Production of steel
Production of blast
furnace coke
Trading
Trading
Russia
Russia
Switzerland
Cyprus
Production of steel
Production of steel
Production of steel
Denmark
USA
USA
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Production of steel and
long products
Production of metalware
Production of long
products
Processing of metal scrap
Russia
Russia
Russia
Russia
92.59%
92.59%
92.59%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Mining and processing of
iron-ore raw
Russia
100.00%
100.00%
100.00%
Among associates and other companies accounted for using the equity method the major is:
Activity
Country of
incorporation
Share at
31 December
2015
Share at
31 December
2014
Share at
31 December
2013
NLMK Belgium Holdings S.A.
(Note 20)
Holding company
Belgium
51.00%
79.50%
79.50%
11
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
2
Basis of consolidated financial statements preparation
(a)
Basis of preparation
These consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”) under the historical cost convention except those, described in the principal accounting policies
applied in the preparation of these consolidated financial statements, as set out in Note 25. These policies have
been consistently applied to all the periods presented in these consolidated financial statements. Figures for three
periods are presented for users’ convenience.
(b)
Functional and reporting currency
Functional currency of all Group’s Russian entities is considered to be the Russian ruble. The functional currency
of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars as presentation
currency for users’ convenience.
The results of operations and financial position of each Group entity are translated into the presentation currency
as follows:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
assets and liabilities in statement of financial position are translated at the closing rate at the end of the
respective reporting period;
income and expenses are translated at average exchange rates for each quarter (unless this average rate
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the dates of the transactions);
components of equity are translated at the historical rate;
all resulting exchange differences are recognized in other comprehensive income.
Items of consolidated statements of cash flow are translated at average exchange rates for each quarter (unless
this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case proceeds and disposals are translated at the dates of the transactions).
When control over a foreign operation is lost, the previously recognized exchange differences on translation to a
different presentation currency are reclassified from other comprehensive income to profit or loss for the year as
part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion
of accumulated currency translation differences is reclassified to non-controlling interest within equity.
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.
As at 1 January
For the 1st quarter
For the 2nd quarter
For the 3rd quarter
For the 4th quarter
As at 31 December
2015
2014
2013
62.1919
52.6543
62.9784
65.9434
72.8827
34.9591
34.9999
36.1909
47.4243
56.2584
30.3727
30.4142
31.6130
32.7977
32.5334
32.7292
12
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
3
Cash and cash equivalents
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Cash
Russian rubles
US dollars
Euros
Other currencies
Deposits
Russian rubles
US dollars
Euros
Other currencies
Other cash equivalents
20.4
99.0
41.2
1.7
29.6
140.3
-
10.7
0.1
343.0
20.3
150.8
54.3
8.0
96.3
158.0
53.6
7.8
0.1
549.2
70.8
194.1
158.6
2.0
204.9
331.8
5.7
1.9
0.2
970.0
4
Investments in associates and other companies accounted for using the equity method of accounting
NLMK Belgium Holdings S.A. (Note 20)
TBEA & NLMK (Shenyang) Metal Product Co., Ltd.
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
108.8
8.9
117.7
97.3
8.9
106.2
412.8
6.3
419.1
The table below summarizes the movements in the carrying amount of the Group’s investments in associates and
other companies accounted for using the equity method of accounting.
2015
2014
2013
As at 1 January
Share of net loss of associates and other companies
accounted for using the equity method of accounting
Conversion of debt to equity
Contributions to the share capital by the Group
Impairment of investments
Disposal of 28.5% shares in NBH
Unrealized profit in inventory of associates and other
companies accounted for using the equity method of
accounting
Translation adjustment
Reclassification due to loss of control (Note 20)
Other adjustments
As at 31 December
106.2
(103.0)
109.5
22.0
-
(35.6)
30.3
(12.8)
-
1.1
117.7
419.1
(193.1)
270.4
-
(325.2)
(28.0)
(29.7)
-
(7.3)
106.2
8.1
(54.0)
-
-
-
(2.3)
(0.2)
467.5
-
419.1
13
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
4
Investments in associates and other companies accounted for using the equity method of accounting
(continued)
The Group’s interests in its principal associates and other companies accounted for using the equity method of
accounting and their summarized financial information were as follows:
Company
Year
Share
Assets
Liabilities
Revenue
Profit /
(loss)
for the year
NLMK Belgium Holdings S.A.
(Note 20) (Belgium)
including
from / (to) the Group
including
from / (to) the Group
including
from / (to) the Group
TBEA & NLMK (Shenyang)
Metal Product Co., Ltd. (China)
2015
51.0%
1,485.4
(1,281.7)
1,277.6
(191.3)
2014
79.5%
2013
79.5%
18.4
1,857.2
24.7
2,094.2
(505.9)
(1,542.9)
55.5
1,517.3
(510.5)
(1,782.4)
54.9
405.6
-
(243.4)
-
(70.9)
6.1
(479.8)
5.9
-
2015
2014
2013
50.0%
50.0%
50.0%
18.0
18.4
17.4
(0.2)
(0.6)
(0.1)
9.9
12.3
4.4
0.7
0.9
0.5
Reconciliation of net assets of NBH, calculated in accordance with its consolidated financial statements, to
carrying amount of investment is below.
2015
2014
Net assets as at 1 January
Net loss for the period (Note 20)
Proportional contributions into share capital
Conversion of debt to equity
Other adjustments
Translation adjustment
Net assets as at 31 December
Share in net assets
Share in PP&E valuation difference
Share of other investor in conversion of debt to equity
(Note 20)
Impairment of investments
Unrealised profit
Cumulative translation adjustment and other adjustments
Investments in NBH
28.2
(178.4)
43.2
109.5
1.9
(0.2)
4.2
2.1
205.7
109.1
(239.8)
30.3
1.4
108.8
27.3
(276.1)
-
270.4
(8.4)
15.0
28.2
22.4
349.2
55.4
(325.2)
(28.0)
23.5
97.3
Net assets of NBH as of the date of disposal, calculated in accordance with its consolidated financial statements,
amounted to $88.8. Major adjustments in reconciliation of net assets of NBH to carrying amount of investment
were: net loss (Note 20) and share in PP&E valuation difference.
14
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
5
Financial investments
Short-term financial investments
Loans to related parties (Note 23)
Bank deposits (Note 22(c)), including:
- Russian rubles
- US dollars
- Euros
- other currencies
Other short-term financial investments
Long-term financial investments
Loans to related parties (Note 23)
Bank deposits and other long-term financial investments
6
Trade and other accounts receivable
Financial assets
Trade accounts receivable
Allowance for impairment of trade accounts receivable
Other accounts receivable
Allowance for impairment of other accounts receivable
Non-financial assets
Advances given to suppliers
Allowance for impairment of advances given to suppliers
VAT and other taxes receivable
Accounts receivable from employees
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
65.4
1,171.7
14.8
1,090.7
66.2
-
5.5
1,242.6
219.7
0.1
219.8
1,462.4
68.4
549.4
14.8
425.8
96.5
12.3
3.5
621.3
141.2
0.1
141.3
762.6
107.6
376.9
26.9
350.0
-
-
0.5
485.0
78.0
4.5
82.5
567.5
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
613.6
(16.3)
40.3
(15.3)
622.3
54.0
(4.2)
247.3
1.5
298.6
920.9
802.0
(28.6)
38.7
(20.4)
791.7
69.7
(9.6)
269.0
1.7
330.8
901.7
(39.3)
67.5
(25.1)
904.8
81.7
(19.3)
488.5
3.3
554.2
1,122.5
1,459.0
The carrying amounts of trade and other accounts receivable approximate their fair values.
As at 31 December 2015, 2014 and 2013 accounts receivable of $74.0, $137.6 and $141.7, respectively, served as
collateral for certain borrowings (Note 11).
15
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
6
Trade and other accounts receivable (continued)
Movements in the Group’s provision for impairment of trade and other accounts receivables are as follows:
As at 1 January
Provision for impairment during the year
Receivables written off during the year as uncollectible
Unused amounts reversed
Change in scope of consolidation
Translation adjustment
As at 31 December
2015
2014
2013
(58.6)
(22.8)
21.1
13.7
0.1
10.7
(35.8)
(83.7)
(35.9)
0.3
21.1
4.3
35.3
(58.6)
(95.1)
(45.1)
2.4
38.6
9.1
6.4
(83.7)
The allocation of trade accounts receivable, net of provision for doubtful debt, by geographical area is follows:
Russia
European Union
North America
Asia and Oceania
Middle East, including Turkey
Other regions
7
Inventories
Raw materials
Work in process
Finished goods and goods for resale
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
130.5
288.6
58.7
48.8
42.2
28.5
597.3
133.6
399.3
146.9
37.0
21.0
35.6
773.4
167.9
422.6
142.5
95.3
10.6
23.5
862.4
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
522.0
400.3
340.7
623.1
569.7
419.5
980.7
526.6
684.2
1,263.0
1,612.3
2,191.5
Valuation to net realizable value
(57.7)
(49.5)
(67.7)
1,205.3
1,562.8
2,123.8
As at 31 December 2015, 2014 and 2013 inventories of $303.5, $562.0 and $310.5, respectively, served as
collateral for certain borrowings (Note 11).
Share of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2015,
2014 and 2013 amounted to 63.5%, 61.3% and 61.7%, respectively. Share of fuel and energy resources expenses
in cost of sales for the years ended 31 December 2015, 2014 and 2013 amounted to 10.9%, 13.0% and 13.4%,
respectively.
16
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
8
Property, plant and equipment
Land
Buildings
Land and buildings
improvements
Machinery and
equipment
Vehicles
Construction in
progress
Other
Total
Cost at 1 January 2013
Accumulated depreciation
Net book value
at 1 January 2013
Additions
Disposals
Deconsolidation of subsidiaries
(Note 20)
Available for use
Depreciation charge
Translation adjustment
Cost at 31 December 2013
Accumulated depreciation
Net book value
at 31 December 2013
Additions
Disposals
Impairment
Available for use
Depreciation charge
Translation adjustment
Cost at 31 December 2014
Accumulated depreciation
Net book value
at 31 December 2014
270.9
-
270.9
-
(0.1)
(42.2)
3.9
-
(16.7)
215.8
-
215.8
-
(6.0)
-
9.2
-
(88.1)
130.9
-
130.9
2,544.7
(806.4)
2,218.9
(992.7)
10,737.9
(5,485.6)
1,738.3
1,226.2
5,252.3
-
(2.2)
(174.0)
580.0
(75.6)
(117.3)
2,748.0
(798.8)
-
(2.9)
(12.5)
239.1
(74.7)
(91.7)
10.4
(11.9)
(698.1)
691.2
(655.5)
(279.6)
2,267.0
(983.5)
9,804.7
(5,495.9)
437.8
(223.9)
213.9
7.1
(4.1)
-
22.3
(37.2)
(15.0)
413.8
(226.8)
2,827.3
-
2,827.3
836.2
(15.3)
(30.4)
(1,554.7)
-
(161.0)
1,902.1
-
1,949.2
1,283.5
4,308.8
187.0
1,902.1
-
(3.0)
(122.6)
90.0
(78.6)
(773.2)
1,583.7
(521.9)
1,061.8
-
(3.2)
(41.6)
154.7
(82.8)
(554.3)
1,378.7
(622.4)
0.5
(10.8)
(139.3)
645.5
(542.5)
(1,638.8)
6,231.3
(3,607.9)
756.3
2,623.4
-
(2.6)
-
13.9
(33.3)
(66.5)
235.5
(137.0)
98.5
605.5
(1.5)
(4.3)
(921.8)
-
(674.4)
905.6
-
905.6
153.3
(78.9)
74.4
-
(0.6)
(24.0)
18.2
(20.5)
(1.8)
103.2
(57.5)
45.7
-
(0.8)
-
8.5
(13.6)
(2.7)
78.6
(41.5)
37.1
19,190.8
(7,587.5)
11,603.3
853.7
(37.1)
(981.2)
-
(863.5)
(683.1)
17,454.6
(7,562.5)
9,892.1
606.0
(27.9)
(307.8)
-
(750.8)
(3,798.0)
10,544.3
(4,930.7)
5,613.6
17
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
8
Property, plant and equipment (continued)
Land
Buildings
Land and buildings
improvements
Machinery and
equipment
Vehicles
Construction in
progress
Other
Total
Additions
Disposals
Impairment
Available for use
Depreciation charge
Translation adjustment
Cost at 31 December 2014
Accumulated depreciation
Net book value
at 31 December 2015
-
(1.3)
-
0.6
-
(29.2)
101.0
-
101.0
-
(0.6)
(13.7)
30.4
(40.0)
(218.3)
1,263.3
(443.7)
-
(4.0)
(7.1)
36.2
(45.3)
(166.4)
1,088.5
(518.8)
-
(11.8)
(26.8)
220.3
(393.6)
(494.9)
5,027.4
(3,110.8)
819.6
569.7
1,916.6
-
(1.9)
(11.0)
10.3
(18.1)
(20.5)
174.5
(117.2)
57.3
639.8
(33.4)
-
(309.0)
-
(252.7)
950.3
-
950.3
-
(0.2)
-
11.2
(7.5)
(2.8)
77.4
(39.6)
37.8
639.8
(53.2)
(58.6)
-
(504.5)
(1,184.8)
8,682.4
(4,230.1)
4,452.3
18
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
8
Property, plant and equipment (continued)
As at 31 December 2015, 2014 and 2013 the Group did not have pledged property, plant and equipment.
The amount of borrowing costs capitalized is $50.7, $59.0 and $164.0 for the years ended 31 December 2015,
2014 and 2013, respectively.
At 31 December 2015, 2014 and 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 using the income approach based on primarily Level 3 inputs.
For the purpose of impairment testing for the years ended 31 December 2015, 2014 and 2013, the Group’s
management has estimated cash flows for 7 years due to long useful-lives of steel making equipment and
normalized cash flows for a post-forecast period. Prices for steel products in this estimate were determined on
the basis of forecasts of investment banks’ analysts.
The table below summarizes companies and types of assets, also subject to
impairment test as of
31 December 2015, major assumptions and their sensitivity used in the impairment models. Prices for steel
products in this estimate were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in
the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast
periods when recoverable values of assets (value in use) become equal to their balance values. As of
31 December 2015 an impairment testing showed that recoverable amount of property, plant and equipment
(value in use) of scrap collecting assets in Russian long products segment and OJSC Nizhneserginski Hardware-
Metallurgical Plant was below its carrying amount by $23.9 and $34.7, respectively. An impairment testing also
showed impairment of goodwill in NLMK Indiana LLC by $14.4.
Company
Asset type
Forecast
period,
years
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sensitivity,
% of change
Price
Sales
volume
7
12-16%
Iron ore
44
-43%
-56%
OJSC Stoilensky GOK
OJSC Stoilensky GOK
Property, plant
and equipment
and intangible
assets
Goodwill
NLMK Pennsylvania LLC Property, plant
and equipment
Property, plant
and equipment
Goodwill
NLMK Indiana LLC
NLMK Indiana LLC
OJSC Altai-Koks
OJSC Altai-Koks
Property, plant
and equipment
Goodwill
Scrap collecting assets in
Russian long products
segment
OJSC NSMMZ
Property, plant
and equipment
Property, plant
and equipment
LLC NLMK-Kaluga
LLC NLMK-Metalware
NLMK DanSteel A/S
Property, plant
and equipment
Property, plant
and equipment
Property, plant
and equipment
7
7
7
7
7
7
7
7
7
7
7
12-16%
Iron ore
44
-36%
-47%
8%
Flat products
646
-3%
-22%
8%
Flat products
540
-0.4%
8%
Flat products
540
+0.3%
-3%
+2%
12-16%
12-16%
12-16%
Coke, chemical
products
Coke, chemical
products
Metal scrap
172
-15%
-40%
172
-13%
-35%
171
+3%
-
12-16%
12-16%
12-16%
Long products and
semi-finished
goods
Long-products
and semi-finished
goods
Metalware
8%
Plate
344
+1%
+2%
353
-0.2%
-1%
464
630
-7%
-1%
-31%
-5%
19
* Weighted average prices giving the product mix, averaged for the period from 2016 to 2022
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
8
Property, plant and equipment (continued)
The table below summarizes companies and types of assets, also subject to
impairment test as of
31 December 2014, major assumptions and their sensitivity used in the impairment models. Prices for steel
products in this estimate were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in
the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast
periods when recoverable values of assets (value in use) become equal to their balance values. As of
31 December 2014 an impairment testing showed that recoverable amount of property, plant and equipment
(value in use) of OJSC Nizhneserginski Hardware-Metallurgical Plant, LLC NLMK-Kaluga and NLMK DanSteel A/S
was below its carrying amount by $113.7, $127.0 and $67.1, respectively.
Company
Asset type
Forecast
period,
years
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sensitivity,
% of change
Price
Sales
volume
NLMK
OJSC Stoilensky GOK
OJSC Stoilensky GOK
Property, plant
and equipment
and intangible
assets
Property, plant
and equipment
and intangible
assets
Goodwill
NLMK Pennsylvania LLC Property, plant
and equipment
Property, plant
and equipment
Goodwill
NLMK Indiana LLC
OJSC Altai-Koks
Scrap collecting assets in
Russian long products
segment
OJSC NSMMZ
Property, plant
and equipment
Property, plant
and equipment
LLC NLMK-Kaluga
NLMK DanSteel A/S
Property, plant
and equipment
Property, plant
and equipment
7
12-16%
Flat products
405
-17%
-17%
7
12-16%
Iron ore
34
-25%
-27%
7
7
7
7
7
7
7
6
12-16%
Iron ore
34
-7%
-8%
9%
Flat products
799
-5%
-62%
9%
Flat products
705
-4%
-35%
12-16%
12-16%
Coke, chemical
products
Metal scrap
116
-3%
-14%
199
-2%
-43%
12-16%
12-16%
9%
Long products and
semi-finished
goods
Long-products
and semi-finished
goods
Plate
403
+2%
+7%
437
+3%
738
+2%
-
-
* Weighted average prices giving the product mix, averaged for the period from 2015 to 2021
20
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
8
Property, plant and equipment (continued)
The table below summarizes companies and types of assets, subject to impairment test as of 31 December 2013,
major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate
were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in the table below was
determined as a percent of changes of corresponding factors in forecast and post-forecast periods when
recoverable values of assets (value in use) become equal to their balance values.
Company
Asset type
Forecast
period,
years
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sensitivity,
% of change
Price
Sales
volume
LLC NLMK-Kaluga
OJSC Nizhneserginski
Hardware-Metallurgical
Plant
LLC NLMK-Metalware
Scrap collecting assets in
Russian long products
segment
NLMK
Property, plant
and equipment
Property, plant
and equipment
Property, plant
and equipment
Property, plant
and equipment
Property, plant
and equipment
NLMK DanSteel A/S
Property, plant
and equipment
7
7
7
7
7
7
11%
11%
Long products and
semi-finished
goods
Long products
592
-1%
-5%
568
-3%
-10%
11%
Metalware
697
-4%
-19%
11%
Scrap
268
-1%
-5%
11%
8%
Flat products and
semi-finished
goods
Plate
631
-6%
-24%
895
-4%
-24%
* Weighted average prices giving the product mix, averaged for the period from 2014 to 2020
21
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
9
Intangible assets
Goodwill Mineral rights Customer base
property
Industrial
intellectual
Beneficial
lease interest
Total
Cost at 1 January 2013
Accumulated amortisation
Net book value at
1 January 2013
786.1
-
557.7
(281.7)
196.8
(93.5)
59.5
(29.1)
8.7
(0.4)
1,608.8
(404.7)
786.1
276.0
103.3
30.4
8.3
1,204.1
Additions
Disposals (Note 20)
Amortisation charge
Translation adjustment
-
(289.7)
-
(33.0)
15.6
-
(12.6)
(20.5)
-
-
(15.8)
(0.7)
463.4
-
532.1
(273.6)
189.1
(102.3)
-
(3.0)
(4.3)
(2.1)
52.2
(31.2)
-
-
(0.1)
-
8.7
(0.5)
15.6
(292.7)
(32.8)
(56.3)
1,245.5
(407.6)
Cost at 31 December 2013
Accumulated amortisation
Net book value at
31 December 2013
Amortisation charge
Translation adjustment
Cost at 31 December 2014
Accumulated amortisation
Net book value at
31 December 2014
Amortisation charge
Impairment
Translation adjustment
Cost at 31 December 2015
Accumulated amortisation
Net book value at
31 December 2015
463.4
258.5
86.8
21.0
8.2
837.9
-
(178.0)
285.4
-
(11.4)
(104.4)
309.6
(166.9)
(44.4)
(5.1)
147.6
(110.3)
(9.4)
(5.8)
30.4
(24.6)
(0.1)
-
8.7
(0.6)
(65.3)
(293.3)
781.7
(302.4)
285.4
142.7
37.3
5.8
8.1
479.3
-
(14.4)
(56.4)
214.6
-
(7.1)
-
(31.3)
239.0
(134.7)
214.6
104.3
(36.9)
-
(0.4)
-
-
-
(5.6)
-
(0.2)
-
-
-
(0.1)
-
-
8.7
(0.7)
(49.7)
(14.4)
(88.3)
462.3
(135.4)
8.0
326.9
The intangible assets were acquired in business combinations and met the criteria for separate recognition. They
were recorded at fair values at the date of acquisition, based on their appraised values.
Useful lives of the Group’s intangible assets as at 31 December 2015 are shown below.
Total useful life,
months
Company
Remaining useful life,
months
Mineral rights
Mineral rights
Mineral rights
Mineral rights
Customer base
Customer base
Industrial intellectual property
Beneficial lease interest
LLC Zhernovsky GOK
LLC Zhernovsky GOK
LLC Usinsky GOK
OJSC Stoilensky GOK
LLC VIZ-Stahl
Novexco (Cyprus) Ltd.,
Novex Trading (Swiss) S.A.
LLC VIZ-Stahl
NLMK Indiana LLC
240
240
240
306
125
180
149
974
116
192
181
240
-
-
-
888
22
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
9
Intangible assets (continued)
During 2015 the Group revised useful lives of customer base and industrial intellectual property and completed
their amortization in the third quarter of 2015.
In May 2011, the Group acquired a license for exploration and extraction of coal in the Zhernovsky Glubokiy coal
field of the Zhernovsky coal deposit expiring in 2031. The carrying value of this license as at 31 December 2015 is
$4.6. 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 31 December 2015 is $7.3.
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 31 December 2015 is $16.8.
A license for iron ore and non-metallics mining at Stoilensky iron-ore deposit in Belgorod Region expiring in 2035
was acquired by the Group in 2004 through a business combination. The carrying value of these mineral rights as
at 31 December 2015 is $75.7.
The Group’s management believes that these licenses will be extended.
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 20) amounted to
$289.7. At the time of acquisition this goodwill was assigned to the steel segment and foreign rolled products
segment in the amount of $128.4 and $161.3, respectively, and was disposed as a result of NBH deconsolidation
(Note 20).
Goodwill allocation to each segment is as follows:
Russian flat products
Foreign rolled products
Russian long products
Mining
Goodwill impairment testing
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
139.2
21.3
2.5
51.6
214.6
179.7
35.7
3.3
66.7
285.4
307.5
35.7
5.7
114.5
463.4
The Group tested goodwill for impairment as at 31 December 2015, 2014 and 2013. The recoverable amount has
been determined as values in use of respective assets. For the purpose of this impairment testing the Group used
the same estimates as for testing of other assets, as disclosed in Note 8. An impairment testing showed
impairment of goodwill in NLMK Indiana LLC by $14.4.
10
Trade and other accounts payable
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
Financial liabilities
Trade accounts payable
Dividends payable
Other accounts payable
Non-financial liabilities
Advances received
Taxes payable other than income tax
Accounts payable and accrued liabilities to employees
342.3
161.2
16.0
519.5
62.9
39.2
104.8
206.9
726.4
440.9
0.7
23.1
464.7
105.4
77.3
128.5
311.2
775.9
621.9
1.4
89.0
712.3
111.4
134.0
204.1
449.5
1,161.8
23
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
11
Borrowings
Rates
Currency
Maturity
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
Bonds
8% to 11.5%
4.45% to 4.95%
Loans
5% and 10%
LIBOR +1.375% to LIBOR +3%
and PRIME +0.375%
EURIBOR +0.9% to
EURIBOR +2%
RUR
USD
RUR
USD
EUR
2015-2017
2018-2019
2015-2017
2015-2019
2015-2022
350.4
1,195.9
543.9
1,196.1
1,400.7
1,319.6
-
583.4
546.4
23.1
374.9
620.9
38.4
541.0
853.4
Short-term and long-term finance lease liability and other
borrowings
-
9.6
37.4
2,676.1
2,768.5
4,190.5
Less: short-term loans and current maturities of long-term
loans
(559.8)
(804.3)
(1,136.7)
Long-term borrowings
2,116.3
1,964.2
3,053.8
The carrying amounts and fair value of long-term bonds are as follows:
As at
31 December 2015
Fair
value
Carrying
amount
As at
31 December 2014
Fair
value
Carrying
amount
As at
31 December 2013
Fair
value
Carrying
amount
Bonds
1,315.5
1,300.8
1,444.9
1,278.6
2,216.6
2,215.8
The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings and
finance lease liabilities approximate their carrying amount. The fair values of bonds are based on cash flows
discounted using an applicable rate and are within level 2 of the fair value hierarchy.
The payments scheduled for long-term borrowings are as follows:
1-2 year
2-5 years
over 5 years
Collateral
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
359.6
1,719.3
37.4
580.0
1,347.4
36.8
1,169.2
1,300.6
584.0
2,116.3
1,964.2
3,053.8
As at 31 December 2015, 2014 and 2013, the total amount of collateral was $377.5, $699.6 and $452.2,
respectively (Notes 6, 7).
24
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
12
(a)
Shareholders’ equity
Shares
As at 31 December 2015, 2014 and 2013, 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.
(b)
Dividends
Dividends are paid on common shares 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 shareholders in respect of any reporting period are determined by reference to the statutory
financial statements of the Parent Company. As at 31 December 2015, 2014 and 2013, the retained earnings of
the Parent Company, available for distribution in accordance with the legislative requirements of the Russian
Federation, amounted to $4,360.9, $5,409.3 and $8,971.7, converted into US dollars using exchange rates at
31 December 2015, 2014 and 2013, respectively.
According to the dividend policy, the Group pays dividends on a quarterly basis as follows:
(cid:131)
(cid:131)
if Net Debt/EBITDA is 1.0x or less: dividends are in range with the boundaries of 50% of net income and
50% of free cash flow calculated based on IFRS consolidated financial statements;
if Net Debt/EBITDA exceeds 1.0x: dividends are in range with the boundaries of 30% of net profit and
30% of free cash flow calculated based on IFRS consolidated financial statements.
In December 2015, the Parent Company declared dividends for the third quarter of 2015 of 1.95 Russian ruble per
share for the total of $163.9 (at the historical rate as of the announcement date). Dividends payable amounted to
$161.2 at 31 December 2015 (Note 10).
In September 2015, the Parent Company declared dividends for the second quarter of 2015 of 0.93 Russian ruble
per share for the total of $84.1 (at the historical rate as of the announcement date).
In June 2015, the Parent Company declared dividends for the year ended 31 December 2014 of 2.44 Russian
rubles per share for the total of $303.9 (including interim dividends for the six months ended 30 June 2014 of 0.88
Russian ruble per share for the total of $133.9) translated at the historical rate as of the announcement date and
for the three months ended 31 March 2015 of 1.64 Russian rubles per share for the total of $178.7 (at the
historical rate as of the announcement date).
In September 2014 the Parent Company declared interim dividends for the six months ended 30 June 2014 of 0.88
Russian rubles per share for the total of $133.9 (at the historical rate).
In June 2014, the Parent Company declared dividends for the year ended 31 December 2013 of 0.67 Russian
rubles per share for the total of $115.0 (at the historical rate).
In June 2013, the Parent Company declared dividends for the year ended 31 December 2012 of 0.62 Russian
rubles per share for the total of $115.6 (at the historical rate).
25
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
12
(c)
Shareholders’ equity (continued)
Capital management
The Group’s objectives when managing capital are to safeguard a financial stability and a target return for
shareholders, as well as reduction of capital cost and optimization of its structure. To achieve these objectives the
Group may revise investing program, borrow new or repay existing loans, offer share of debt instruments on
capital markets.
When managing capital the Group uses the following indicators:
(cid:131)
(cid:131)
the return on invested capital ratio, which is defined as operating profit for the last twelve months less
tax divided by capital employed, should exceed cost of capital;
free cash-flow, which is defined as net cash provided by operating activities less net interest paid less
capital expenditures less advances given in investing activities, should be positive.
There were no changes in the Group’s approach to capital management during the reporting period.
13
Earnings per share
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Profit for the year attributable to NLMK shareholders
(millions of US dollars)
Weighted average number of shares
Basic and diluted earnings per share attributable to
NLMK shareholders (US dollars)
967.4
5,993,227,240
772.5
5,993,227,240
145.4
5,993,227,240
0.1614
0.1289
0.0243
Basic net earnings per share is calculated by dividing profit for the year attributable to NLMK shareholders by the
weighted average number of common shares 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 31 December 2015, 2014 and 2013. The Parent Company does not have
potentially dilutive financial instruments outstanding.
14
(a)
Revenue
Revenue by product
Pig iron, slabs and billets
Flat products
Long products and metalware
Iron-ore and sintering ore
Coke and other chemical products
Scrap
Other products
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
2,207.2
4,366.4
808.9
165.8
228.9
46.9
184.2
2,486.4
5,651.1
1,301.3
311.4
259.8
74.7
311.0
2,202.2
6,367.5
1,240.6
327.0
254.4
66.5
360.2
8,008.3
10,395.7
10,818.4
26
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
14
Revenue (continued)
(b)
Revenue by geographical area
The allocation of total revenue by geographical area 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
31 December 2015, 2014 and 2013 is as follows:
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Russia
North America
European Union
Middle East, including Turkey
Asia and Oceania
Other regions
3,146.0
1,356.8
1,603.0
684.1
374.4
844.0
4,434.3
2,084.9
1,819.6
636.5
319.3
1,101.1
4,373.4
1,558.9
1,982.8
875.4
794.2
1,233.7
8,008.3
10,395.7
10,818.4
The Group does not have customers with a share of more than 10% from revenue.
15
Labour costs
Group’s labour costs, including social security costs, which are included in the corresponding lines of the
consolidated statement of profit or loss were as indicated below.
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Cost of sales
General and administrative expenses
Selling expenses
(608.2)
(153.8)
(31.3)
(858.6)
(231.4)
(40.4)
(1,038.4)
(295.8)
(40.8)
(793.3)
(1,130.4)
(1,375.0)
Management remuneration consists of payments to the members of Management Board and Board of Directors
of the Parent Company. Compensation comprises annual remuneration and a performance bonus contingent on
results. Total management remuneration, including social security costs, amounted to $11.3, $13.6 and $9.3 in
2015, 2014 and 2013, respectively.
16
Taxes, other than income tax
Allocation of taxes, other than income tax to the functional items of consolidated statement of profit or loss is
indicated below.
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Cost of sales
General and administrative expenses
Selling expenses
Other operating expenses
(65.7)
(4.4)
(0.4)
(5.2)
(75.7)
(122.4)
(7.5)
(0.6)
(7.0)
(122.5)
(6.6)
(0.7)
(4.8)
(137.5)
(134.6)
27
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
17
Income tax
Income tax charge comprises the following:
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Current income tax expense
Deferred income tax benefit / (expense)
Adjustment of current income tax for the previous periods,
recognized in the reporting period
(301.1)
(51.8)
-
(378.3)
15.9
-
(141.1)
(87.7)
(26.2)
Total income tax expense
(352.9)
(362.4)
(255.0)
The corporate income tax rate applicable to the Group entities, located in Russia, is predominantly 20%. The
corporate income tax rate applicable to income of foreign subsidiaries ranges from 30% to 35%.
Income before income tax is reconciled to the income tax expense as follows:
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Profit before income tax
1,321.1
1,136.0
Income tax at applicable tax rate 20%
(264.2)
(227.2)
Change in income tax:
- tax effect of non-deductible expenses
- non-taxable translation adjustments
- effect of different tax rates
- unrecognized tax loss carry forward for current year
- utilization of previously unrecognized tax-losses carry-
forward
- change in option and in NBH ownership (Note 20)
- write-off of previously recognized deferred tax assets
- loss on impairment of investment (Note 20)
- adjustment of current income tax for the previous periods,
recognized in the reporting period
- other
(63.3)
17.0
31.7
(82.4)
-
18.6
(9.8)
-
-
(0.5)
(20.5)
39.4
118.3
(99.6)
22.6
(16.3)
(53.0)
(100.5)
-
(25.6)
419.2
(83.8)
(59.5)
7.2
25.6
(82.3)
-
-
(62.7)
-
(26.2)
26.7
Total income tax expense
(352.9)
(362.4)
(255.0)
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are
presented below:
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Deferred tax assets
Trade and other accounts payable
Other non-current liabilities
Trade and other accounts receivable
Inventories
Net operating loss and credit carry-forwards
Other
74.2
-
3.2
-
-
15.7
100.8
-
15.8
24.5
14.6
13.9
170.3
0.1
27.5
-
73.3
6.4
28
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
17
Income tax (continued)
Deferred tax liabilities
Property, plant and equipment
Other intangible assets
Inventories
Other non-current liabilities
Total deferred tax liability, net
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
93.1
(341.8)
(7.9)
(12.9)
(1.6)
(364.2)
(271.1)
169.6
(429.9)
(8.5)
-
(13.7)
(452.1)
(282.5)
277.6
(728.2)
(21.8)
(32.2)
-
(782.2)
(504.6)
The movements in deferred income tax assets and liabilities are presented below:
As at 1 January
Recognized in consolidated statement of profit or loss
Deconsolidation of subsidiaries (Note 20)
Translation adjustment
As at 31 December
2015
2014
2013
(282.5)
(51.8)
-
63.2
(271.1)
(504.6)
15.9
-
206.2
(282.5)
(501.1)
(87.7)
50.1
34.1
(504.6)
The amount of net operating losses that can be utilized each year is limited under the Group’s different tax
jurisdictions. 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 against which the Group can utilize the potential benefit of the tax loss carry-forwards will be
available, management considers the current situation and the future economic benefits outlined in specific
business plans for each subsidiary.
The table below summarizes not recognized cumulative tax-loss carry forwards, for which no deferred tax assets
were recognised, with a breakdown by the expiry dates.
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
From 1 to 5 years
From 5 to 10 years
More than 10 years
No expiration
294.3
376.3
850.9
976.5
310.9
600.4
680.9
1,084.8
165.4
1,060.9
714.6
1,180.9
2,498.0
2,677.0
3,121.8
Deferred tax assets are recorded only to the extent that it is probable that the temporary difference will reverse in
the future and there is sufficient future taxable profit available against which the deductions can be utilized. 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 $62.7, which resulted in write-off of
previously recognized deferred tax assets in the second quarter of 2013. As at 31 December 2013 figures of these
European entities were eliminated from consolidated statement of financial position of the Group (Note 20).
The Group has not recorded a deferred tax liability in respect of temporary differences of $908.2, $1,274.5 and
$1,628.9 for the years ended 31 December 2015, 2014 and 2013, respectively, associated with investments in
subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not
intend to reverse them in the foreseeable future.
29
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
17
Income tax (continued)
In accordance with Russian legislation, the Group’s key Russian entities, including NLMK, were integrated in one
consolidated tax group for the purpose of assessment and payment of corporate income tax in line with the
comprehensive financial result of business operations. The Group’s entities that do not constitute the
consolidated tax group assess their income taxes individually.
As at 31 December 2015, 2014 and 2013 the Group analysed its tax positions for uncertainties affecting
recognition and measurement thereof. Following the analysis, the Group believes that it is likely that all
deductible tax positions stated in the income tax return recognised and valuated in accordance with the tax
legislation.
18
Finance income and costs
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
Interest income on bank accounts and bank deposits
Other finance income
Total finance income
Interest expense on borrowings
Capitalized interest
Other finance costs
44.5
7.4
51.9
(118.9)
32.2
(8.6)
29.5
7.0
36.5
(178.9)
61.6
(19.5)
36.2
4.4
40.6
(221.5)
121.9
(22.3)
Total finance costs
(95.3)
(136.8)
(121.9)
19
Foreign currency exchange
Foreign exchange gain on cash and cash equivalents
Foreign exchange gain on financial investments
Foreign exchange gain / (loss) on financial instruments
Foreign exchange loss on debt financing
Foreign exchange (loss) / gain on other assets and liabilities
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
44.6
542.1
1.8
(415.1)
(63.9)
109.5
251.9
1,249.9
(33.1)
(898.5)
(82.0)
488.2
55.1
180.1
(1.2)
(170.0)
21.2
85.2
20
Disposal of companies which are under the Group’s control
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 A/S, for
EUR 91.1 million ($122.9). 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.
30
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
20
Disposal of companies which are under the Group’s control (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 30 September 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 was accounted for as a company using the equity method which is treated as a related party. Calculation
of the result of disposal also includes cash proceeds of $122.9, release of cumulative translation adjustment of
$60.0, written off goodwill of $289.7, written off option of $30.0 and write off of net assets of NBH at date of
disposal disclosed below. The Group has recorded a loss on disposal related to the transaction amounting to
$51.4, which is included in “Result of disposal of subsidiary” line.
The carrying amounts of assets and liabilities of NBH as at the date of disposal were as follows:
Current assets, including:
Cash and cash equivalents
Other current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity
1,029.9
76.7
953.2
1,133.5
2,163.4
(926.9)
(862.7)
(1,789.6)
373.8
Current assets include trade and other accounts receivable of $329.5, inventories of $609.4. Non-current assets
include property, plant and equipment of $980.7 and deferred income tax assets of $149.1. Current liabilities
include trade and other accounts payable of $624.7. Non-current liabilities include long-term borrowings of
$531.9 and deferred income tax liability of $199.2.
Information on NBH’s operations from 1 January 2013 to the date of disposal is as follows:
Revenue
Cost of sales
Income tax expense
Net loss for the period
1,047.1
(973.3)
(53.0)
(276.7)
Revenue and net loss of NBH for the fourth quarter of 2013 amounted to $405.6 and $(70.9), respectively.
Revenue and loss of NBH before impairment losses for 2014 amounted to $1,517.3 and $(243.4), respectively.
Revenue and net loss of NBH for 2015 amounted to $1,277.6 and $(191.3), respectively.
Continuous trend of low prices for steel products in Europe and underperformance of NBH holding companies
resulted in a necessity of reassessment of impairment testing model for the investments in NBH in 2014, which
showed no impairment in 2013. The revised model showed a necessity of further impairment of $325.2 as at
31 December 2014. For the purpose of impairment testing the Group has estimated cash flows for 9 years for
different groups of assets and respective cash flows in the post-forecast period. Prices for steel products were
determined on the basis of forecasts of investment banks’ analysts. A discount rate of 8% was used. The
impairment testing model is sensitive to assumptions used. For example, increase in the discount rate by 1% will
result in additional impairment of $117.
31
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
20
Disposal of companies which are under the Group’s control (continued)
Information about the Group’s operations with NBH is disclosed in Note 23.
Summarized financial information for NBH before impairment losses is as follows:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity
As at
As at
31 December 2015
31 December 2014
As at
31 December 2013
734.1
751.3
921.9
935.3
993.0
1,101.2
1,485.4
1,857.2
2,094.2
(657.5)
(624.2)
(1,054.3)
(488.6)
(819.4)
(963.0)
(1,281.7)
(1,542.9)
(1,782.4)
203.7
314.3
311.8
NBH cash and cash equivalents as at 31 December 2015, 2014 and 2013 amounted to $59.8, $46.1 and $25.1,
respectively.
The Group’s share in NBH’s net loss for the year ended 31 December 2015, 2014 and from the date of disposal to
31 December 2013 amounted to $(103.4), $(193.5) and $(54.2), respectively, and is included in “Share in net
losses of associates and other companies accounted for using the equity method” line in the consolidated
statement of profit or loss.
Deferred tax assets and deferred tax liabilities of NBH as at the date of disposal refer to the temporary differences
originated from the following:
Trade and other accounts receivable
Inventories
Property, plant and equipment
Other intangible assets
Trade and other accounts payable
Non-current liabilities
Net operating loss and credit carry-forwards
Other
Net deferred tax liability
Fair value of options
0.2
(8.0)
(148.7)
0.3
5.5
2.3
94.7
3.6
(50.1)
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 its 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 was 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 $82.5 and $30.0 as at 31 December 2014
and 2013, respectively, included in “Other long-term liabilities” line of the consolidated statement of financial
position. The change in the value of the option resulted in loss amounted to $(52.5) and included in “Gains on
investments” line of the consolidated statement of profit or loss.
The options have been valued using standard, market-based valuation techniques. The Level 3 significant
unobservable inputs used in the fair value measurement of the option agreement are the annualized volatility of
the underlying shares and the fair value of the underlying shares.
32
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
20
Disposal of companies which are under the Group’s control (continued)
Changes to NLMK Belgium Holdings’ ownership structure and governance
In March 2015, the Group and SOGEPA signed an agreement to increase SOGEPA’s share in NBH from 20.5% to
49%. Under the agreement the Group’s and SOGEPA’s existing respective put and call options over the SOGEPA
shares in NBH were terminated.
NBH board of directors is increased to include four representatives of NLMK Group and three representatives of
SOGEPA. SOGEPA also received board seats at production subsidiaries of NBH.
Disposal of the option resulted in gain amounted to $76.0 and included in “Gains on investments” line of the
consolidated statement of profit or loss.
Earlier, in December 2014, the Group made a conversion of existing loans given into NBH share capital in the
amount of EUR 220 million with a corresponding reflection in the consolidated financial statements for the year
ended 31 December 2014. These investments are also a part of the agreement signed in March 2015. In
December 2015, the Group made a conversion of existing loans given into NBH share capital in the amount of EUR
100 million with a corresponding reflection in the consolidated financial statements for the year ended
31 December 2015. These contributions did not change Group’s share in NBH.
The Group and SOGEPA have agreed to support NBH in obtaining financing of its working capital. In March 2015
the shareholders made additional contributions into NBH share capital proportionally their shares (EUR 20.4
million and EUR 19.6 million, respectively).
21
Segment information
The Group has five reportable business segments: Russian flat products, Foreign rolled products, Russian long
products, Mining and Investments in associate entity NBH (Note 20). These segments are combinations of
subsidiaries, have separate management teams and offer different products and services. The above five
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 to be reported separately. Equity in net earnings / (losses) of
associates are included in the Russian flat products segment.
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 profit before equity share in net losses of associates and other companies accounted for using
the equity method of accounting, impairment and write-off of assets, and profit for the year.
Intersegmental operations and balances include elimination of intercompany dividends paid to Russian flat
products segment by other segments and presented within line “Profit / (loss) for the year” together with other
intercompany elimination adjustments, including elimination of NBH liabilities to the Group companies (Note 23).
NBH deconsolidation adjustments include full elimination of sales of NBH with further recognition of the Group’s
sales to NBH and elimination of unrealised profits (Notes 4, 23), recognition of investment in associate (Note 4),
recognition of impairment and share of loss arising for NBH and other consolidation adjustments.
33
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
21
Segment information (continued)
Information on segments’ profit or loss for the year ended 31 December 2015 and their assets and liabilities on this date is as follows:
Investments in
associate entity
NBH
Inter-
segmental
operations and
balances
NBH deconsoli-
dation adjust-
ments
Russian long
products
859.0
Revenue from external customers
293.3
Intersegment revenue
(1,026.1)
Cost of sales
126.2
Gross profit / (loss)
(16.8)
Operating profit / (loss)*
(26.1)
Net finance income / (costs)
2.1
Income tax expense
(92.7)
Profit / (loss) for the year
953.4
Segment assets
(565.6)
Segment liabilities
(65.4)
Depreciation and amortization
Capital expenditures
(24.9)
* Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets
Foreign rolled
products
1,441.9
-
(1,512.5)
(70.6)
(165.7)
(39.9)
(0.6)
(203.8)
1,036.6
(1,458.9)
(69.3)
(22.7)
Russian flat
products
4,718.7
1,345.9
(4,000.1)
2,064.5
1,195.9
4.8
(244.9)
1,290.3
7,509.6
(3,603.2)
(384.6)
(259.8)
Mining
184.2
405.0
(225.9)
363.3
256.8
16.8
(71.2)
279.1
1,476.6
(326.0)
(40.6)
(281.3)
All other
11.7
0.1
(5.0)
6.8
5.2
1.0
(0.8)
(5.4)
11.6
(1.0)
(0.1)
(6.0)
1,212.7
64.9
(1,121.5)
156.2
(172.2)
(19.5)
6.5
(191.3)
1,485.4
(1,281.7)
(80.2)
-
-
(2,044.3)
2,066.7
22.4
112.9
-
(37.5)
(195.9)
(2,195.6)
2,679.0
-
-
(419.9)
(64.9)
328.7
(156.2)
172.2
19.5
(6.5)
87.9
(1,358.2)
775.7
80.2
-
Total
8,008.3
-
(5,495.7)
2,512.6
1,388.3
(43.4)
(352.9)
968.2
8,919.4
(3,781.7)
(560.0)
(594.7)
34
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
21
Segment information (continued)
Information on segments’ profit or loss for the year ended 31 December 2014 and their assets and liabilities on this date is as follows:
Investments in
associate entity
NBH
Inter-
segmental
operations and
balances
NBH deconsoli-
dation adjust-
ments
Foreign rolled
products
2,015.0
-
Russian long
products
1,446.9
Revenue from external customers
367.7
Intersegment revenue
(1,578.4)
Cost of sales
236.2
Gross profit / (loss)
242.3
Operating profit / (loss)*
(82.9)
Net finance income / (costs)
(19.0)
Income tax expense
(96.3)
Profit / (loss) for the year
1,367.9
Segment assets
(996.3)
Segment liabilities
(106.6)
Depreciation and amortization
Capital expenditures
(51.2)
* Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets
Russian flat
products
5,684.1
2,187.9
(5,667.2)
2,204.8
874.2
(9.1)
(221.9)
1,426.3
8,902.9
(4,138.9)
(538.5)
(220.9)
Mining
345.9
721.8
(347.5)
720.2
576.3
27.9
(193.6)
763.0
1,948.9
(480.0)
(63.6)
(253.9)
All other
0.1
-
(0.1)
-
(2.2)
1.0
(0.2)
6.4
99.7
(27.6)
(2.1)
(18.7)
(1,896.7)
118.3
21.4
(37.2)
27.2
(154.6)
1,491.9
(1,956.0)
(82.7)
(17.9)
1,462.4
54.9
(1,375.3)
142.0
(215.9)
(21.3)
11.1
(243.4)
1,857.2
(1,542.9)
(101.1)
-
-
(3,277.4)
3,004.6
(272.8)
(124.1)
-
45.1
(652.5)
(3,611.8)
4,016.6
-
-
(558.7)
(54.9)
471.6
(142.0)
215.9
21.3
(11.1)
(275.3)
(1,707.3)
1,032.4
101.1
-
Total
10,395.7
-
(7,389.0)
3,006.7
1,587.9
(100.3)
(362.4)
773.6
10,349.4
(4,092.7)
(793.5)
(562.6)
35
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
21
Segment information (continued)
Information on segments’ profit or loss for the year ended 31 December 2013 and their assets and liabilities on this date is as follows:
Investments in
associate entity
NBH
Inter-
segmental
operations and
balances
NBH deconsoli-
dation adjust-
ments
Russian long
products
1,328.2
Revenue from external customers
388.1
Intersegment revenue
(1,507.8)
Cost of sales
208.5
Gross profit / (loss)
324.8
Operating profit / (loss)*
(107.3)
Net finance income / (costs)
(5.5)
Income tax expense
197.3
Profit / (loss) for the year
2,799.6
Segment assets
(1,996.5)
Segment liabilities
(88.0)
Depreciation and amortization
Capital expenditures
(179.8)
* Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets
Foreign rolled
products
1,693.0
1.7
(1,795.7)
(101.0)
(42.3)
(37.0)
6.0
(61.4)
1,476.3
(1,692.2)
(74.8)
(48.5)
Russian flat
products
6,240.6
1,623.8
(6,655.5)
1,208.9
(254.6)
52.1
(85.8)
167.1
13,223.2
(6,021.3)
(553.1)
(391.5)
Mining
372.2
978.8
(423.0)
928.0
787.1
23.3
(118.1)
766.2
2,382.5
(177.0)
(71.5)
(125.7)
1,446.9
5.8
(1,327.6)
125.1
(244.9)
(18.5)
(81.7)
(347.6)
2,094.2
(1,782.4)
(112.6)
-
All other
0.6
-
(0.3)
0.3
(8.1)
1.0
(0.2)
0.8
62.8
(53.1)
-
(10.8)
-
(2,992.4)
2,826.3
(166.1)
10.3
-
1.6
(574.9)
(3,912.6)
4,366.1
-
-
(263.1)
(5.8)
217.7
(51.2)
36.5
5.1
28.7
16.7
(1,673.0)
1,301.9
28.9
-
Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA and Europe.
Total
10,818.4
-
(8,665.9)
2,152.5
608.8
(81.3)
(255.0)
164.2
16,453.0
(6,054.5)
(871.1)
(756.3)
36
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
(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 24(f)).
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 continuing international sanctions against
certain Russian companies and individuals have had and may continue to have a negative impact on the Russian
economy. The financial markets continue to be volatile and are characterised by frequent significant price
movements and increased trading spreads. This operating environment may have a significant impact on the
Group’s operations and financial position, the effect of which is difficult to predict, however, Management is
taking necessary measures to ensure sustainability of the Group’s operations.
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 of 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
variable interest rates. To manage this risk the Group analyses 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.
The interest rate risk profile of the Group is follows:
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Fixed rate instruments
Financial assets
- cash and cash equivalents (Note 3)
- short-term financial investments (Note 5)
- trade and other accounts receivable less allowance
(Note 6)
- long-term financial investments (Note 5)
2,427.7
343.0
1,242.6
622.3
219.8
2,103.5
2,363.9
549.2
621.3
791.7
141.3
970.0
484.6
904.8
4.5
Financial liabilities
(2,065.8)
(2,366.9)
(3,508.3)
- trade, other accounts payable and dividends payable
(Note 10)
- short-term borrowings (Note 11)
- long-term borrowings (Note 11)
(519.5)
(230.8)
(1,315.5)
(464.7)
(302.5)
(1,599.7)
(712.3)
(525.0)
(2,271.0)
37
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
Risks and uncertainties (continued)
Variable rate instruments
Financial assets
- short-term financial investments (Note 5)
- long-term financial investments (Note 5)
Financial liabilities
- short-term borrowings (Note 11)
- long-term borrowings (Note 11)
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
-
-
-
(1,129.8)
(329.0)
(800.8)
-
-
-
(866.3)
(501.8)
(364.5)
78.4
0.4
78.0
(1,394.5)
(611.7)
(782.8)
A change of 100 basis points in interest rates for variable rate instruments would have insignificantly change profit
and equity.
Foreign currency risk
Foreign currency risk is the risk that the fair value of 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 presented below is calculated in respect of major currencies by items of
consolidated statement of financial position as the difference between assets and liabilities denominated in a
currency other than the functional currency of the entity at 31 December 2015.
Cash and cash equivalents
Trade and other accounts receivable
Short-term financial investments
Long-term financial investments
Trade and other accounts payable
Short-term borrowings
Long-term borrowings
Net foreign currency position
US dollar
Euro
196.4
2.9
1,079.9
-
(42.3)
(19.8)
(1,578.3)
(361.2)
39.6
303.6
129.4
222.1
(95.2)
(145.6)
(400.8)
53.1
The net foreign currency position presented below is calculated in respect of major currencies by items of
consolidated statement of financial position as the difference between assets and liabilities denominated in a
currency other than the functional currency of the entity at 31 December 2014.
US dollar
Euro
Cash and cash equivalents
Trade and other accounts receivable
Short-term financial investments
Long-term financial investments
Trade and other accounts payable
Short-term borrowings
Long-term borrowings
Net foreign currency position
230.4
7.0
423.0
-
(40.7)
(117.7)
(1,178.3)
(676.3)
107.1
402.1
164.8
141.2
(107.2)
(126.9)
(494.0)
87.1
38
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
Risks and uncertainties (continued)
The net foreign currency position presented below is calculated in respect of major currencies by items of
consolidated statement of financial position as the difference between assets and liabilities denominated in a
currency other than the functional currency of the entity at 31 December 2013.
Cash and cash equivalents
Trade and other accounts receivable
Short-term financial investments
Other non-current assets
Trade and other accounts payable
Short-term borrowings
Long-term borrowings
Net foreign currency position
Sensitivity analysis
US dollar
Euro
460.5
3.1
350.3
0.6
(51.2)
(169.6)
(1,400.0)
161.2
418.4
107.2
-
(93.3)
(170.6)
(682.8)
(806.3)
(259.9)
Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage
of currency rates changes.
A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2015,
2014 and 2013 would have increased / (decreased) equity by the amounts shown below, however effect on profit
for the year would be different, and would amount to $87.6, $196.8 and $105.3, respectively, due to foreign
exchange gain from intercompany operations (Note 19).
US dollar
Euro
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
(90.3)
13.3
(169.1)
21.8
(201.6)
(65.0)
A weakening of these currencies against the functional currency would have had the equal but opposite effect to
the amounts shown above, on the basis that all other variables remain constant.
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 negative 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.
To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products
when contracting raw and auxiliary materials.
39
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
(c)
Risks and uncertainties (continued)
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 for the Group.
The Group is exposed to credit risk from its operating activities (primarily for trade receivables and advances given
to suppliers) 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 controls 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.
The Group’s maximum exposure to credit risk by class of assets reflected in the carrying amounts of financial
assets on the consolidated statement of financial position is as follows:
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Cash and cash equivalents (Note 3)
Trade and other accounts receivable (Note 6)
Short-term financial investments (Note 5)
Long-term financial investments (Note 5)
343.0
622.3
1,242.6
219.8
549.2
791.7
621.3
141.3
970.0
904.8
485.0
82.5
Total on-balance sheet exposure
2,427.7
2,103.5
2,442.3
Financial guarantees issued (Note 23(d))
273.2
611.6
790.6
Analysis by credit quality, based on international agencies’ credit rating of bank balances and term deposits as
well as short-term and long-term bank deposits is as follows:
2,700.9
2,715.1
3,232.9
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
Bank balances and term deposits
AAA-BBB
BB-B
Unrated and cash on hand
Short-term and long-term bank deposits
AAA-BBB
BB-B
Unrated
244.3
95.6
3.1
343.0
756.4
415.3
-
1,171.7
504.9
38.9
5.4
549.2
549.2
0.2
-
549.4
837.6
122.0
10.4
970.0
370.3
10.4
-
380.7
40
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
Risks and uncertainties (continued)
As at 31 December 2015, trade, other receivables and advances given to suppliers were overdue as indicated
below with accruals of corresponding allowance after due dates:
Undue
Overdue, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Allowance
Net of allowance
Trade accounts
receivable
Advances given to
suppliers
Other accounts
receivable
485.8
127.8
84.9
16.0
7.8
19.1
613.6
(16.3)
597.3
43.8
10.2
3.0
0.7
1.3
5.2
54.0
(4.2)
49.8
269.9
19.2
1.0
0.6
9.8
7.8
289.1
(15.3)
273.8
As at 31 December 2014, trade, other receivables and advances given to suppliers were overdue as indicated
below with accruals of corresponding allowance after due dates:
Trade accounts
receivable
Advances given to
suppliers
Other accounts
receivable
Undue
Overdue, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Allowance
Net of allowance
669.3
132.7
60.1
31.2
11.7
29.7
802.0
(28.6)
773.4
49.3
20.4
6.8
3.6
5.3
4.7
69.7
(9.6)
60.1
290.9
18.5
0.9
0.5
4.9
12.2
309.4
(20.4)
289.0
41
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
22
Risks and uncertainties (continued)
As at 31 December 2013, trade, other receivables and advances given to suppliers were overdue as indicated
below with accruals of corresponding allowance after due dates:
Undue
Overdue, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Allowance
Net of allowance
Trade accounts
receivable
Advances given to
suppliers
Other accounts
receivable
730.7
171.0
67.2
43.8
5.3
54.7
901.7
(39.3)
862.4
55.9
25.8
7.4
4.8
2.5
11.1
81.7
(19.3)
62.4
529.2
30.1
0.9
0.6
2.3
26.3
559.3
(25.1)
534.2
As at 31 December 2015, 2014 and 2013 the Group does not have trade and other accounts receivable which was
overdue and not impaired.
(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.
The table below analyses the Group’s short-term and long-term borrowings by their remaining corresponding
contractual maturity. The amounts disclosed in the maturity table are the undiscounted cash outflows.
Less than 1 year
From 1 to 2 years
From 2 to 5 years
Over 5 years
Total borrowings
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
752.5
473.1
1,799.8
37.6
3,063.0
877.6
719.7
1,442.7
8.7
3,048.7
1,269.1
1,396.0
1,998.0
29.1
4,692.2
Liquidity risk related to financial guarantees issued disclosed in Note 23(d).
As at 31 December 2015, 2014 and 2013 the Group does not have significant trade and other accounts payable
with maturity over one year and its carrying amount approximates its fair value.
(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 compulsory motor third party liability insurance, insurance of civil liability of organizations operating
hazardous facilities. The Group also buys civil liability insurance of the members of self-regulatory organizations,
directors and officers liability insurance, voluntary health insurance for employees of the Group.
42
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
23
Related party transactions
Parties are considered to be related if one party has the ability to control the other party, is under common
control, or can exercise significant influence or joint control over the other party in making financial or operational
decisions as defined by IAS 24, Related Party Disclosures. In considering each possible related party relationship,
attention is directed to the substance of the relationship, not merely the legal form. The Group carries out
operations with related parties on arm’s length.
(a)
Sales to and purchases from related parties
Sales
NBH group companies
Other related parties
Purchases
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
Other related parties
For the year ended
31 December 2015
For the year ended
31 December 2014
For the year ended
31 December 2013
731.8
4.7
324.9
64.4
985.7
7.7
375.9
60.6
227.7
9.1
411.3
16.3
(b)
Accounts receivable from and accounts payable to related parties
Accounts receivable and advances given
NBH group companies
Other related parties
Accounts payable
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
Other related parties
(c)
Financial transactions
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
220.8
27.3
5.8
18.9
300.9
17.5
2.3
25.2
294.2
36.8
15.2
6.3
Loans, issued to NBH group companies (Note 5)
Deposits and current accounts in PJSC Bank ZENIT and PJSC
Lipetskcombank (companies under the significant influence of
the Group’s controlling shareholder)
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
285.1
209.6
185.6
24.2
36.5
92.4
When issuing loans to the foreign companies of the Group and companies accounted for using the equity method,
interest rate is determined using information on similar external deals subject to company’s internal credit rating.
Interest income from deposits and current accounts in PJSC Bank ZENIT and PJSC Lipetskcombank for the years
ended 31 December 2015, 2014 and 2013 amounted to $2.4, $3.5 and $3.3, respectively.
(d)
Financial guarantees issued
As at 31 December 2015, 2014 and 2013 guarantees issued by the Group for borrowings of NBH group companies’
amounted to $273.2, $611.6 and $790.6, respectively, which is the maximum potential amount of future
payments, paid on demand of the guarantee. 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.
43
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
23
Related party transactions (continued)
The maturity of the guaranteed obligations is as follows:
Less than 1 year
From 1 to 2 years
Over 2 years
As at
31 December 2015
As at
31 December 2014
As at
31 December 2013
82.0
14.3
176.9
273.2
528.9
61.8
20.9
611.6
176.8
533.3
80.5
790.6
(e)
Contributions to non-governmental pension fund and charity fund
Total contributions to a non-governmental pension fund and charity fund in 2015, 2014 and 2013 amounted to
$6.5, $9.1 and $6.5, respectively. The Group has no long-term commitments to provide funding, guarantees or
other support to the abovementioned funds.
(f)
Common control transfers
In September 2015, the Parent Company completed the sales of its full controlling interest in OJSC North Oil and
Gas Company (51.0%) for $10.1 cash consideration from a company under common control. Disposal of OJSC
North Oil and Gas Company resulted in deconsolidation of assets amounting to $20.4 and liabilities amounting to
$20.1.
The difference between transaction price and value of net assets is recorded in line item “Disposal of assets to an
entity under common control” of consolidated statement of changes in equity. Revenue and profit of OJSC North
Oil and Gas Company for the nine months ended 30 September 2015 are not material.
This transaction was carried out in line with the Group’s management of none-core assets portfolio.
24
(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.
(b)
Litigation
The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal
actions. The Group’s management 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 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 favour 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.
44
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
24
Commitments and contingencies (continued)
In the third quarter of 2014 the Group received about $104.0, in November 2015 about $17 and in January 2016
about $11, in course of bankruptcy proceedings which were the result of execution of the decision taken by
Russian court in 2012. These amounts are included in “Gains on investments” line in the consolidated statement
of profit or loss.
Recently there are still certain court proceedings initiated by the non-controlling shareholder of OJSC Maxi-Group
going on in European courts and related to the claim filed to ICA Court in January 2010. In 2014 courts in France
and England decided to execute a decision of ICA Court (which was cancelled in Russia) on the territory of these
states. In December 2014 the Parent Company claimed the appeal on a decision of French court and in
November 2015 – the appeal on a decision of English court. The Group’s management considers the probability of
unfavorable outcome and cash outflow 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 $564.7, $620.8 and $498.6 as at 31 December 2015, 2014 and 2013, 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.
Russian transfer pricing legislation was amended starting from 1 January 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 Group’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.
45
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
24
Commitments and contingencies (continued)
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on
the certainty that these companies do not have a permanent establishment in Russia and, correspondingly, are
not subject to profit tax. This interpretation of relevant legislation may be challenged but the impact of any such
challenge cannot be reliably estimated currently. However, it may be significant to the financial position and/or
the overall operations of the Group. In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian
taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax
residents (controlling parties). Starting from 2015, CFC income may be a subject to a 20% tax rate. As a result, the
Group’s management analyses the impact of new tax provisions on Group’s activity and implements the required
actions in order to comply with Russian tax requirements. Based on its own understanding of new provisions of
tax legislation and the fact that the practice of implementation of these provisions has not formed, management
does not recognised current tax expense as well as deferred taxes for temporary differences related to the
relevant Group’s subsidiaries to which the CFC legislation applies to and to the extent that the Group is obliged to
settle such taxes.
As at 31 December 2015, management believes that its interpretation of the relevant legislation is appropriate
and the Group’s tax, currency and customs positions will be sustained.
(g)
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 each reporting date.
25
Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below. These accounting policies have been consistently applied by the Group from one reporting period to
another.
(a)
Basis of consolidation
Subsidiaries
Subsidiaries are those entities that the Group controls because the Group has (a) power over the investees (that
is, it can direct relevant activities of the investees that significantly affect their returns); (b) exposure, or rights, to
variable returns from its involvement with the investees; and (c) the ability to use its power over the investees to
affect the amount of investor returns.
Subsidiaries are consolidated when the Group obtains control over an investee and terminates when the Group
ceases to have control over the investee.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests
which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of
the Parent Company’s equity.
The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those
acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the
extent of any non-controlling interest.
46
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
The Group measures non-controlling interest that represents present ownership interest and entitles the holder
to a proportionate share of net assets in the event of liquidation on a transaction-by-transaction basis, either at:
(a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree.
Goodwill is measured by deducting the net assets of an acquiree from the aggregate of: the consideration
transferred for the acquiree, the amount of non-controlling interest in the acquiree, and the fair value of an
interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”)
is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all
liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement.
Consideration transferred for an acquiree is measured at the fair value of the assets given up, equity instruments
issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent
consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and
similar professional services. Transaction costs related to an acquisition and incurred for issuing equity
instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business
combination are deducted from the carrying amount of the debt and all other transaction costs associated with
the acquisition are expensed.
All intercompany transactions, balances and unrealised gains on transactions between the Group companies are
eliminated. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Parent Company and
all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.
Associates and other companies accounted for using the equity method of accounting
Associates and other companies accounted for using the equity method of accounting are entities over which the
Group has significant influence, but not control or joint control over financial or operating policies.
Investments in associates and other companies accounted for using the equity method of accounting are initially
recognised at cost (fair value of the consideration transferred).
The Group also uses the equity method of accounting to account for an agreement under which the parties
exercising joint control of the arrangement are entitled to the net assets of the company accounted for using the
equity method of accounting. Joint control is the contractually agreed sharing of control, which exists only when
decisions about the relevant activities require the unanimous consent of the parties sharing control.
Dividends received from associates and other companies accounted for using the equity method of accounting
reduce the carrying value of the investment in associates and other companies accounted for using the equity
method of accounting. The Group’s share of profits or losses of associates and other companies accounted for
using the equity method of accounting after acquisition is recorded in the consolidated statement of profit or loss
for the year as share of financial result of associates and other companies accounted for using the equity method
of accounting. The Group’s share in the change of other comprehensive income after the acquisition is recorded
within other comprehensive income as a separate line item. All other changes in the Group’s share of the carrying
amount of net assets of the associates and other companies accounted for using the equity method of accounting
are recognised in profit or loss within the share of financial results of the associates and other companies
accounted for using the equity method of accounting, but the treatment could be different depending on the
substance of the change.
However, when the Group’s share of losses in an associate and other companies accounted for using the equity
method of accounting equals or exceeds its interest in the associate or company accounted for using the equity
method of accounting, including any other unsecured receivables, the Group does not recognise further losses,
unless this is required by law or it has incurred obligations or made payments on behalf of the associate or other
companies accounted for using the equity method of accounting.
47
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Unrealised gains on transactions between the Group and its associates and other companies accounted for using
the equity method of accounting are eliminated to the extent of the Group’s interest in these entities. Unrealised
losses arising from transactions between the Group and its associates and other companies accounted for using
the equity method of accounting are also eliminated unless the transaction provides evidence of an impairment of
the transferred asset.
In the consolidated statement of financial position, the Group’s share in the associate or other companies
accounted for using the equity method of accounting is presented at the carrying amount inclusive of goodwill at
the acquisition date and the Group’s share of post-acquisition profits and losses net of impairment loss.
Disposals of subsidiaries, associates or other companies accounted for using the equity method of accounting
When the Group ceases to have control or significant influence, any retained interest in the subsidiary, associate
or company accounted for using the equity method of accounting is re-measured to its fair value, with the change
in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, company accounted for using the equity
method of accounting, or financial asset. In addition, any amounts previously recognised in other comprehensive
income, in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to
profit or loss.
At the date when the Group’s control ceases, it de-recognises the assets and liabilities of the former subsidiary
from the consolidated statement of financial position and recognises profit or loss connected with the loss of
control attributable to the former controlling stake.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share
of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where
appropriate.
(b)
Cash and cash equivalents
Cash and cash equivalents include cash balances in hand, cash on current accounts with banks, bank deposits and
other short-term highly liquid investments with original maturities of three months or less.
(c)
Restricted cash
Restricted cash balances comprise balances of cash and cash equivalents which are legally or contractually
restricted from withdrawal.
Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statement
of cash flows. Balances restricted from being exchanged or used to settle a liability for at least twelve months
after the reporting period are included in other non-current assets.
(d)
Value added tax (VAT)
Output value added tax arising upon the sale of goods (performance of work, provision of services) is payable to
the tax authorities on the earlier of: (a) collection of receivables from customers; or (b) delivery of goods (work,
services) or property rights to customers. VAT is excluded from revenue.
Input VAT on goods and services purchased (received) is generally recoverable against output VAT upon receipt of
the VAT invoice. VAT related to sales / purchases and services provision / receipt payments to the budget which
has not been settled with at the balance sheet date (deferred VAT) is recognised in the consolidated statement of
financial position on a gross basis and disclosed separately within current assets and current liabilities.
Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross
amount of the debt, including VAT.
48
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
(e)
Significant accounting policies (continued)
Inventories
Inventories are recorded at the lower of cost and net realisable value (the estimated selling price in the ordinary
course of business, less the estimated cost of completion and selling expenses).
Inventories include raw materials designated for use in the production process, finished goods, work in progress
and goods for resale.
Release to production or any other write-down of inventories is carried at the weighted average cost.
The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and
related production overheads (based on normal operating capacity).
Other costs are included in the cost of inventories only to the extent they were incurred to provide for the current
location and condition of inventories.
When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the
period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable
value and all losses of inventories, including obsolete inventories written down, shall be recognised as an expense
in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of
inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs.
(f)
Property, plant and equipment (PP&E)
Measurement at recognition
Property, plant and equipment are initially stated at cost (historical cost model). The PP&E cost includes:
(cid:131)
(cid:131)
(cid:131)
its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates;
any costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by the relevant entity’s management;
the initial estimate of the cost of subsequent dismantling and removal of a fixed asset, and restoring the
site on which it was located, the obligation for which the relevant entity incurs either when the item is
acquired or as a consequence of having used the item during a specific period for purposes other than to
produce inventories during that period.
The value of property, plant and equipment built using an entity’s own resources includes the cost of materials
and labour, and the relevant portion of production overhead costs directly attributable to the construction of the
PP&E.
Borrowing costs directly attributable to the acquisition, construction or production of an asset which takes a
substantial period of time to prepare for use or sale are included in the cost of this asset.
Recognition of costs in the carrying amount of a property, plant and equipment item ceases when the item is in
the location and condition necessary for it to be capable of operating in the manner intended by management of
the relevant entity.
Subsequent measurement
Property, plant and equipment items are carried at cost less accumulated depreciation and recognised
impairment losses.
49
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Subsequent expenditures
The costs of minor repairs are expensed when incurred. The costs of regular replacement of large components of
property, plant and equipment items are recognised in the carrying amount of the relevant asset when incurred
subject to recognition criteria. The carrying amount of the parts being replaced is de-recognised.
When a large-scale technical inspection is conducted, related costs are recognised in the carrying amount of a
fixed asset as replacement of previous technical inspection subject to recognition criteria. Any costs related to the
previous technical inspection that remain in the carrying value shall be de-recognised.
Other subsequent expenditures are capitalised only when they increase the future economic benefits embodied
in these assets.
All other expenses are treated as costs in the consolidated statement of profit or loss in the reporting period as
incurred.
Property, plant and equipment line of the consolidated statement of financial position also includes capital
construction and machinery, and equipment to be installed.
If PP&E items include major units with different useful lives, then each individual unit of the related asset is
accounted for separately.
Borrowing costs
Borrowing costs are capitalised from the date of capitalisation and up to the date when the assets are
substantially ready for utilisation or sale.
The commencement date for capitalisation is when the Group (a) incurs expenditures for the qualifying asset; (b)
incurs borrowing costs; and (c) undertakes activities that are necessary to prepare the asset for its intended use or
sale.
When funds borrowed for common purposes are used to purchase an asset, capitalised borrowing costs are
determined through multiplying the capitalisation rate by expenses related to the asset.
Interest payments capitalised under IAS 23 are classified in consolidated statement of cash flows in a manner that
is consistent with the classification of the underlying asset on which the interest is capitalised.
All other borrowing costs are attributed to expenses in the reporting period when incurred and recorded in the
consolidated statement of profit or loss in the “Finance costs” line.
Mineral rights
Exploration and evaluation assets are carried at original cost and classified consistently within tangible or
intangible assets depending on their nature. Mineral rights acquired as a result of a business combination are
measured at fair value at the acquisition date. Other mineral rights and licenses are recorded at cost. Mineral
rights are amortised using the straight-line basis over the license term given approximately even production
output during the license period.
50
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Depreciation
Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets
through an even write-down of historical cost to their net book value. Property, plant and equipment items under
finance leases and subsequent capitalised 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 available for
use, i.e. when the location and condition provide for its operation in line with the Group management’s
intentions.
Depreciation is not charged on assets to be disposed of and on land. In some cases, the land itself may have a
limited useful life, in which case it is depreciated in a manner that reflects the consumption of benefits to be
derived from it.
The range of estimated useful lives of different asset categories is as follows:
Buildings and land and buildings improvements
Machinery and equipment
Vehicles
1 – 105 years
1 – 87 years
1 – 39 years
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the
asset less the estimated costs of disposal if the asset were already of the age and in the condition expected at the
end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the
end of each reporting period.
If the cost of land includes the costs of site dismantlement, removal of PP&E items and restoration expenses, that
portion of the land asset is depreciated over the period of consumption of benefits obtained by incurring those
costs.
Impairment of PP&E is outlined in section (j) “Impairment of non-current assets”.
(g)
Leasing
Leasing transactions are classified according to the relevant lease agreements, which specify the risks and rewards
associated with the leased property and distributed between the lessor and lessee. Lease agreements are
classified as financial leases or operating leases.
In a financial lease, the Group receives the major portion of economic benefits and risks associated with the
ownership of the asset. At the commencement of the lease term, the leased asset is recognised in the
consolidated statement of financial position at the lower of fair value or discounted value of future minimum
lease payments. The corresponding rental obligations are included in borrowings. Interest expenses within lease
payments are charged to profit or loss over the lease term using the effective interest method.
Accounting policies for depreciation of leased assets are consistent with the accounting policies applicable to
owned depreciable assets.
A lease is classified as an operating lease if it does not imply transferring the major portion of risks and rewards
associated with the ownership of the asset. Payments made under operating leases are recorded as an expense
on a straight-line basis over the lease term.
51
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
(h)
Goodwill and intangible assets
Goodwill is the difference between:
(cid:131)
(cid:131)
the comprehensive acquisition date fair value of the consideration transferred and non-controlling
interest, and, where the entity is acquired in instalments, the acquisition date fair value of the non-
controlling interest previously held by the buyer in the acquired entity; and
the share of net fair value of identifiable assets acquired and liabilities assumed.
The excess of the share of net fair value of identifiable assets bought and obligations assumed by the Group over
the consideration transferred and the fair value of non-controlling interest at the acquisition date previously
owned by the buyer in the acquired entity, represents income from a profitable acquisition. Income is recognised
in the consolidated statement of profit or loss at the acquisition date.
Goodwill on associates and other equity-accounted entities is included in the carrying amount of investments in
these entities.
When interest in the previously acquired entity increases (within non-controlling interest) goodwill is not
recognised. The difference between the acquired share of net assets and consideration transferred is recognised
in equity.
Goodwill is measured at historical cost and subsequently stated less accumulated impairment losses.
Impairment of goodwill
The goodwill is not amortised but tested for impairment at least annually and whenever there are indications that
goodwill may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Group’s
cash-generating units (“CGUs”) that are expected to benefit from the synergies of the combination. The
evaluation of impairment for cash-generating units, among which goodwill was distributed, is performed once a
year or more often, when there are indicators of impairment of such CGUs.
If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to any other assets of
the CGU pro-rata to the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is
not reversed in subsequent periods.
Disposal of goodwill
If goodwill is a part of the cash-generating unit, and a part of the unit is disposed of, the goodwill pertaining to
that part of disposed operations is included in the carrying amount of that operation when profit or loss on its
disposal is determined. In such circumstances, the goodwill disposed of is generally measured on the basis of the
relative values of the operation disposed of and the portion of the cash-generating unit which is retained.
52
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Intangible assets
Intangible assets are initially recognised at cost.
The cost of a separately acquired intangible asset comprises:
(cid:131)
(cid:131)
its purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates;
any directly attributable cost of preparing the asset for its intended use.
If an intangible asset is acquired as a result of a business combination, the cost of the intangible asset equals its
fair value at the acquisition date.
If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price equivalent. The
difference between this amount and the total payments is recognised as interest expense over the entire period
of credit unless it is capitalised in accordance with IAS 23, “Borrowing Costs”.
If an intangible asset is an integral part of a fixed asset to which it belongs, then it is recorded as part of that asset.
After the initial recognition of intangibles, they are carried at cost less any accumulated amortisation and any
accumulated impairment loss. If impaired, the carrying amount of intangible assets is written down to the higher
of value in use and fair value less costs to sell.
Amortisation
An intangible asset with an indefinite useful life is not amortised. Intangible assets with a definite useful life are
amortised using the straight-line method over the shorter of: the useful life or legal rights thereto.
(i)
Decommissioning obligation
The Group’s obligations related to assets disposal include estimating costs related to restoration of land in
accordance with applicable legal requirements and licenses.
Decommissioning costs are carried at the present value of expected expenses to settle obligations that is
calculated using estimated cash flows and are recognised as a part of the historical cost of the asset. Capitalised
costs are amortised over the asset’s useful life.
Cash flows are discounted at the current rate before tax, which reflects risks inherent to the asset
decommissioning obligations. The effect of discounting is recognised in the consolidated statement of profit or
loss as finance costs.
The estimated future costs related to decommissioning are reviewed annually and adjusted as necessary.
(j)
Impairment of non-current assets
At each reporting date, the Group determines if there are any objective indications of potential impairment of an
individual asset or group of assets.
Intangible assets with indefinite useful lives are tested for impairment at least once a year if their carrying amount
impairment indicators are identified.
53
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Recoverable value measurement
If any such impairment indicators exist, then the asset’s recoverable amount is estimated. In the event of
impairment, the value of the asset is written down to its recoverable value, which represents the higher of: the
fair value less costs to sell or the value in use.
Fair value less costs to sell is the amount obtainable from the sale of an asset or payable on the transfer of a
liability at the evaluation date, in an arm’s length transaction between knowledgeable, willing parties, less any
direct costs related to the sale or transfer.
Value in use is the present value of estimated future cash flows from expected continuous use of an asset and its
disposal at the end of its useful life.
In assessing value-in-use, the anticipated future cash proceeds are discounted to their current value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely
independent cash inflows (cash-generating units), which in most cases are determined as individual subsidiaries of
the Group. Estimated cash flows are adjusted in line with the risk of specific conditions at sites and discounted at
the rate based on the weighted average cost of capital. With regard to assets that do not generate cash regardless
of cash flows generated by other assets, the recoverable amounts are based on the cash-generating unit to which
such assets relate.
Impairment loss
The asset’s carrying amount is written down to its estimated recoverable value, and loss is included in the
consolidated statement of profit or loss for the period. Impairment loss is reversed if there are indications that the
assets’ impairment losses (other than goodwill) recognised in previous periods no longer exist or have been
reduced, and if any consequent increase in the recoverable value can be objectively linked to the event that took
place after the impairment loss recognition. Impairment loss is reversed only to the extent that the carrying
amount of an asset does not exceed its carrying amount that would be established (less amortisation) if the asset
impairment loss had not been recognised. An impairment loss is reversed for the relevant asset immediately
through consolidated statement of profit or loss.
(k)
Pension and post-retirement benefits other than pensions
The Group recognises liabilities for post-employment benefits, including one-off payments made upon retirement.
For the nine months ended 30 September 2013, the Group maintained defined benefit pension plans that covered
the majority of its employees in Europe (Note 20).
The Parent Company and some other Group companies maintain defined contribution plans in accordance with
which contributions are made on a monthly basis to a non-government pension fund (the “Fund”), calculated as a
certain fixed percentage of the employees’ salaries. These pension contributions are accumulated in the Fund
during the employment period and subsequently distributed by the Fund. Accordingly, the Group has no long-
term commitments to provide funding, guarantees, or other support to the Fund.
The Group complies with the pension and social insurance legislation of the Russian Federation and the other
countries where it operates. Contributions to the Russian Federation Pension Fund by the employer are calculated
as a percentage of current gross salaries. Such contributions constitute defined contribution plans.
Payments under defined contribution plans are expensed as incurred.
54
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
(l)
Significant accounting policies (continued)
Provisions for liabilities and charges
Provisions for liabilities and charges are accrued when the Group:
(cid:131)
(cid:131)
(cid:131)
has present obligations (legal or constructive) as a result of past events;
it is probable that an outflow of resources embodying economic benefits will be required to settle such
an obligation;
a reliable estimate of the amount of the obligation can be made.
The amount recognised as a provision shall be the best estimate of the expenses required to settle the present
obligation at the end of the reporting period. Where the impact of the time factor on the value of money is
significant, the provision should equal the present value of the expected cost of settling the liability using the
discount rate before taxes. Any increase in the carrying amount of the provision is recorded in the consolidated
statement of profit or loss as finance costs.
The nature and estimated value of contingent liabilities and assets (including court proceedings, environmental
costs, etc.) are disclosed in notes to the consolidated financial statements where the probability of economic
benefits outflow is insignificant.
The creation and release of provision for impaired receivables have been included in selling expenses in the
consolidated statement of profit or loss. Amounts charged to the allowance account are generally written off,
when there is no expectation of recovering additional cash.
(m)
Call and put options
Call and put options are carried at their fair value in the consolidated financial statements. These options are
accounted for as assets when their fair value is positive (for call options) and as liabilities when the fair value is
negative (for put options). Changes in the fair value of options are reflected in the consolidated statement of
profit or loss.
(n)
Income taxes
Income tax expense comprises current and deferred tax. The current and deferred taxes are recognised in profit
or loss for the period, except for the portion thereof that arises from a business combination or transactions or
events that are recognised directly within equity.
Current tax
Current tax liabilities are measured in the amount expected to be paid to (recovered from) the tax authorities,
applying the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting
period.
Deferred tax
Deferred tax assets and liabilities are recognised for the differences between the carrying amount of an asset or
liability in the consolidated statement of financial position and their tax base.
55
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Deferred tax is not recognised if temporary differences:
(cid:131)
(cid:131)
(cid:131)
arise at the goodwill initial recognition;
arise at the initial recognition (except for business combination) of assets and liabilities that do not
impact taxable or accounting profits;
are associated with investments in subsidiaries where the Group controls the timing of the reversal of
these temporary differences, and it is probable that the temporary differences will not be utilised in the
foreseeable future.
Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Estimation of tax assets and liabilities reflects tax implications that would arise depending on the method to be
used at the end of the reporting period to recover or settle carrying value of these assets or liabilities.
Deferred tax assets are recognised in respect of the carry forward of unused tax losses and unused tax credits to
the extent that it is probable that future taxable profit will be available against which the unused tax losses and
unused tax credits may be utilised.
The carrying amount of deferred tax assets is subject to revision at the end of each reporting period and is
decreased to the extent of reduced probability of receiving sufficient taxable income to benefit from utilising the
deferred tax assets partially or in full.
Deferred tax assets and liabilities are offset if there is a legal right for the offset of current tax assets and liabilities,
and when they relate to income taxes levied by the same tax authority or on the same taxpayer; and the Group
intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
Uncertain tax positions
The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities
are recorded for income tax positions that are determined by management as more likely than not to result in
additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based
on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting
period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than
on income are recognised based on management’s best estimate of the expenditure required to settle the
obligations at the end of the reporting period.
(o)
Dividends payable
Dividends are recorded as a liability and deducted from equity in the period in which they are declared and
approved. Any dividends declared after the reporting date and before the consolidated financial statements have
been authorised for issue are disclosed in the subsequent events note.
(p)
Revenue recognition
Revenue from sales of goods and provision of services
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in
the ordinary course of the Group’s activities. The Group recognises revenue when the amount can be reliably
measured, it is probable that future economic benefits will flow to the Group, and the specific criteria stipulated
by IAS 18, “Revenue” have been met for each type of Group revenues.
Revenue is recorded less of discounts, provisions, value added tax and export duties, and refunds, and after
excluding internal Group sales turnover.
56
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the
goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location,
revenue is recognised when the goods are passed to the customer at the destination point. Revenue from services
is recognised in the period in which the services were rendered, by reference to the stage of completion of the
specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be
rendered under the relevant agreement.
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
Dividend income
Dividend income on investments is recognised when the Group becomes entitled to receive the payment.
(q)
Segment information
The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph
11 of IFRS 8, “Operating Segments”.
The Group’s organisation comprises five reportable segments:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
the Russian flat products segment, comprising production and sales of steel products and coke, primarily
pig iron, steel slabs, hot rolled steel, cold rolled steel, galvanised cold rolled sheet and cold rolled sheet
with polymeric coatings and also electro-technical steel;
the Foreign rolled products segment, comprising production and sales of steel products in the United
States and Europe;
the Russian long products segment, comprising a number of steel-production facilities combined in a
single production system beginning from scrap iron collection and recycling to steel-making, production
of long products, reinforcing rebar and metalware;
the Mining segment, which comprises mining, processing and sales of iron ore, fluxing limestone and
metallurgical dolomite, and supplies raw materials to the steel segment and third parties;
Investments in associate entity NBH, comprising production of hot rolled, cold rolled coils and galvanized
and pre-pained steel, and also production of a wide range of plates as well as a number of steel service
centers located in the European Union.
Other activities and operating segments that are not reportable segments are combined and disclosed in “all
other segments”.
The accounting policies of each segment are similar to the principles outlined in significant accounting policies.
(r)
Financial instruments
Financial assets
The Group’s financial assets include cash and short-term deposits, trade and other accounts receivable, loans and
other amounts receivable, quoted and non-quoted financial instruments and derivatives.
Financial assets have the following categories:
(cid:131)
(cid:131)
loans and receivables;
held-to-maturity investments.
57
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Loans and receivables
Loans and receivables represent non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Subsequent to the initial recognition, such financial assets are measured at amortised
cost using the effective interest method less any impairment losses.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to
maturity investments if the Group intends and is able to hold them to maturity. Subsequent to the initial
recognition, held-to-maturity investments are measured at amortised cost using the effective interest method
less any impairment losses.
Valuation techniques
Depending on their classification, financial instruments are carried at fair value or amortised cost. Below are the
methods and key definitions.
Fair value is the price that would be received from selling an asset or paid when transferring a liability in an
orderly transaction between market participants as at the valuation date. The best evidence of fair value is the
price quoted in an active market.
The fair value of financial instruments traded in active markets at each reporting date is determined based on the
market quotes or dealers’ quotes (buy quotes for long positions and sell quotes for short positions) without
deducting transaction costs.
Valuation techniques, such as discounted cash flow models, or models based on recent arm’s length transactions
or consideration of financial data of the investees, are used to measure the fair value of financial instruments for
which external market pricing information is unavailable.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a
financial instrument. An incremental cost is one that would not have been incurred if the transaction had not
taken place.
Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any
principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount
and the maturity amount (calculated using the effective interest method), and for financial assets less any
impairment loss.
The effective interest method is a method of allocating interest income or interest expense over the relevant
period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding
future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to
the net carrying amount of the financial instrument.
Initial recognition of financial assets
Financial investments available for sale and financial assets at fair value through profit or loss are initially recorded
at fair value. All other financial assets are initially recorded at fair value plus transaction costs.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or
market convention (“regular way” purchases and sales) are recorded at the trade date, which is the date when the
Group commits to buy or sell a financial asset.
58
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
De-recognition
The Group de-recognises financial assets when (a) the assets are redeemed or the rights to cash flows from the
assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or
entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of
ownership of the assets, or (ii) neither transferring nor retaining substantially all risks and rewards of ownership
but not retaining control in respect of these assets.
Control of an asset is retained if the counterparty does not have the practical ability to sell the asset in its entirety
to an unrelated third party without needing to impose additional restrictions on the sale. If the Group neither
transfers nor retains substantially all risks and rewards of ownership of the asset, but retains control over such
transferred asset, the Group continues recognition of its share in this asset and the related obligation in the
amount of the anticipated consideration.
Impairment of financial assets
At each reporting date, the Group assesses whether the objective indicators exist that a financial asset or group of
financial assets is impaired. A financial asset or group of financial assets are considered to be impaired only when
there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset, and that have had an impact on the amount or timing of the estimated future cash flows
of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the debtor or group of debtors are experiencing significant financial difficulty, cannot
service their debt or are demonstrating delinquency in interest or principal payments; or they are likely to
undergo bankruptcy procedures or any other financial reorganisation. In addition, such evidence includes
observable data testifying to an identifiable decline in estimated future cash flows under a financial instrument, in
particular, negative changes in a counterparty’s payment status caused by changes in the national or local
business environment that impact the counterparty, or a significant impairment of collateral, if any, as a result of
deteriorated market conditions.
Impairment of financial assets carried at amortised cost
The carrying amount of an asset is reduced by the amount of the allowance for impairment of financial assets.
Losses from impairment of financial assets carried at amortised cost are carried through profit or loss as they
arise.
Accrual of interest income on the reduced carrying value is continued based on the interest rate applied to
discounting the future cash flows for impairment loss assessment.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because
of financial difficulties of the counterparty, impairment is measured using the original effective interest rate
before the modification of terms. The renegotiated asset is then de-recognised and a new asset is recognised at
its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a
substantial difference between the present values of the original cash flows and the new expected cash flows.
Impairment of financial investments available for sale
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective
evidence that a financial investment or a group of financial investments is impaired.
Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events
(“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or
prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The
cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value,
less any impairment loss on that asset previously recognised in profit or loss – is reclassified from other
comprehensive income to finance costs in profit or loss for the year.
59
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other
comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for
sale increases and the increase can be objectively related to an event occurring after the impairment loss was
recognised in profit or loss, the impairment loss is reversed through the current period’s profit or loss.
Financial liabilities
The Group’s financial liabilities include trade and other payables, bank overdrafts, borrowings, financial guarantee
agreements and derivative financial instruments.
Financial liabilities are respectively classified as:
(cid:131)
(cid:131)
financial liabilities at fair value through profit or loss;
borrowings and loans.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trade and financial
liabilities designated initially at fair value through profit or loss. Financial liabilities are classified as held for trade if
acquired for the purpose of selling in the short term. Income and expense on liabilities held for trade are
recognised in the consolidated statement of profit or loss.
Borrowings
After initial recognition, interest-bearing borrowings are carried at amortised cost using the effective interest
method. Gains and losses on such financial liabilities are recognised in consolidated statements of profit or loss
upon their de-recognition and also as amortisation accrued using the effective interest method.
Initial recognition of financial liabilities
All financial liabilities are initially recorded at fair value less transaction costs incurred (except for financial
liabilities at fair value through the consolidated statements of profit or loss).
De-recognition
A financial liability is de-recognised from the consolidated statement of financial position if it was settled,
cancelled or expired.
If the existing financial liability is replaced by another liability to the same creditor, on terms that significantly
differ from the previous terms, or the terms of the existing liability significantly differ from the previous terms,
such replacement or change is recorded as de-recognition of the initial liability and recognition of a new liability,
and the difference in their carrying amount is recognised in the consolidated statement of profit or loss.
Financial guarantee agreements
Financial guarantees issued by the Group are irrevocable agreements requiring a payment to compensate losses
incurred by the owner of the agreement due to the inability of the debtor to duly pay under the terms of a debt
instrument. Financial guarantee agreements are initially recorded at fair value. Consequently the liability is
measured at the higher of the best likelihood estimate of costs necessary to settle the liability at the reporting
date, and the amount of the liability less accumulated amortisation.
Derivative financial instruments
Derivative financial instruments, including foreign exchange contracts, interest rate futures, forward rate
agreements, currency and interest rate swaps, and currency and interest rate options, are carried at their fair
value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is
negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group
does not apply hedge accounting.
60
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
25
Significant accounting policies (continued)
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention
to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
(s)
Related parties
Parties are generally considered to be related if the parties are under common control or if one party has the
ability to control the other party or can exercise significant influence over the other party in making financial and
operational decisions or exercise a joint control over it. In considering each possible related-party relationship,
attention is directed to the substance of the relationship, not merely the legal form.
26
Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities as well as disclosures. Management also
makes certain judgements, in the process of applying the Group’s accounting policies. Estimates and judgements
are continually evaluated based on historical experience and other factors, including forecasts and expectations of
future events that are believed to be reasonable under the circumstances. Actual results may differ from these
estimates, and management’s estimates can be revised in the future, either negatively or positively, based on the
facts surrounding each estimate.
Judgments that have the most significant effect on the amounts recognised in the consolidated financial
statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities
within the next financial year are reported below.
(a)
Consolidation of subsidiaries
Management judgement is involved in the assessment of control and the consolidation of subsidiaries in
the Group’s consolidated financial statements.
(b)
Tax legislation and potential tax gains and losses
The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities
which are recorded for income tax positions are determined by management based on the interpretation of
current tax laws. Liabilities for penalties, interest and taxes other than on income are recognised based on
management’s best estimate of the expenditure required to settle tax liabilities at the reporting date.
(c)
Estimation of remaining useful lives of property, plant and equipment
The estimation of the useful life of an item of property, plant and equipment is a matter of management
judgement based upon experience with similar assets. In determining the useful life of an asset, management
considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical
wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or
estimates may affect future useful lives (Note 8).
(d)
Fair value estimation for acquisitions
In accounting for business combinations, the purchase price paid to acquire a business is allocated to its assets
and liabilities based on the estimated fair values of the assets acquired and liabilities assumed as of the date of
acquisition. The excess of the purchase price over the fair value of the tangible and identifiable intangible assets
acquired, net of liabilities, is recorded as goodwill. A significant amount of judgement is involved in estimating the
individual fair values of property, plant and equipment and identifiable intangible assets.
61
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
26
Critical accounting estimates and judgements (continued)
The estimates used in determining fair values are based on assumptions believed to be reasonable but which are
inherently uncertain. Accordingly, actual results may differ from the projected results used to determine fair
value.
(e)
Impairment analysis of property, plant and equipment and goodwill
The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a
number of significant judgements and estimates to certain variables including volumes of production and
extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as
inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed
for impairment (Notes 8, 9).
Accounting for provisions
Accounting for impairment includes provisions against capital construction projects, financial assets and other
non-current assets (at least annually).
(f)
Accrual of accounts receivable impairment provision
The impairment provision for accounts receivable is based on the management’s assessment of the collectability
and recoverable amount of specific customer accounts, being the present value of expected cash flows. If there is
deterioration in a major customer’s creditworthiness or actual defaults are higher or lower than estimates,
the actual results could differ from these estimates.
(g)
Control and the consolidation or accounting using equity method of accounting of entities in the
Group’s consolidated financial statements
Management judgement is involved in the assessment of control and the consolidation or accounting using equity
method of accounting of certain entities
in the Group’s consolidated financial statements. As at
31 December 2015 and 2014 the Group owned 51.0% and 79.5% of shares in NBH, respectively, however,
management had concluded that in the light of giving certain governance rights to the party owing the residual
interest in this company, the Group does not control this company, thus the Group’s investment in NBH should be
accounted for under the equity method starting 30 September 2013 (Note 20).
After the partial disposal of NBH as of 30 September 2013, which the Group executed in the context of the
continuing restructuring of its European operations aimed at further enhancing efficiency optimizing costs, the
Group retained its presence in Europe and in the rolled products line of business. Therefore management believes
that this disposal does not meet the definition of a discontinued operations under IFRS 5.
27
New or revised standards and interpretations
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning
on or after 1 January 2016 or later, and which the Group has not early adopted:
(cid:131)
IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for
annual periods beginning on or after 1 January 2018). Key features of the new standard are:
-
Financial assets are required to be classified into three measurement categories: those to be
measured subsequently at amortised cost, those to be measured subsequently at fair value
through other comprehensive income (FVOCI) and those to be measured subsequently at fair
value through profit or loss (FVPL).
62
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
27
New or revised standards and interpretations (continued)
-
-
Classification for debt instruments is driven by the entity’s business model for managing the
financial assets and whether the contractual cash flows represent solely payments of principal
and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it
also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are
held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may
be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be
measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated
from financial assets but will be included in assessing the SPPI condition.
Investments in equity instruments are always measured at fair value. However, management
can make an irrevocable election to present changes in fair value in other comprehensive
income, provided the instrument is not held for trading. If the equity instrument is held for
trading, changes in fair value are presented in profit or loss.
- Most of the requirements in IAS 39 for classification and measurement of financial liabilities
were carried forward unchanged to IFRS 9. The key change is that an entity will be required to
present the effects of changes in own credit risk of financial liabilities designated at fair value
through profit or loss in other comprehensive income.
-
IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit
losses (ECL) model. There is a “three stage” approach which is based on the change in credit
quality of financial assets since initial recognition. In practice, the new rules mean that entities
will have to record an immediate loss equal to the 12-month ECL on initial recognition of
financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there
has been a significant increase in credit risk, impairment is measured using lifetime ECL rather
than 12-month ECL. The model includes operational simplifications for trade and lease
receivables.
- Hedge accounting requirements were amended to align accounting more closely with risk
management. The standard provides entities with an accounting policy choice between applying
the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges
because the standard currently does not address accounting for macro hedging.
(cid:131)
(cid:131)
(cid:131)
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to
IFRS 10 and IAS 28 (issued on 11 September 2014 and effective from the uncertain date). These
amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in
dealing with the sale or contribution of assets between an investor and its associate or joint venture. The
main consequence of the amendments is that a full gain or loss is recognised when a transaction involves
a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a
business, even if these assets are held by a subsidiary.
Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS
38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this
amendment, the IASB has clarified that the use of revenue-based methods to calculate the depreciation
of an asset is not appropriate because revenue generated by an activity that includes the use of an asset
generally reflects factors other than the consumption of the economic benefits embodied in the asset.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods
beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must
be recognised when the goods or services are transferred to the customer, at the transaction price. Any
bundled goods or services that are distinct must be separately recognised, and any discounts or rebates
on the contract price must generally be allocated to the separate elements. When the consideration
varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal.
Costs incurred to secure contracts with customers have to be capitalised and amortised over the period
when the benefits of the contract are consumed.
63
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
27
New or revised standards and interpretations (continued)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
IFRS 16 "Leases" (issued in January 2016 and effective for annual periods beginning on or after 1 January
2019). The new standard sets out the principles for the recognition, measurement, presentation and
disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates
the classification of leases as either operating leases or finance leases as is required by IAS 17 and,
instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and
liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value;
and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement.
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor
continues to classify its leases as operating leases or finance leases, and to account for those two types of
leases differently.
Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued in January 2016
and effective for annual periods beginning on or after 1 January 2017). The amendment has clarified the
requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity
will have to recognise deferred tax asset for unrealised losses that arise as a result of discounting cash
flows of debt instruments at market interest rates, even if it expects to hold the instrument to maturity
and no tax will be payable upon collecting the principal amount. The economic benefit embodied in the
deferred tax asset arises from the ability of the holder of the debt instrument to achieve future gains
(unwinding of the effects of discounting) without paying taxes on those gains.
Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods
beginning on or after 1 January 2016). The amendments impact 4 standards. IFRS 5 was amended to
clarify that change in the manner of disposal (reclassification from "held for sale" to "held for
distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not
have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management
determine whether the terms of an arrangement to service a financial asset which has been transferred
constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment
also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods,
unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit
obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate
bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities
are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the
interim financial statements to the location of "information disclosed elsewhere in the interim financial
report".
Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on
or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains
that an entity need not provide a specific disclosure required by an IFRS if the information resulting from
that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them
as minimum requirements. The Standard also provides new guidance on subtotals in financial
statements, in particular, such subtotals (a) should be comprised of line items made up of amounts
recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes
the line items that constitute the subtotal clear and understandable; (c) be consistent from period to
period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS
standards.
Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods
beginning on or after 1 January 2017) The amended IAS 7 will require disclosure of a reconciliation of
movements in liabilities arising from financing activities.
64
Novolipetsk Steel
Notes to the consolidated financial statements as at and for the year ended 31 December 2015
(millions of US dollars)
27
New or revised standards and interpretations (continued)
The Group is currently assessing the impact of the amendments on its financial position and results of operation.
The following new standards and interpretations are not expected to affect significantly the Group’s consolidated
financial statements once adopted:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning
on or after 1 January 2016).
Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May
2014 and effective for the periods beginning on or after 1 January 2016).
Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for
annual periods beginning 1 January 2016).
Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and
effective for annual periods beginning 1 January 2016).
Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28
(issued in December 2014 and effective for annual periods on or after 1 January 2016).
28
Subsequent events
The Group’s management has performed an evaluation of subsequent events and did not find any through the
period from 1 January 2016 to 23 March 2016, which is the date when these consolidated financial statements are
published.
65