N
L M K
about nlmk
our team
Corporate
governanCe
envIronment
REPORT/2017
content
about nlmk
2017 HIgHlIgHtS ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������2
Ceo Statement ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������4
Company profIle �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������6
WHere We make and market Steel �����������������������������������������������������������������������������������������������������������������������������������������������������8
WHat We make and market ������������������������������������������������������������������������������������������������������������������������������������������������������������������� 10
nlmk group buSIneSS model ���������������������������������������������������������������������������������������������������������������������������������������������������������������14
nlmk’S Integrated proCeSS envIronment ���������������������������������������������������������������������������������������������������������������������������������� 18
nlmk produCtIon SyStem �������������������������������������������������������������������������������������������������������������������������������������������������������������������� 24
reSearCH and development�������������������������������������������������������������������������������������������������������������������������������������������������������������� 28
Strategy 2017 ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 30
Strategy 2017 reSultS ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 31
key performanCe IndICatorS ����������������������������������������������������������������������������������������������������������������������������������������������������������� 36
market revIeW ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 40
2017 fInanCIal and operatIng revIeW ������������������������������������������������������������������������������������������������������������������������������������������� 42
gloSSary ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 46
10-year HIgHlIgHtS �����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������47
our team
HIgHlIgHtS 2017 ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 48
nlmk valueS ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 50
Human rIgHtS proteCtIon ������������������������������������������������������������������������������������������������������������������������������������������������������������������� 51
SuStaInable development prIorItIeS ������������������������������������������������������������������������������������������������������������������������������������������ 52
dIalogue WItH StakeHolderS������������������������������������������������������������������������������������������������������������������������������������������������������������ 54
our employeeS ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 62
oCCupatIonal HealtH and Safety�������������������������������������������������������������������������������������������������������������������������������������������������� 72
CommunIty development ���������������������������������������������������������������������������������������������������������������������������������������������������������������������76
key IndICatorS �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 81
Corporate governanCe
leaderSHIp �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 82
Corporate governanCe ������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 91
operatIonal Control and rISk management ��������������������������������������������������������������������������������������������������������������������������� 111
InformatIon for SHareHolderS������������������������������������������������������������������������������������������������������������������������������������������������������ 116
envIronment
2017 envIronmental HIgHlIgHtS ������������������������������������������������������������������������������������������������������������������������������������������������������ 120
nlmk group’S envIronmental aCtIvItIeS ���������������������������������������������������������������������������������������������������������������������������������� 122
InveStmentS In envIronmental InItIatIveS ������������������������������������������������������������������������������������������������������������������������������ 128
envIronmental proteCtIon ��������������������������������������������������������������������������������������������������������������������������������������������������������������130
energy effICIenCy ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 142
key HIgHlIgHtS ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 149
reportIng and applICatIonS ������������������������������������������������������������������������������������������������������������������������������������������������������������150
nlmk 2017 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
2
2017 HIGHLIGHTS
SucceSSfuL execuTIon
of STraTeGy 2017
record operaTInG
reSuLTS
GrowTH of buSIneSS
profITabILITy
SubStantial Structural gain
from Strategic initiativeS*
continuouS growth
of SaleS volumeS
conSiStent growth
of profitability
$ m
m t
$ bn
1,019
377
15.9
16.5
15.8
ebItDa margin**
ebItDa
23%
24%
25%
26%
642
139
503
230
273
0
15.1
14.8
14%
1.5
2.4
1.9
1.9
2.7
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
90%
of blast furnace capacities
equipped with pCI technology
ebItDa margin is expanding for
the fourth year running
102%
of Strategy 2017 targets met,
with
70%
achieved through management
initiatives (for more details,
please refer to Strategy 2017
results)
2 annual report 2017
* With nbH
** See the glossary on p. 46
4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
Key factS and figureS
Setting records in operations
Stable financials and debt reduction
In 2017, nlmk posted record operating
results, steel output growing to 17.1 m t,
and sales increasing to 16.5 m t.
ebItDa margin expanded for a fourth year
running to 26% in a weak market. Debt was
at a comfortable level below target.
Successful Strategy 2017
accomplishment
the Strategy 2017 target of $1 billion in
annual ebItDa gains has been achieved.
Strategy 2017 delivered structural annual
ebItDa gain of $1,019 m. management
initiatives contributed around $740 m
(over 70%) to the result.
STrenGTHenInG fInancIaL
STandInG
enHancInG occupaTIonaL
HeaLTH and SafeTy
ImprovInG corporaTe
Governance
low leverage
(net debt/ebitda)
53% injury rateS reduction
vS 2013 (ltIfr*, nlmk group)
1.9
2.03
1.55
0.7
0.6
0.4
0.3
1.12
0.97
0.82
increaSe in number of
independent directorS on
the board**
%
others
Independent directors
50
50
62
38
38
62
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2012 / 14
2015
2016 / 17
a 7-year eurobond was issued
in September 2017 for
$500million
with a coupon rate of 4.0% and
a maturity date of September
2024. this was used to cover
short-term debt
nlmk was awarded the gold
medal in the ‘100 best russian
organizations. ecology and
environmental management’
competition
Index provider mSCI added
nlmk to the mSCI emerging
markets and mSCI russia
indices in may 2017
→ For more details
about nlmk 3
* ltIFr — lost time Injury Frequency rate
** Without Chairman of the board of Directors
nlmk 20172830313640424647
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
4
ceo
STaTemenT
oleg bagrin
president and Ceo of nlmk group
(Chairman of the management board)*
dear colleagues,
Сhange can only happen if a team
has a common goal. Leadership,
cooperation and support must be
common values. Only then can the team
function as one, and the company as
a single production chain stretching from
Altai to the USA.
Following this course, we have become
a single team and proven ourselves capable
of rising to any challenge, no matter how
complex.
In 2017, NLMK Group continued to
consistently improve its operating and
financial performance: NLMK sales hit an
all-time high of 16.5 m t; profitability has
been on the rise for five years running,
hitting 26% in 2017. 2017 EBITDA**
grew by 37% yoy to $2.7 bn, a record
high since 2009. NLMK Group’s high
creditworthiness and the success of its
business model received high acclaim from
international rating agencies: NLMK’s
credit ratings have been upgraded by S&P
and Moody’s over the last 18 months.
NLMK currently has investment grade
ratings from all three international rating
agencies.
Vertical integration, cost control, sales
diversification and a flexible business
model enable NLMK to grow throughout
the value chain and deliver outstanding
operational and financial performance.
We were able to significantly increase
dividends without jeopardizing financing
for major investment projects.
market conditions
In 2017, the steel market rebounded
following a challenging 2016. Steel
consumption in Russia grew for the
first time in several years. A drop in
Chinese exports and increased demand in
the Company’s key markets pushed steel
product prices up, and key raw material
prices followed suit.
Strategy 2017 in action
Successful execution of Strategy 2017
was the key driver behind improved
financials. We rose to the most important
challenges of this five-year cycle, restoring
the efficiency of the business, achieving
self-sufficiency in iron ore, and improving
safety. The figures speak for themselves.
Compared to 2012, we have increased
steel output by 2 million tonnes, reduced
the cost of production by 25%, doubled
our profitability, leverage is down to
a minimum, and the injury rate has
dropped by 50%. Company profits in 2017
reached a post-2008 high. Last year’s
results showed net gains from Strategy
2017 projects exceeded $1 billion, with
around 70% generated by operational
efficiency initiatives. This wasn’t driven
by the market or anything short-term,
NLMK Group
posted record high
sales vs. 2013, well
ahead of market
growth rates.
The scale of NLMK’s
business, the quality
of our strategy
and execution
will ensure that
we use available
growth options to
continue generating
shareholder returns
going forward.
4 annual report 2017
* oleg bagrin held the position of president (Chairman of the management board) until 12 march 2018
** See the glossary on p. 46
2 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
Vertical integration,
control over costs,
diversification of sales,
and a flexible business
model
individual people that was important, but
above all the contribution of the team that
our large, international company represents.
I’m extremely grateful to my team for this
contribution, and most importantly for
your engagement and for your capacity to
rethink and to sacrifice some principles and
convictions that were perhaps mistaken.
The willingness to rethink, the willingness
to change – these are the qualities for which
I’d like to thank you the most. The most
important outcome of this Strategy is
that it is not about the past, but about
thefuture; we have succeeded in creating
the best team in the steel industry, without
dissidents or skeptics, which will continue,
calmly and confidently, to move forward.
This is the most important outcome of our
Strategy.
We’re proud of what we have achieved and
fully recognize that our achievements were
made possible thanks to the contribution
of our international team, united by
the common goal of leadership for NLMK
Group.
I would like to express my sincere gratitude
to our shareholders, customers, suppliers
and contractors. I thank our employees
across all of our divisions and companies
for their commitment which enables NLMK
Group to achieve its potential and be
recognized as the leader of the global steel
industry.
this came about through structural
transformation. We implemented over
3,000 operational efficiency projects,
a twelvefold increase in just five years. We
will see further gains of about $200 million
during 2018 driven by recently completed
investment projects, including Stoilensky
pelletizing plant and integration of PCI
technology at Lipetsk’s BF Shop No. 2.
HavInG compLeTed ITS
STraTeGIc cycLe, nLmK
Group HaS conSoLIdaTed ITS
LeadInG poSITIon. GaInS from
aLL STraTeGy 2017 projecTS
exceeded $1 bn In 2017
looking to the future
2018 sees the beginning of a new five-year
strategic cycle. NLMK’s technology, the
quality of our team, the scale of our business
and, most importantly, the unique potential
for growth and efficiency our company
enjoys within the steel industry will open up
a multitude of opportunities. After successful
completion of the previous strategic cycle,
our team today has the right, the duty even,
to set more ambitious goals than ever before.
one team
In the common cause of realizing Strategy
2017, it was not just the contribution of
* ltIFr — lost time Injury Frequency rate.
Successful
execution of
Strategy 2017 laid
a solid foundation
for our next
strategic cycle:
Strategy 2022.
growth of SaleS
vS. 2013
+11 %
growth of ebitda
margin to
26%
growth of labour
productivity
vS. 2013 baSe
+27 %
gainS from
Strategy 2017
+$1 bn
decreaSe in ltifr*
vS. 2013
-53%
→ For more details, please see
Stategy 2017 Results on p.31
about nlmk 5
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
6
company
profILe
nlmK group is the largest integrated steelmaker
in russia and one of the most efficient in the world.
producTIon
capacITIeS
mILLIon
TonneS
per year
>17
0.35Х
neT debT/ebITda
A stable financial
position supported by
a balanced financial
policy and growth of
positive free cash flow
98%
uTILIzaTIon raTe
of nLmK Group’S
STeeLmaKInG
capacITy
Capacity utilization of the
key site running at 100%
vs. a global average of
about 70%
23%
of STeeL
producTIon
In ruSSIa
No.1 steelmaker in
Russia and among
TOP 20 leading
steelmakers globally
$250
caSH coST per
Tonne of SLabS
Among TOP 3 most
cost-efficient steelmak-
ers globally
effIcIenT verTIcaL
InTeGraTIon
53%
Self-sufficiency
in energy
76%
Self-sufficiency
in scrap
92% 86%
Self-sufficiency
in iron ore
concentrate
Self-sufficiency in iron
ore pellets, >100%
self-sufficiency in coke
26%
ebITda
marGIn
Stable growth in profitability over the last few
years, driven by consistent execution of Strategy
2017. Global average does not exceed 15%
HIGH STandardS of SuSTaInabILITy
NLMK sustainability KPIs are in line with or approaching the level of
best global practices for the steel industry, as a result of the Company’s
comprehensive initiatives:
• Group LTIFR* is 0.97 (0.51 for NLMK’s Russian companies)
vs. best practice of 0.6;
• Specific air emissions are 20.5 kg/t vs. best practice of 18.9 kg/t
NLMK operates production facilities in Russia,
Europe and the United States. The Company’s
steel production capacity exceeds 17 million
tonnes per year.
* ltIFr — lost time Injury Frequency rate (per million man-hours worked). See the glossary on p. 46
6 annual report 2017
2 4 818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
producTS
nlmk group’s steel products are
used in various industries, from
construction and machine building to
the manufacturing of power-generation
equipment and offshore windmills�
performance
nlmk has the most competitive cash
cost among global manufacturers and
one of the highest profitability levels
in the industry� In 2017, the Company
generated $10�065 billion in revenue
and $2�655 billion in ebItda� as of
31 december 2017, net debt/ebItda
stood at 0�35х� the company has
investment grade credit ratings from
S&p, moody’s and fitch�
SHareS
nlmk’s ordinary shares with a 16%
free-float are traded on the moscow
Stock exchange (ticker “nlmk”)
and its global depositary shares are
traded on the london Stock exchange
(ticker “nlmk:lI”)� the share capital
of the Company is divided into
5,993,227,240 shares with a par value
of rub1�
our Team
our corporate culture, which targets
continuous development and
brings together more than 53,000
professionals across multiple regions,
serves as a solid foundation for further
growth�
2830313640424647 6.0 m t
Home market
5.7 m t
External market
RUSSIA
NLMK
DANSTEEL
NLMK KALUGA
MOSCOW
NLMK URAL
VIZ-STEEL
VTORCHERMET NLMK
2 . 6 m t of slabs
NLMK LIPETSK
ALTAI-KOKS
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
8
wHere we maKe
and marKeT
STeeL
2.4 m t
Home market
0.2 m t
External market
N L M K PE N N SYLVA NIA
S H A R O N CO ATIN G
N L M K IN DIA N A
NLMK LA LOUVIÈRE
NLMK CLABECQ
NLMK STRASBOURG
NLMK VERONA
1.6 m t of slabs
legend
Upstream assets
Rolling assets
BF & BOF operations
EAF
Steel product SaleS
by marKet
m t
16�5
m t
16�5
m t
35% export markets
65% Home markets
36% russia
15%
europe
14%
uSa
USA
2.2 m t
Home market
Steel product SaleS
by region
m t
asia and oceania
0.5
middle east (incl. turkey)
2.2
other regions
1.9
north america 2.8
europe 3.1
russia 6.0
8 annual report 2017
STOILENSKY
4
2 k t o
f
G
O
s
t
e
e
l
INDIA
NLMK INDIA
2 4 618241014
research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
6.0 m t
Home market
5.7 m t
External market
RUSSIA
NLMK
DANSTEEL
NLMK KALUGA
MOSCOW
2 . 6 m t of slabs
NLMK LIPETSK
STOILENSKY
2.4 m t
Home market
0.2 m t
External market
N L M K IN DIA N A
S H A R O N CO ATIN G
N L M K PE N N SYLVA NIA
NLMK LA LOUVIÈRE
NLMK CLABECQ
NLMK STRASBOURG
NLMK VERONA
1.6 m t of slabs
USA
2.2 m t
Home market
NLMK URAL
VIZ-STEEL
VTORCHERMET NLMK
ALTAI-KOKS
INDIA
NLMK INDIA
4
2 k t o
f
G
O
s
t
e
e
l
Intragroup flows of raw
materials in Russia
Slab supplies from
NLMK Lipetsk to NLMK USA
& NLMK Europe
Steel product sales to 3rd
parties in home and export
markets
Share of finiShed
Steel SaleS in
home marKetS
nlmK production
capacitieS
m t
nlmk russia Flat
nlmk russia long
nlmk europe
nlmk uSa
64%
nlmk russia
nlmk europe
nlmk uSa
13.0
3.3
0.3 0.8
17.4
Steel
93%
6.2
3.2
2.9
12.3
100%
flat steel
2.7
long steel
about nlmk 9
nlmk 20172830313640424647
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
10
wHaT we maKe
and marKeT
10 annual report 2017
2 4 68182414 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
NLMK 2017 steel product sales: 16.5 M T
NLMK is a leading supplier
of high-quality steel products
in key sales markets
NLMK has a balanced product mix
that includes semi-finished, high
value added and niche products.
Flat steel accounts for around 80% of
total output, 20% is accounted for by
long steel used in construction.
nlmK SaleS to third partieS (with nbh)
2017 SaleS,
m t
pig iron
Slabs
billets
Hot-rolled coils
long products
thick plates
0.4
2.6
0.7
4.9
2.0
1.2
Cold-rolled coils
2.0
galvanized steel
pre-painted steel
transformer steel
Dynamo steel
metalware
1.4
0.5
0.3
0.3
0.3
16.5
Semi-finished products
Standard products
High value added products
Share in
total SaleS
3 %
16 %
4 %
30 %
12 %
7 %
12 %
9 %
3 %
2 %
2 %
2 %
about nlmk 11
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
10
Our prOducts
SemI-fInISHed
producTS
THIcK pLaTe
HoT-roLLed
STeeL
coLd-roLLed
STeeL
productS
Semi-finished steel products
for further processing:
slabs are processed
into flat steel products;
billets are processed into
long steel products.
A wide range of semi
products, both standard
and niche products
with specific chemical
composition, physical
properties and dimensions.
Flat steel products. A range
of standard products and
niche abrasion-resistant
and high-strength plates.
Produced at NLMK Group’s
European plants from slabs
supplied by NLMK Lipetsk.
Flat steel products that
have been hot-rolled.
Flat steel products that
have been cold-rolled
A wide range of hot-rolled
steel in sheets and coils with
a variety of performance
characteristics.
A wide range of cold-rolled
steel sheets and coils with
a variety of performance
characteristics, including
niche high ductility products.
Share of
total SaleS
23 %
7 %
30 %
12 %
conSuming
SectorS
Steelmaking, pipe industry.
Lifting and transport
equipment, offshore
wind power engineering,
drilling platforms,
shipbuilding, pipelines,
boilers, tanks for aggressive
environment (pressure,
temperature, load, etc.).
Pipe industry, steel structures,
shipbuilding, machine
building, high-pressure
vessels, yellow machinery,
commercial, residential and
infrastructure construction.
Automotive manufacturing,
machine building, pipe
industry, yellow machinery
and white goods,
commercial, residential and
infrastructure construction.
SiteS
nlmK lipetsk
nlmK dansteel
nlmK lipetsk
nlmK lipetsk
nlmK Kaluga
nlmK clabecq
nlmK la louvière
nlmK la louvière
nlmK verona
nlmK indiana
nlmK pennsylvania
nlmK pennsylvania
marKet
Share*
Global market
23 %
European market
9 %
Russian market
12 %
Russian market
31 %
12 annual report 2017
* nlmk’s share in apparent consumption.
2 4 68182414 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
Key factS and figureS
balanced product mix
consumers in home markets
nlmK’s position in the global market
nlmk’s product portfolio includes semi-
finished products, as well as rolled steel
with standard properties and unique
products.
our key customers in all our markets
are the construction and the machine
building industries, including automotive
manufacturers, as well as the wind energy
sector, shipbuilding and yellow goods
manufacturers in europe. In russia, we
also supply our products to the pipe sector.
nlmk is one of the 20 largest steel
producers in the world. the Company sells
steel to 70 countries around the world.
nlmk holds around 23% of the global slab
market and is one of the world’s largest
producers of transformer steel.
coaTed
STeeL
eLecTrIcaL
STeeL
LonG
producTS
meTaLware
Galvanized and pre-painted steel
from hot-rolled and cold-rolled
steel.
Available in coils, strip and sheets.
Dynamo (non-grain-oriented)
and transformer (grain-oriented)
electrical steel. Includes a range
of standard products with
ordinary properties, and unique
high-permeability steel.
Available in coils, strip and sheets.
Rebar in rods and coils, wire rod,
sections.
A wide range of low-carbon
metalware. This includes wire
and secondary products, with
various coatings and surface
finishes, nails, fasteners.
12 %
3 %
12 %
2 %
Automotive manufacturing, yellow
and white goods, construction,
facing materials.
Electrical machines,
transformers, power engineering,
instrument making.
Construction.
Construction, machine building.
nlmK lipetsk
nlmK lipetsk
nlmK Strasbourg
viZ-Steel
nlmK ural
nlmK Kaluga
nlmK metalware
Sharon coating
Russian market
21 %
galvanized steel
21 %
pre-painted steel
Russian market
18 %
rebar
Russian market
20 %
metalware
Russian market
74 %
dynamo steel
~100 %
transformer steel
about nlmk 13
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
14
nLmK Group’S
buSIneSS modeL
A flexible and well-balanced business model secures
industry leadership for NLMK Group.
VALuE cHAIN
Up to 100% of resource needs covered by the previous link in the chain
S
r
e
i
l
p
p
u
S
UPSTREAM
MIDSTREAM
DOWNSTREAM
CONSUMERS
iron ore
Stoilensky
bf/bof
SteelmaKing
nlmk lipetsk
Scrap
vtorchermet nlmk
eaf
nlmk russia long
nlmk uSa
nlmk europe
coKe
altai-koks
nlmk lipetsk
limeStone
and dolomite
Stagdok
dolomit
nlmK russia
flat
nlmK russia
long
nlmK europe
plate
nlmK europe
Strip
nlmK uSa
14 annual report 2017
2 4 68182410
research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
upstrEAm
The status of one of the most cost-
efficient steelmakers in the world
is achieved through a world-class
resource base with leading-edge
technology for mining and processing,
an optimal process environment and
the professionalism of the NLMK team.
Up to 100% of raw
materials produced
are used in the steel
production stage further
along the value chain.
impact of vertical integration
on reduction in caSh coSt per
1 tonne of Steel in 2017
$/t
321
71
250
nLmK advanTaGeS
j iron ore production
j captive electric energy
is generated primarily through the
recovery of by-product gases from
coke and blast furnace operations.
j captive production of coKe
guarantees NLMK high-quality coke
products, which boosts the efficiency
of operations further along
the value chain.
Stoilensky is one of the most efficient
iron ore producers in the world,
located 250 km from the Group’s
main production facility in Lipetsk.
Stoilensky’s iron ore reserves are
upward of 5 billion tonnes, concentrate
cash cost is ca. $12 per tonne.
j nlmK’S Scrap collection
and proceSSing networK
NLMK’s scrap collection and
processing network is the largest
in Russia and secures stable
delivery of scrap to NLMK Group’s
Russian steelmaking facilities.
Self-Sufficiency
in Key reSourceS
iron ore concentrate
production coSt in 2017*
100
92
86
$/t
%
53
76
Cash cost of lipetsk
slabs
Impact of verti-
cal integration
Consolidated cash
cost of nlmk steel
electricity
Scrap
Coke
pellets
Iron ore
concentrate
IrON OrE
prOductION
m T
17.1
InCludIng 6 m t
of pelletS
S
e
r
u
g
i
f
d
n
a
S
t
c
a
f
7
1
0
2
cOKE Output
m T
6.9
exCeedS 100% of
nlmk lIpetSk’S
needS
prOductION cOst
Of IrON OrE
cONcENtrAtE
$12
per Tonne
70
60
50
40
30
20
10
0
0
7
1
0
2
n
i
t
n
e
m
p
o
l
e
v
e
d
100
200
300
400
500
cumulative capacity, m t
pelletIzIng plant
reaCHed ItS deSIgn CapaCIty of
6
mTpa
* Source: bloomberg
about nlmk 15
nlmk 20172830313640424647
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
14
mIdstrEAm
Leading-edge equipment and finely
tuned business processes enable
the production of high-quality
cost-efficient steel products.
NLMK Group’s steel production
capacity exceeds 17 million tonnes per
year, 95% of which is made in Russia.
nlmK Steel production
(by type)
17�1
m t
80% boF
20% eaF
nlmK Steel production
(by region)
94% russia
4% uSa
2% europe
17�4
m t
nLmK advanTaGeS
j high capacity utiliZation
j coSt leaderShip
NLMK is among the global leaders
in cost. Over the past five years,
the Company has consolidated its
leadership: the gap between NLMK’s
production cost and the industry
average has increased from 25% to 36%.
NLMK Group enjoys sustainable cost
leadership through its unique business
model that ensures high utilization
rates, efficient vertical integration
and upgraded production capacities.
The production cost of Lipetsk steel in
2017 was $250 per tonne, compared to
an industry average of $390 per tonne.
j SaleS vS. further
proceSSing
77% of NLMK steel is processed into
finished products, 23% is sold as
semi-finished steel. NLMK produces
both flat and long steel products,
and our reputation as a reliable
supplier ensures stable demand for
the Group’s product offering.
An expansive product offering and
rolling facilities located in the regions
of consumption, i.e. in Russia, Europe
and the United States, enable NLMK to
maintain a high-capacity utilization
rate of 98% throughout the cycle.
j optimal logiSticS
Production facilities located in
regions with developed infrastructure
and proximity to raw material
sources lowers outlay on logistics
as well as related risks.
Slab SupplieS to SubSidiarieS
and affiliateS
m t
2.85
4.07
3.83
3.96
4.21
17.1
stEEL
prOductION
m T
(wITH
nbH)
98%
NLmK GrOup
stEELmAKING
cApAcIty
utILIzAtION rAtE
$250
pEr tONNE
sLAb cAsH
cOst Of tHE
lIpetSk SIte
S
e
r
u
g
i
f
d
n
a
S
t
c
a
f
7
1
0
2
2013
2014
2015
2016
2017
7
1
0
2
n
i
t
n
e
m
p
o
l
e
v
e
d
90%
Of bLAst furNAcE cApAcItIEs
ArE EquIppEd wItH tHE
puLVErIzEd cOAL INjEctION
(pcI) tEcHNOLOGy. GuArANtEE
tEsts Of pcI systEms At bLAst
furNAcEs NO. 6 ANd 7 cOmpLEtEd
16 annual report 2017
2 4 68182410
research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
dOwNstrEAm
nLmK advanTaGeS
j diverSification of SaleS
Finished products are made locally
for the Company’s strategic markets
of Russia, the EU and the USA,
in close proximity to consumers.
With a total production capacity of
finished products in excess of 15
million tonnes, NLMK can process
as much as 90% of captive crude
steel at its own rolling facilities.
j high quality
The use of captive raw materials in
rolled steel production guarantees
high quality and short lead times.
The Company’s products are certified
to international standards.
j balanced product
portfolio
The Group can satisfy
up to 100% of internal
demand for slabs from its
main steelmaking facility
in Lipetsk.
NLMK’s extensive steel product offering,
from standard types of hot-rolled steel
to custom electrical steels and other
niche products, allows the Company to
diversify sales by sector, reducing the
dependency for sales volume on demand
fluctuations in individual sectors.
An expansive geographical breakdown
of sales and a flexible marketing
policy create a global footprint, with
the agility to divert sales of steel
products to the most attractive market,
ensuring full utilization of production
capacity throughout the value chain.
j optimal production
footprint
Due to the location of NLMK Group’s
rolling operations in strategic markets,
65% of steel is sold in the region where
it was produced. This allows the
Company to meet the customers’
most challenging delivery
timescales and respond rapidly
to local demand fluctuations.
nlmK’S rolling
capacitieS
downStream
capacity breaKdown
15�0
m t
60% (8.96 m t) russia:
nlmk lipetsk (HrC)
nlmk russia long
21% (3.16 m t) europe:
DanSteel
nbH (HrC + plate)
19% (2.9 m t) uSa:
nlmk uSa (HrC)
15�0
m t
12.3 m t Flat steel
2.7 m t long steel
12.8 m T
+11%
fINIsHEd stEEL Output
(wItH NbH)
GrOwtH IN sALEs tO
HOmE mArKEts Vs. 2013
SaleS to more tHan
70 CountrIeS around
tHe World
S
e
r
u
g
i
f
d
n
a
S
t
c
a
f
7
1
0
2
82%
fLAt stEEL
18%
LONG stEEL
7
1
0
2
n
i
t
n
e
m
p
o
l
e
v
e
d
NLmK usA: SHaron CoatIng
re-Started ItS no� 2 Hot-dIp
galvanIzIng lIne WItH a
CapaCIty of approxImately
226 k
TONNES
PER yEAR
WItH tHe re-launCH of
tHe SeCond lIne, SHaron
CoatIng’S effeCtIve
CapaCIty InCreaSed by 43%�
about nlmk 17
nlmk 20172830313640424647
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
18
nLmK’S
InTeGraTed
proceSS
envIronmenT
Over the past decade, NLMK has
transformed from a local steel
producer into a global steel company
with control over every production
stage, from raw materials extraction to
the sale of HVA products to consumers.
NLMK Group is an integrated
process environment that stretches
from the Urals in Russia to
the Great Lakes in the USA.
All our facilities across
the globe share common
values and work for
a common goal.
NLmK russIA
upSTream
producTIon
SITeS:
Stoilensky
Dolomit
Stagdok
funcTIonS:
Covers the group’s
demand for raw
materials
producTS:
Iron ore concentrate,
pellets, sinter ore,
limestone, dolomite
HeadcounT:
7,000
peopLe
producTIon:
Iron ore
m T
(0 % yoy)
17.1
fLuxeS
revenue:
$ 944
m
(+58 % yoy)
ebITda:
$ 642
m
(+102 % yoy)
SToILenSKy compLeTed
STaGe 2 of ITS HIGH preSSure
GrIndInG roLLS (HpGr)
projecT aT ITS benefIcIaTIon
pLanT. IT wILL add a ToTaL
of abouT 1.8 m T of capacITy,
and ToGeTHer wITH oTHer
InITIaTIveS wILL enabLe
THe company To brInG
concenTraTe ouTpuT up
To 17.4 m T pa by 2018.
InveSTmenTS:
SaLeS:
6.3
m T
(–1 % yoy)
$ 116
m
(–47 % yoy)
Iron ore concenTraTe: 9�6 m t
peLLeTS: 6 m t
SInTer ore: 1�5 m t
LImeSTone: 3�7 m t
(78% to the Lipetsk site)
doLomITe: 2�3 m t
(73% to the Lipetsk site)
conSumerS:
InTernaL: nlmk lipetsk
exTernaL: steelmakers, road construction,
agriculture
18 annual report 2017
2 4 68241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
nLmK ruSSIa fLaT
producTIon
SITeS*:
nlmk lipetsk
vIZ-Steel
altai-koks
HeadcounT:
ToTaL revenue:
30,500
peopLe
$ 7,659
m
(+37 % yoy)
funcTIonS:
Steel production,
including semis for
international divisions,
and flat products
producTS:
Coke, pig iron, slabs,
hot-rolled steel, cold-
rolled steel, galvanized
steel, pre-painted steel,
grain-oriented and
non-grain oriented steel
producTIon
capacITIeS:
STeeL
13.0
m T
fLaT
producTS
m T
6.2
ebITda:
$ 1,722
m
(+28 % yoy)
InveSTmenTS:
$ 422
m
(+40% yoy)
producTIon:
STeeLmaKInG capacITy uTILIzaTIon:
InTra-Group SaLeS:
coKe: 6�9 m t (+0 % yoy)
SuppLIeS To
nLmK uSa:
1�6 m t (+25 % yoy)
SuppLIeS To
nLmK europe:
2�6 m t (-2 % yoy)
pIG Iron: 12�8 m t (+1 % yoy)
STeeL: 13�2 m t (+2 % yoy)
commodIT y SemIS:
6�7 m t (+3 % yoy)
fInISHed STeeL:
5�9 m t (+1 % yoy)
100%
conSumerS:
InTernaL: international divisions
exTernaL: construction, pipe
production, automotive industry, machine
building, white goods, yellow machinery,
instrumentation engineering, power
industry, and other sectors
* Hereinafter, current capacities are based on current shifts and product mix
SaLeS of fInISHed
STeeL To exTernaL
conSumerS IncreaSed
by 4% yoy To 5.8 m T,
THeIr SHare In ToTaL
SaLeS waS 66%
SaLeS To exTernaL cuSTomerS:
commodIT y pIG Iron: 0�4 m t (+18% yoy)
SLabS: 2�5 m t (-4% yoy)
HoT-roLLed STeeL: 2�7 m t (+2% yoy)
coLd-roLLed STeeL: 1�4 m t (-2% yoy)
GaLvanIzed STeeL: 0�7 m t (+15% yoy)
pre-paInTed STeeL: 0�4 m t (-12% yoy)
nGo STeeL: 0�3 m t (+5% yoy)
Go STeeL: 0�3 m t (+5% yoy)
exTernaL SaLeS GeoGrapHy:
russia (51% of sales), turkey, latin
america, the european union, north
america, middle east, the CIS
about nlmk 19
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
18
nLmK ruSSIa LonG
producTIon
SITeS:
Scrap collecting facilities
nlmk vtorchermet
nlmk ural
nlmk kaluga
nlmk metalware
funcTIonS:
processes scrap for the
group’s steelmaking
capacities in russia
long products and
metalware production
producTS:
Scrap, billets, rebar,
wire rod, sections,
metalware
HeadcounT:
ToTaL revenue:
8,900
peopLe
producTIon
capacITIeS:
STeeL
m T
3.3
LonG
producTS
m T
2.7
$ 1,794
m
(+39% yoy)
ebITda:
$ 152
m
(+10 % yoy)
InveSTmenTS:
$ 22
m
(+38% yoy)
STeeLmaKInG capacITy
uTILIzaTIon: 92%
conSumerS:
Construction,
machine building
exTernaL SaLeS GeoGrapHy:
russia (54% of sales), the european union, north africa
ToTaL SaLeS of wIre
rod IncreaSed by 60%
yoy To 0.3 m T, drIven by
THe expanSIon of SaLeS
GeoGrapHy. ToTaL SaLeS of
LonG STeeL producTS and
bILLeTS IncreaSed yoy by 6%
To reacH 3 m T
producTIon:
Scrap proceSSInG: 2�3 m t (+11% yoy)
STeeL: 3�0 m t (+5% yoy)
LonG producTS: 1�9 m t (+2% yoy)
meTaLware: 0�3 m t (+4% yoy)
SaLeS To exTernaL cuSTomerS:
bILLeTS: 0�7 m t (+12% yoy)
LonG producTS: 2�0 m t (+4% yoy)
meTaLware: 0�3 m t (+4% yoy)
20 annual report 2017
2 4 68241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
NLmK usA
producTIon
SITeS:
nlmk pennsylvania
nlmk Indiana
Sharon Coating
funcTIonS:
produces flat steel
from slabs supplied by
nlmk lipetsk, as well
as from in-house slabs
producTS:
Hot-rolled steel,
cold-rolled steel,
galvanized steel
SaLeS GeoGrapHy:
100 % of sales in the uSa
HeadcounT:
ToTaL revenue:
1,100
peopLe
producTIon
capacITIeS:
STeeL
0.8
m T
fLaT
producTS
m T
2.9
$ 1,670
m
(+44% yoy)
ebITda:
$ 197
m
(+11% yoy)
InveSTmenTS:
$ 28
m
(+47% yoy)
STeeLmaKInG capacITy
uTILIzaTIon: 81%
THe dIvISIon IncreaSed ITS
fLaT STeeL SaLeS by 21%,
SupporTed by THe GrowTH
of conSumer acTIvITy In THe
uS marKeT
producTIon:
STeeL: 0�6 m t (+11 % yoy)
fLaT producTS: 2�2 m t (+21% yoy)
SaLeS:
HoT-roLLed STeeL: 1�2 m t (+31% yoy)
coLd-roLLed STeeL: 0�5 m t (-9% yoy)
GaLvanIzed STeeL: 0�5 m t (+40% yoy)
conSumerS:
Construction, pipe production, automotive
industry, machine building, white goods
and yellow machinery production
about nlmk 21
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
18
NLmK EurOpE
nLmK europe STrIp
producTIon
SITeS:
nlmk la louvière*
nlmk Strasbourg*
funcTIonS:
produces flat steel
from slabs supplied
by nlmk lipetsk
producTS:
Hot-rolled steel, cold-
rolled steel, galvanized
steel, pre-painted steel
producTIon:
fLaT producTS:
1.4 m t (+6 % yoy)
HeadcounT:
900
peopLe
producTIon
capacITIeS:
fLaT
producTS
1.7 m T
roLLInG
capacITy
uTILIzaTIon:
80%
22 annual report 2017
renaud moreTTI waS appoInTed ceo of nLmK europe STrIp.
He became Head of maInTenance ServIce aT La LouvIère
In 2006, wHIcH aT THe TIme waS parT of nLmK and duferco
jv. He LaTer manaGed coLd-roLLInG operaTIonS and waS
execuTIve dIrecTor aT nLmK La LouvIère.
SaLeS:
HoT-roLLed STeeL: 1.0 m t (+2 % yoy)
coLd-roLLed STeeL: 0.05 m t (-14 % yoy)
GaLvanIzed STeeL: 0.2 m t (–15 % yoy)
pre-paInTed STeeL: 0.1 m t (+3 % yoy)
conSumerS:
SaLeS GeoGrapHy:
Construction industry, pipe
93% of sales in the european union
manufacturers, automotive industry,
machine building, manufacturers
of white goods and yellow goods
2 4 68241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
nLmK europe pLaTe
producTIon
facILITIeS:
nlmk DanSteel
nlmk Clabecq*
nlmk verona*
funcTIonS:
produces plates from
slabs supplied by
nlmk lipetsk, as well
as from captive slabs
producTS:
niche steel semis,
plates, including Quard
and Quend grades
STeeL
0.2
THIcK
pLaTeS
m T
1.5
roLLInG
capacITy
uTILIzaTIon:
78%
HeadcounT:
1,200
peopLe
producTIon
capacITIeS:
In 2017, THe SaLeS of Quard and Quend nIcHe pLaTeS
IncreaSed by 14% yoy To 101,000 T
SaLeS:
pLaTe: 1.2 m t (-1 % yoy)
m T
SaLeS GeoGrapHy:
93% of sales in the european union
conSumerS:
producers of heavy vehicles and loading equipment, offshore wind turbines, drilling rigs,
shipbuilding sector, producers of pipes, boilers, and reservoirs for hostile environment
producTIon:
STeeL: 0.2 m t (+11% yoy)
THIcK pL aTeS: 1.2 m t (-3% yoy)
* part of nlmk belgium Holdings
about nlmk 23
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
24
nLmK producTIon
SySTem
NLMK Production System is a business management
approach based on a combination of processes and
optimization tools, which maximize the use of existing
resources and eliminate losses.
T he key elements of NLMK
Production System are lean
tools, training systems, visual
efficiency control and feedback
loops. The core of the system are
the Company’s employees: their
attitude, behaviour, perceptions and
engagement in processes.
The development and rollout of NLMK
Production System have quickly gone
from strength to strength. Strategic
goals have been defined, a set of
effective tools established and a system
of optimization programmes launched.
Later, more lean tools were adopted,
which the Сompany needed to apply to
the fullest to tackle business challenges
and capture maximum value.
nLmK producTIon
SySTem IS baSed
on THe foLLowInG
prIncIpLeS:
j balanced objectiveS
j SyStematic achievement
of reSultS through
proceSS improvement
j tranSparency and
objectivity of
information, continuouS
improvement
j engagement of
perSonnel of all levelS
in joint problem Solving
j leaderShip Support
TecHnIcaL modeL
empLoyee poTenTIaL
• Goal setting system, medium-term
potential and short-term goals
• KPI system
• Production System tools:
measurement, analysis,
standardization and improvement
tools.
manaGemenT SySTemS
Efficiency management through visual
control systems and feedback loops.
Training and coaching for swift and
sustainable introduction of new working
practices that enable employees
to improve performance.
empLoyee mIndSeT and
beHavIour
• Development of discipline and culture
in the workplace by establishing and
supporting behaviour which promotes
and safeguards transformation results;
• Management engagement: leader role
model, “tone at the top”.
SoLId
performance
• Financial: creating
more value, profitability
increase
• Operational: higher output
with lower operational
costs
• Cultural: “zero failure”
culture aimed at bridging
gaps and eliminating
defects, customized
training and shared best
practices, appropriate
behaviour.
24 annual report 2017
2 4 68181014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
Key factS and figureS
nlmK production System (pS)
Systematic use of a suite of tools and
practices for increasing production
efficiency and engaging personnel in
the continuous improvement process.
initial stage of pS implementation
complete
Strategic goals are established and a set
of efficient tools created based on best
global practices; a system of optimization
programmes is being implemented.
new stage of the production System
nlmk production System began a new
development stage, which aims to involve
each and every employee of the Company
in the process of continuous improvement.
It kicked off with a pilot project at
nlmk kaluga, which has already yielded
results.
development in 2017
Key principles of the new stage of
NLMK Production System development
1. There is always room for
improvement. Even if a lot has
already been done in terms of
operational efficiency, there is
always something in the processes
that can be improved
2. Openness. This is a value of ours
that enables us to maintain our
position in the market. Knowing
about the problems allows us to
address them quickly and to benefit
from the result
3. Employees share the principles of
NLMK PS. Each employee needs to
share our vision of the management
system and the Production System
4. Engagement and responsibility.
Each employee has the right to
know about the goals and the main
priorities of the Company. Each
employee knows what impact
their day-to-day effort has on
the Company’s overall performance,
and has their own area of
responsibility for solving issues.
ImprovemenTS
new actionS
adoption
of individual
tools
new valueS
development
of new beliefs
new habitS
adoption and
development of
methodologies
new culture
establishing
the principles
of continuous
development
in the compa-
ny’s culture
1-2 yearS
3-5 yearS
5-10 yearS
TIme
In the reporting year, NLMK Production
System entered a new development
stage, which aims to involve each and
every employee of the Company in
the process of continuous improvement.
It kicked off with a pilot project
at NLMK Kaluga in collaboration
with DuPont, a leader in the hi-tech
marketplace, covering a wide range
of activities: processes, repairs,
logistics, occupational health and
safety. 2017 saw the first results: more
than 1,500 initiatives (with a total of
1,218 people working at the plant) were
adopted at NLMK Kaluga thanks to
the Production System.
“It is important for us not
just to achieve a financial
impact, but also to establish
a teamwork-based system at our
sites and to build a partnership
between production sites and
the operational efficiency
team. This is the only way for
the Production System to stop
being a collection of projects
and start being a real system.
Our objective for the next
strategic cycle is to engage
people in active participation;
every employee should have
at least one idea. So, in five
years’ time, we should see
a completely different company
with a radically transformed
production culture.”
TaTIana avercHenKova,
vice president, operational efficiency
about nlmk 25
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
24
NLMK KALUGA
PRODUCTION SySTEM
DEVELOPMENT
proceSSeS
Staff engagement in
improvementS, number
of initiativeS
PS
cuLTure
corporate culture,
changeS in mentality
and behaviour
As-WAs: Improvement
initiatives introduced “top-down”
by management, i.e. heads of
shops, heads of operations, and
higher.
As-Is: Focus has shifted — more
than half of the initiatives come
from shop-floor personnel and
middle management.
1,500
InITIaTIveS
SubmItted by
nlmk kaluga employeeS
78%
of empLoyeeS
InTervIewed
are poSItIve about
tHe CHangeS
effecT
economic gainS
from propoSed
initiativeS
As-WAs: Only major upgrade
projects were implemented,
some bringing in up to 70% of
the total gain.
As-Is: The effect is achieved
through hundreds of minor
cost-efficient initiatives. This
way, the overall gains are
higher, and the risk of non-
fulfillment with so many
projects is zero.
10%
of InITIaTIveS
WItH annual gaInS of
more tHan 100,000 rubleS
As-Is: most employees
understand what the PS is
for, take a positive view of the
changes, and participate in
continuous day-to-day process
improvement voluntarily
and consciously, identifying
efficient solutions in their own
workplaces.
CULTURE PROJECTS
• 85% of white collars have been
trained and apply Leader Standard
Work
• System for submitting and
executing initiatives simplified.
• Material and non-material
motivation, and training systems
reviewed
• Cross-functional KPIs developed
and cascaded
• Integrated KPIs introduced to
encourage teamwork
• System of meetings held at
different levels revised
• Document flow simplified.
In 2017, NLMK Production System
moved to a new transformation stage in
the Sinter Plants at NLMK Lipetsk and at
Stoilensky. At the technical diagnostics
stage, NLMK Lipetsk project team
worked out more than 200 measures
with a full-year economic gain of over
2 billion rubles. At 2017 year-end,
29 initiatives were implemented; the
rest will be put into practice in 2018.
Another project is planned for kick-off
for steelmaking operations.
plans for 2018
In 2018, the third wave of the
NLMK Production System development
project kicks off at NLMK Ural,
NLMK Metalware and NLMK Ural
Service.
Consistent development of NLMK
Production System will cover all NLMK
Group companies, creating a culture
of engagement and teamwork, and
taking the Company to a new level of
development. This will be a team of
like-minded people, ready and willing
to tackle any challenge.
We strive to forge
the underlying principles of
the NLMK Production System into
26 annual report 2017
2 4 68181014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
the framework of our corporate
culture. This is the key factor
that will secure the Company’s
competitive edge, and consolidate
our market position. This will not
only unlock the internal potential of
the Company, but also create value for
all our stakeholders: our employees
will be engaged in achieving high
performance results and continuous
development, local communities and
municipalities will stand assured of
the sustainability of our business, and
our shareholders will receive stable
return in the form of dividends.
STAGE 3
MILESTONES
projecT parTIcIpanTS
More than 3,000 employees from NLMK Ural,
NLMK Metalware and NLMK Ural Service
areaS
Culture, processes, logistics, energy,
maintenance, OHS
GeoGrapHy
Nizhniye Sergi, Revda, Beryozovsky
projecT Team
More than 60 employees from NLMK Ural, NLMK
Metalware, NLMK Ural Service, and VIZ-Steel
Team
TraInInG
prIorITy SeTTInG
(technical and cultural diagnoSticS)
InTeGraTIon of nLmK pS
into day-to-day activitieS
mid-july
july-auguSt
auguSt-September
october-february
team
training
43
peopLe
‘mirror SeSSionS’,
firSt reSultS
1,380
peopLe
brainStorming ideaS
for improvement
2,600
peopLe
mentorShip
and line roundS
engagement
in identification
and elimination of loSSeS
feedbacK for colleagueS
and SubordinateS
1,200
peopLe
behavioural
interviewS on the
culture of
production
220
peopLe
KicK-off meetingS
1,380
peopLe
Survey on the culture
of production
1,900
peopLe
about nlmk 27
nlmk 20172830313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
reSearcH
and deveLopmenT
NLMK has a comprehensive approach to innovation
management. We are consistently developing our
product mix, optimizing our production and auxiliary
processes to increase operational efficiency, and
mastering new technologies to boost equipment
productivity. We rely on advanced digital solutions for
cost optimization.
C onventional metallurgy
developed a standard
approach to research.
Emphasis was on production and key
technologies: blast furnaces, steel
smelting, rolling, etc. This approach
has been the driving force behind
advancements in the steel industry
for decades. At the same time another
area has emerged — new materials
production. We need innovation if
NLMK Group is to continue creating
optimal solutions that cover a wide
range of applications. Developing
and improving existing solutions is
not enough — we need something
entirely new. We need materials that
will be the cornerstone of a new
industrial revolution. We need to
develop new products with unique
properties, to improve processes,
and to introduce efficient digital
solutions.
r&d
In 2017, NLMK Group established
a new line of Research and
Development that will support the
Group in corporate R&D projects.
Dr. Bruno Charles De Cooman was
appointed Vice President for Research
and Development.
Priority areas for research and
development:
• High-tech zinc-aluminium-
manganese (ZAM) coatings. These
alloys have incredible corrosion
resistance, they can be used in
the construction and automotive
industries
• New high-strength steel grades for
the automotive industry.
bIG dAtA
In 2017, the company established
its Data Analysis and Modelling
Department. Its main task is to reduce
production costs and to improve the
efficiency of the company’s production
and business processes using modern
analytical methods, machine learning
and optimization algorithms.
In order to solve tasks, accurate data
on various production processes
is needed. A typical task requires
terabytes of data collected over
“Steel companies used to
put emphasis on production
volumes, but now it is vital
to shift focus to consumer
requirements. A number of
global steel companies have
realized this over the last few
decades after undergoing
significant changes. The
competition between steel
producers has become acute.
It is only possible to get ahead
by producing higher quality
products and focusing on
consumer requirements.
Research demands are
constantly changing together
with the market. R&D is not
just building a beautiful
modern building somewhere
in Lipetsk or Belgium simply
so you can proudly show it to
guests. The R&D department
has to be an organic part
of NLMK and make a real
contribution to its financial
success.
We must offer steel products
that will further the success of
our customers’ businesses. This
is the traditional approach of
NLMK.”
dr. bruno cHarLeS de cooman,
vice president, research and
development
28 annual report 2017
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
28
ore, and an increase in the
productivity of the ball mills.
Operating evidence showed that
the technology is very promising.
It enabled a 13% increase in
the production capacity of each
upgraded section of the facility
without additional investment costs
associated with the construction
of new production buildings:
• Labour efficiency has increased
by 30%
• The project created 80 new jobs
• Iron ore concentrate production
capacity increased by 2.0 million
tonnes per year; quartzite
production capacity grew by
5 million tonnes per year
• Savings on electricity total
~$1 million per year
• The project paid off in less than
3 years.
the course of several years. The
total volume of data that has to
be accumulated and processed
throughout the entire Group
can be counted in petabytes.
Around ten Big Data projects are
planned for implementation in the
near future. Expected economic
gains of these projects are estimated
at close to 3 billion rubles.
Andzhey Arshavskiy was appointed
to the role of Director for Data
Analysis and Modelling.
INNOVAtION
IN tEcHNOLOGy cAsE
studIEs
NLMK is implementing innovative
solutions developed either internally
or by bringing in the expertise of
third party R&D contractors.
nlmK and Sap co-innovation
lab caSe Study
NLMK Group created a Co-Innovation
Lab, the first of its kind in the Russian
steel sector, in partnership with SAP.
NLMK Group’s specialists work with
SAP developers and researchers to
develop new solutions in the area
of the Internet of Things, machine
learning, predictive analytics and
production planning systems
In the context of this cooperation,
a pilot 3D positioning system for
shop-floor employees of hot-dip
galvanizing line No.1 has been
developed at NLMK Group’s
Lipetsk site. The system enables
real-time tracking and analysis
of equipment operating mode
changes and employee positioning.
The tracking information, amassed
in a database, is later analyzed to
enhance Operational Health and
Safety (OHS), Human Resource and
contractor management practices.
The system will notify about OHS
risks and eliminate them in advance.
Now the system is being prepared
for full-scale industrial operations.
high preSSure grinding
roller (hpgr) technology
at StoilenSKy
Stoilensky was the first among
Russian mining companies to
introduce the high-pressure grinding
rollers (HPGR) technology.
The project was launched in
December 2013. Two press rolls
with a total capacity of 650 t/h
were installed on each of the four
crushing and beneficiation sections
downstream of the fine crushing
stage. The commissioning work
was completed in Q4 2017 and
the equipment was put into operation.
The modernization process is
based on the introduction of
an additional grinding stage
into the current crushing and
processing flow. The HPGRs
were installed to supplement
the existing cone crushers and
ball mills in the sections of the
beneficiation plant. This enabled
a boost in energy efficiency,
a reduction in the size of crushed
about nlmk 29
nlmk 201730313640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
STraTeGy 2017
strAtEGy 2017
tArGEts:
j net gainS of $1.0 bn
pa vS. 2013 ebitda
j Structural
reduction of annual
capex
j conServative
leverage: net debt/
ebitda of 1.0x
j Stable poSitive free
caSh flow
j dividend paymentS
in accordance with
a reviSed dividend
policy
Strategy 2017 has a modular structure and includes
projects designed to improve the Group’s operating
efficiency and business processes, as well as to increase
self-sufficiency in strategic resources and secure
leadership in strategic markets.
KEy ELEmENts Of strAtEGy 2017:
LEADERShIP
IN OPERATIONAL
EffICIENCy
1
Increased productivity
delivered by an investment
programme and development of
the NLMK Production System.
Target net gain from leadership
in efficiency: $330 million
per year vs. 2013
2
WORLD-CLASS
RESOURCE
bASE
Increased self-sufficiency in key
raw materials and lower
consumption of expensive
resources.
Target net gain from world-class
resource base: $480 million
per year vs. 2013
3
LEADING POSITIONS
IN STRATEGIC
MARKETS
An increase in the share of
HVA products in sales mix
and in NLMK Group’s sales
on its ‘home’ markets, and greater
presence in lucrative segments.
Target net gain from leadership in
strategic markets: $190 million
per year vs. 2013
4
LEADERShIP
IN SUSTAINAbILITy
AND SAfETy
Ongoing initiatives to boost
environmental performance through
fine-tuning production processes
and compliance with the very highest
occupational health and safety
standards, industry leadership
in labour productivity
and occupational training
for personnel.
Strategy 2017
ebitda gainS,
$ m
reLaTed documenTS:
• Strategy 2017 announcement,
february 2014 presentation
• Strategy page, website
• Strategy 2017 results release
1,000
330
480
190
1,019
523
384
111
target
result
30 annual report 2017
1
Leadership
in operational
efficiency
base
2 world-class resource
3 Leadership
in strategic markets
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
30
31
STraTeGy
2017 reSuLTS
report of tHe board of dIreCtorS on tHe Company’S prIorIty development areaS
“NLMK Group has successfully completed this strategic
cycle. Over these past years, we have consolidated
NLMK’s leadership as one of the most efficient steel
companies in the world.”
“Last year’s results showed net gains
from Strategy 2017 projects exceed
$1 billion, with over 70% generated by
operational improvement initiatives.
This was not driven by the markets or
pricing, this came about through the
Group’s structural transformation.
Over the last five years, we
implemented over 100 investment
projects and over 3,000 operational
efficiency projects.
“We’ve grown steel output to an all-
time high, while boosting profitability.
Decreased leverage and structural
increase in profitability enabled higher
dividends. This would not have been
possible without concerted effort
of NLMK Group’s employees, all of
our 55,000 people, working towards
a common goal across 12 time zones.
One of the most important outcomes of
Strategy 2017 is clearly a step forward
in developing NLMK as a single and
committed team.
“NLMK has regained its leadership
among Russian peers in terms of
market value, and I am grateful to our
shareholders for their trust.
“2018 sees the beginning of a new
five-year strategic cycle. NLMK’s
technology, the quality of our team,
the scale of our business and, most
importantly, the unique potential for
growth and efficiency our company
enjoys within the industry will open up
many new opportunities.”
oleg bagrin
president and Ceo of nlmk group
(Chairman of the management board)
KEy AcHIEVEmENts
Of strAtEGy 2017
STraTeGy 2017 TarGeT of
$1 bILLIon annuaL ebITda GaInS
HaS been acHIeved*:
STrucTuraL annuaL ebITda**
GaIn amounTed To $1,019 mILLIon
operaTInG effIcIency
proGrammeS conTrIbuTed
around $740 mILLIon (over 70%)
To THe reSuLT.
addITIonaL GaInS of around
$160 mILLIon In 2018 expecTed To
come from recenTLy compLeTed
InveSTmenT projecTS.
fuLL SeLf-SuffIcIency In Iron
ore and peLLeTS HaS been
acHIeved wITH poSITIve npv of
THe InveSTmenTS.
nLmK SaLeS Grew faSTer THan
reSpecTIve marKeTS acroSS aLL
THe Group’S dIvISIonS.
Structural profitability growth
ebItDa ($ bn)
ebItDa margin (%)
23%
2.4
14%
1.5
24%
25%
1.9
1.9
26%
2.7
1.0
1.7
Strategy 2017
gains
2013
2014
2015
2016
2017
* nlmk group results are presented with nbH for the 2014-2017 period
** See the glossary on p. 46
about nlmk 31
nlmk 2017283640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
1 GLObAL LEADERShIP
IN EffICIENCy
Target: cost reduction and growth
in productivity
Enhancing operational efficiency is an
ongoing process, which encompasses
all of the Group’s operations and
stages of production. Over the past
four years, we have implemented more
than 3,000 efficiency enhancement
initiatives, which required zero or
minimal capex.
Structural EBITDA gain of $523 million
per year, or 158% of the declared
target. This has led to a reduction in
the production costs and an increase in
productivity:
• Maintained cost leadership:
2017 cash cost per tonne of steel
decreased by 12% from 2013 level
(at constant prices). This secured
NLMK’s global cost leadership in
the sector with cost advantage vs.
industry average widening from
25% in 2013 to 36% in 2017
• Increased productivity: NLMK
increased steel output by 0.8 million
tonnes (+6%), HRC output grew
by 0.5 million tonnes (+9%) per
year from the 2013 levels through
the use of best practices
• Increased efficiency of auxiliary
operations (energy, logistics,
procurement) driven by the rollout
of NLMK Production System
resulted in additional gains of
$228 million.
STrucTuraL ebITda GaIn of
$523 mILLIon per year, or 158%
of THe announced TarGeT
operational efficiency
projectS
3,050
2,450
1,817
1,310
236
2013
2014
2015
2016
2017
nlmK group equipment
productivity growth
in 2013-2017
15%
m t
2�0
14�0
9%
6%
1�0
0�8
11�8
12�4
pig iron
boF steel
Iron ore
concentrate
gain
2013 base
9%
0�5
5�4
HrC
(nlmk
russia)
caSe STudy
90%
Of NLmK bLAst furNAcE
cApAcIty cOVErEd by
rEsOurcE-sAVING pcI
32 annual report 2017
90% Of NLmK bLAst furNAcE cApAcIty
cOVErEd by rEsOurcE-sAVING pcI
this technology involves co-injecting natural gas and fine
coal particles into the blast furnace, resulting in reduced
coke consumption. replacing expensive raw materials
with cheaper alternatives, such as switching from coking
coal to steam coal, reduces the cost of pig iron production
by approximately 5%. this will enable a 30% decrease in
the consumption of expensive coke; and a 50% reduction in
the consumption of natural gas.
the pCI project was executed at blast Furnace Shop
no. 2 in two stages. Starting from may 2017, the
technology was tested at blast Furnace no. 6, and then
at blast Furnace no. 7 starting from June guarantee
tests confirmed that both blast furnaces have reached
a pCI level of 160 kg/t of pig iron. previously, this
resource-saving technology was introduced at blast
Furnace no. 5 (2.7 million tonnes per year) and blast
Furnace no. 4 (1.8 million tonnes per year).
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
iN actioN
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
31
2 WORLD-CLASS
RESOURCE bASE
Target: greater self-
sufficiency in key raw
materials and lower
consumption of expensive
resources
Structural EBITDA gain of $384 million
per year:
• Over 50% of this result was
delivered by the new pelletizing
plant reaching its design capacity
(commissioned in November
2016) and an increase of iron ore
concentrate output at Stoilensky
• Reduced consumption of
expensive resources through
new technologies introduced
at NLMK Lipetsk: total energy
consumption reduced by 6%, coking
coal consumption – by 14%, and
natural gas consumption – by 26%.
caSe STudy
INtrOductION Of HIGH
prEssurE GrINdING rOLLs
(HpGr) tEcHNOLOGy,
$9
mILLION pEr
yEAr IN currENt
prIcEs
STrucTuraL ebITda GaIn
of $384 mILLIon per year
In 2014-2017
Additional carry-over effects
from Strategy 2017 resource
projects of $160 million are
expected in 2018. In particular:
• NLMK will increase output
of iron ore concentrate to
17.5 million tonnes per year
• Coke consumption is set to decrease
further with the ramp-up of PCI
systems at NLMK Lipetsk.
reSource conSumption at nlmK lipetSK,
2017 vS. 2013
total fuel*
energy
Coking coal
natural gas
-2%
-6%
* per tonne of Fe containing materials in blast furnace operations
-14%
-26%
NLmK GrOup INcrEAsEs IrON OrE
cONcENtrAtE Output by 0.8 mILLION tONNEs
nlmk group has commissioned four more high-pressure
grinding roll (Hpgr*) units, boosting productivity of Stoilensky’s
beneficiation plant by 0.8 million tonnes of iron ore concentrate
to 17.4 million tonner per year. as a result, Stoilensky has
now covered 100% of the group’s blast furnace needs in iron
ore concentrate with a Fe content of over 65%. Investment
amounted to rub 4.5 billion.
nlmk began implementing Hpgr technology, unparalleled in
russia, in 2016. this project to implement Hpgr’s at the four
sections of the beneficiation plant will add a total of about
1.8 million tonnes of capacity, and together with our other
initiatives will enable nlmk to bring concentrate output up to
17.4 million tonnes per year by 2018.
* See the glossary on p. 46
about nlmk 33
nlmk 201728303640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
3 LEADERShIP IN STRATEGIC
MARKETS
Structural gain of $111 million per
year, or 58% of the target level. Gains
fell short of the target level due to the
slump in the Russian steel market in
2014-2016, which was partly offset by:
• Sales hitting an all-time high
of 16.5 million tonnes in 2017,
climbing for the fourth year running
(+11% vs. 2013)
• Sales in NLMK Group’s home
markets of Russia, the EU, and
the USA grew by 12% vs. 2013 to
10.7 million tonnes. Sales growth by
the Group’s divisions significantly
outperformed steel consumption
growth in its home markets.
The share of home markets in total
sales grew to 65% in 2017
• Sales of finished products increased
by 17%, from 10.9 million tonnes in
2013 to 12.8 million tonnes in 2017.
breaKdown of Steel product
SaleS
14.9
5.3
1.8
1.9
5.8
16.5
5.9
2.2
2.4
+10% export
markets
uSa
eu
+12% home
markets
6.0
russia
2013
2017
STrucTuraL ebITda
GaIn of $111 mILLIon
per year
4 LEADERShIP
IN SUSTAINAbILITy
AND SAfETy
nlmK group labour
productivity
t of steel/person
22%
308
283
13%
268
252
7%
27%
321
2013
2014
2015
2016
2017
labour productivity, t/person
gain vs. 2013, %
Leadership in sustainability and safety
is a priority area for NLMK Group.
• Lost Time Frequency Rate (LTIFR*)
declined by 53% to 0.97 vs. 2013 for
the Group, and by 41% to 0.51 for
the Russian operations
• Specific air emissions were reduced
by 6% to 20.5 kg/t vs. the 2013
level
• Employee productivity grew by
29% vs. 2013, driven by process
automation and increased output.
34 annual report 2017
reduction of Specific air
emiSSionS (nlmk’s russian
operations)
nlmK ltifr*
21.9
21.1
20.9
20.8
20.5
2.03
0.83
1.55
1.12
0.55
0.43
0.97
0.51
0.82
0.34
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
nlmk group
nlmk russia
* See the glossary on p. 46
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
iN actioN
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
31
Key factS and figureS:
Strategy 2017 gains
Strategy effects in 2018
Strategy 2017 delivered structural annual
ebItDa gain of $1,019 million. operational
efficiency programmes contributed around
$740 million (over 70%) to the result.
the Company expects additional gains of
around $160 million in 2018 generated by
recently completed investment projects.
Key objectives of Strategy 2022 defined
a balanced combination of long-term
growth projects, further enhancement of
operational efficiency and integration of
innovative solutions.
strAtEGy 2017 rEsuLts
IN 2018
KEy ELEmENts
Of strAtEGy 2022
The Company expects additional gains of around $160 million in
2018 generated by recently completed investment projects.
expected gainS of Stategy 2017
$ m
160
1,019
279
740
1,179
439
740
2014–2017 gains
expected 2018
gain from
investments
expected
2014–2018 gain
gains from operational efficiency improvement
gains from capex projects
Strategy 2022, the next phase
in the development of the
Company that is currently
being developed, will be
announced in 2018.
This new phase of NLMK’s strategy will involve
a balanced combination of long-term growth
projects, further enhancement of operational
efficiency and integration of innovative
solutions. The Company remains dedicated to
excellence in safety and sustainability.
A new important element of the new strategic
cycle is digital innovation. At the same time,
digitalization is not a goal in itself, but rather
a tool for achieving the Company’s strategic
objectives. The Company has set up several
Centers of Excellence: the Big Data Lab and
the SAP Co-Innovation Lab.
Strategy 2022 aims to maintain a balance
between investment in growth projects,
a conservative financial policy and high returns
to NLMK shareholders. The Company will
maintain the current level of dividend payments
at a conservative debt leverage of Net debt/
EBITDA in the range of 1.0-1.5x.
about nlmk 35
nlmk 201728303640424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
Key performance
IndIcaTorS
busINEss mOdEL EffIcIENcy
STeeLmaKInG capacITy
uTILIzaTIon
Utilization rate of crude steel
production capacities
STeeL producT SaLeS
SLab caSH coST
Total sales of steel products
to external consumers of all
NLMK Group facilities
Consolidated cash cost for slab
production at NLMK Lipetsk
%
m t
95
95
95
93
98
16.5
$/t
348
15.9
15.8
283
250
206
194
15.1
14.8
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2017 targets met
Steel product sales growth secured
Leadership in cash cost sustained
and reinforced
2017 commentS
Thanks to efficient sales portfolio
management and an advantage
of low-cost production, NLMK
managed to ensure high utilization
rate of steelmaking capacities
Sales reached a record 16.5
million tonnes (+3%) in 2017,
driven by recovering demand in
NLMK’s home markets of Russia,
Europe and the USA, and growing
demand in export markets
Slab cash cost at NLMK Lipetsk
grew by 29% to $250 per tonne in
2017 due to a surge in prices for
main raw materials. NLMK was
able to retain its cost leadership
despite the growth of raw material
prices
2018 trendS
Utilization rate of
steelmaking capacities
at all NLMK Group’s
facilities will remain high,
with production level
maintained
NLMK Group plans to keep
its sales volume at the
2017 level
Higher self-sufficiency
in iron ore will have
a positive impact on
the cash cost of steel
36 annual report 2017
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
36
fINANcIAL pErfOrmANcE
ebITda
ebITda marGIn
neT profIT
Profit before taxes, interest
and depreciation received from
NLMK Group’s core businesses
Profitability of the Company’s
operations before interest, taxes and
depreciation
NLMK Group’s profit after income
and expense. One of the elements
used to determine dividend
payments
$ bn
1.5
2.4
1.9
1.9
%
2.7
14
23
24
25
26
1.5
1.0
0.9
0.8
$ bn
0.1
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2017 targets exceeded by 40%
2017 targets exceeded
Not applicable
2017 commentS
Strong profit in 2017 was largely
driven by higher sales margins
and Strategy 2017 gains
An increase in EBITDA margin
was supported by wider price
spreads and structural gains
from operational efficiency
improvement programme
A 55% increase in net profit was
driven by higher profitability of
core businesses
2018 trendS
In 2018, we expect to retain the high level of financial performance achieved in 2017
about nlmk 37
nlmk 201728303140424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
fINANcIAL pErfOrmANcE
free caSH fLow
neT debT / ebITda
dIvIdendS
Net cash flow after investment and
interest payments refers to cash that
the Company can use to strengthen
liquidity, repay liabilities, pay
dividends, or for other corporate
needs
The Company’s financial debt
adjusted for the value of liquid
assets, and then divided by EBITDA,
characterizes the Company’s debt
leverage. Used as a trigger to
determine the share of dividends
to be paid. NLMK Group’s target
indicator stands at 1.0x
$ bn
0.5
1.2
1.1
1.0
1.3
1.9
Cash paid to shareholders according
to the Company’s dividend policy
and based on its financial situation
and prospects for development
%* FCF**
21%
26%
65%
$ bn
84% 115%
1.45
0.92
0.64
0.7
0.6
0.4
0.3
0.30
0.12
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017e
Target – positive cash flow –
achieved
Debt leverage does not exceed
target values
In line with NLMK’s dividend
policy
2017 commentS
Consistently high free cash flow
is secured by substantial profit,
conservative capex policy and low
cost of debt servicing
Thanks to a substantial free cash
flow, net debt/EBITDA ratio is
maintained below the target set
out in Strategy 2017
Thanks to a stable financial
position and the growth of free
cash flow, dividend payments
increased by ca. 58% to
$1.45 billion
2018 trendS
Structural profitability
growth, stable capex level
create conditions for a
positive free cash flow
The level of debt leverage
is expected to remain
below 1.0-1.5x target
The Company will adhere
to its dividend policy,
excess liquidity will be
returned to shareholders
in the form of quarterly
dividends
38 annual report 2017
* Share of free cash flow (FCF)
** FCF = free cash flow
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
36
sustAINAbILIty pErfOrmANcE
Labour producTIvITy
LTIfr*
SpecIfIc aIr emISSIonS
Tonnes of crude steel per employee
Lost time injury frequency rate
across NLMK Group
All types of air emissions (gases,
dust, etc.) per tonne of crude steel
t/person
268
283
252
321
308
2,02
2,03
● Industry average
● nlmk group
kg/t
21.9
1,21
0,97
21.1
20.9
20.8
20.5
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Labour productivity continues to
grow
Rates below global industry
average
Emission level lower than last year
2017 commentS
Growth in labour productivity
in 2017 was driven by increased
operational efficiency
2018 trendS
Operational efficiency
improvement programme
and facility upgrades
will ensure productivity
growth
* See the glossary on p. 46
Group LTIFR was maintained
at below the industry average
thanks to management’s
operational safety improvement
initiatives
Consistent reduction of air
emissions thanks to environmental
initiatives, and investments
in environmental projects and
better environmental safety
standards
The Company targets a
reduction in Group LTIFR
to 0.85 or lower
Reduction of specific
emissions by 0.1 kg/t of
steel vs. 2017
about nlmk 39
nlmk 201728303140424647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
marKeT
revIew
Global steel production
grew by 5% in 2017
to 1.69 billion tonnes;
global average capacity
utilization was 71.8%,
according to Worldsteel
Association.
Global steel market was on the
rise in 2017 after a slowdown in
consumption in 2015-2016
Steel production in China (50% of
global steel output) increased by
5% up to 845 million tonnes. Global
apparent steel consumption grew by
5% yoy to 1,587 billion, and by 8%
yoy to 737 million tonnes in China.
Steel consumption in developed
countries grew by 2.8%. At the same
time, export from China reduced by
31% yoy to 76 million tonnes, driven
by the recovery of domestic demand
for steel in China and a nationwide
campaign to close inefficient
steelmaking capacity. As a result,
as much as 115 million tonnes of
steelmaking capacity was closed in
China in 2016–2017.
us mArKEt
Eu mArKEt
russIAN mArKEt
Steel production in the US increased
by 4% to 82 million tonnes in 2017,
capacity utilization was 74%.
Steel consumption increased by
6% in 2017 to 98 million tonnes,
driven by growing demand from the
construction, automotive, and oil and
gas sectors. Import of steel products
increased by 15% to 34 million tonnes,
while exports increased by 7% to
9 million tonnes.
Steel production increased by 4% to
168 million tonnes.
Apparent consumption of steel in
the EU in 2017 grew by 3% yoy to
162 million tonnes, driven by stronger
demand from the construction,
machine building and pipe sectors.
Import of flat and long steel reduced
by 1% to 26 million tonnes; export
reduced by 3% to 23 million tonnes.
An uptick in demand was also seen
among “green energy” customers, i.e.
manufacturers of windmills and power
equipment.
Apparent consumption of finished
steel grew by 5% in 2017, against
a backdrop of economic recovery.
Steel output in Russia in 2017
increased by 1% to 70.6 million tonnes,
while imports of rolled steel grew by
47% to 6.3 million tonnes and exports
by 5% to 14.4 million tonnes.
40 annual report 2017
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
40
Key factS and figureS
global steel production
regional trends
production increased to 1.69 billion tonnes
(+5%) (above the 2014 peak value of
1.66 billion tonnes). global steelmaking
capacity utilization increased to 71.8%.
Continued growth of protectionism.
Demand in the group’s home markets
(russia, the uS and the eu) continued to
increase, supported by economic growth.
Slowdown of exports from china
and price trends
growth of domestic demand, trade
restrictions and closure of excess capacity
led to a downturn in exports. prices for
steel and raw materials continued to grow
in 2017.
global Steel production
bn t
regional breaKdown of Steel
production
1.64
1.66
1.62
1.63
1.69
%
China 50
asia w/o China
19
eu-28
10
chineSe exportS
m t
62
112
109
94
76
2013
2014
2015
2016
2017
north america
russia
South america
other european countries
middle east
7
5
4
3
2
2013
2014
2015
2016
2017
Source: bloomberg
prIcE trENds
global priceS
Source: metal bulletin, Sbb
Global average prices for coal and ore
grew by 26% yoy and by 22% yoy,
respectively, driven by the growth of
global demand for steel and supply
balance recovery. Average steel product
prices grew by 15–35% vs. 2016, amid
the reduction in export supplies from
China.
$/t
700
600
500
400
300
200
100
0
HrC
Coal (Cfr, China, rhs)
Iron ore (Cfr, China, rhs)
3
1
0
2
�
1
0
3
1
�
0
2
5
0
3
1
0
2
9
0
�
4
1
0
2
�
1
0
4
1
�
0
2
5
0
4
1
0
2
9
0
�
5
1
0
2
�
1
0
5
1
�
0
2
5
0
5
1
0
2
9
0
�
6
1
0
2
�
1
0
6
1
�
0
2
5
0
6
1
0
2
9
0
�
7
1
0
2
�
1
0
7
1
�
0
2
5
0
7
1
0
2
9
0
�
350
300
250
200
150
100
50
0
hrc ‘domeStic’ priceS
$/t w/o vat
800
700
600
500
400
300
200
100
0
uSa
eu
russia
3
1
0
2
�
1
0
3
1
�
0
2
5
0
3
1
0
2
9
0
�
4
1
0
2
�
1
0
4
1
�
0
2
5
0
4
1
0
2
9
0
�
5
1
0
2
�
1
0
5
1
�
0
2
5
0
5
1
0
2
9
0
�
6
1
0
2
�
1
0
6
1
�
0
2
5
0
6
1
0
2
9
0
�
7
1
0
2
�
1
0
7
1
�
0
2
5
0
7
1
0
2
9
0
�
about nlmk 41
nlmk 201728303136424647
2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
2017 fInancIaL
and operaTInG
revIew
42 annual report 2017
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
42
Key factS and figureS
record operational
performance
all-time high output and sales
thanks to a unique business
model and quality of facilities.
Sustainable profitability
growth
Cost leadership, growing
vertical integration
and implementation
of optimization programmes
enable profitability growth
despite a weak market.
financial flexibility
Increase in profitability and
low leverage enable great
financial flexibility and deliver
high returns for shareholders.
OpErAtING pErfOrmANcE
G rowth of steel output*: +3%
yoy due to the growth in
productivty at NLMK Lipetsk
and the increase in capacity utilization
rates at NLMK Russia Long Products
and NLMK USA divisions. Group
steelmaking capacity utilization rate
grew by 3 p.p. to 98%**.
Growth of sales***: +3% yoy, due to
the growth in sales in home and export
markets.
Sales breakdown: growth of finished
product sales by +5% yoy, accounted
for mainly by HRC and HDG. The
share of finished products in total sales
increased to 65% (+1 p.p. yoy). Sales
of semi-finished products remained
flat yoy.
Sales breakdown by region: sales in
Russia and the US grew by 1% yoy
(to 6 m t) and by 23% yoy (to 2.8 m t),
respectively, driven by the growth of
demand. Sales in the Middle East (incl.
Turkey) grew by 40% yoy, which is
practically in line with sales volumes to
the US market.
continuouS growth
of SaleS volumeS
16.5
m t
15.9
15.8
“In 2017, NLMK Group con-
tinued to consistently improve
it operating and financial
performance.
“Successful execution of
Strategy 2017 was the key
driver behind improved
financials, with net gains from
strategy projects exceeding
$1 bn. Non-capital intensive
operational efficiency projects
accounted for more than half
of Strategy 2017 gains.
“NLMK Group’s high credit-
worthiness and the success of
its business model received
high acclaim from interna-
tional rating agencies: NLMK’s
credit ratings have been
upgraded by S&P and Moody’s
over the last 18 months.
NLMK currently has invest-
ment grade ratings from all
three international rating
agencies.
“High level of free cash flow,
low leverage and conservative
capex enable the company to
increase its dividend pay-
ments. 9M 2017 dividends
totalled about $1.1 bn.”
SerGey KaraTaev,
nlmk group acting Cfo
15.1
14.8
2013
2014
2015
2016
2017
* Steel output with nbH
** Without production capacities that are undergoing planned maintenance
*** Consolidated sales without nbH
about nlmk 43
nlmk 201728303136404647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
higher dividendS
lower debt
$ bn
1.45
net debt/ebItDa
0.92
1.9
conSiStent growth
of profitability
ebItDa margin
23%
24%
25%
26%
0.64
0.30
0.12
0.7
0.6
0.4
0.3
14%
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Sales in home markets grew by 4% to
an all-time high of 10.7 m t, driven by
stronger demand from key consumers
in Russia and the US. Sales in the EU
decreased by 3% yoy, as a result of
competition with imports. Home
markets accounted for 65% of total
sales (flat yoy).
Sales in export markets grew to 5.7 m t
(+3% yoy) due to the growth in
the export of semis.
fINANcIAL rEVIEw
product sales volumes and prices, and
Strategy 2017 gains.
revenue
Revenue grew to $10.1 bn (+32%
yoy), driven by the growth of sales
volumes and average sales prices.
The share of revenue from finished
product sales remained flat yoy at
67%.
net profit
Growth of net profit in 12M 2017 by
55% yoy and in Q4 by 20% yoy was
driven by the growth of profit from
core operations.
free caSh flow
The share of NLMK Group’s revenue
(with NBH) from sales to home
markets remained flat (69%).
Free cash flow grew by 16% to $1.3 bn
due to the growth of inflow from
operations.
operating profit*
Operating profit grew by 37% yoy to
$2 bn, driven by the growth of steel
Growth of operating cash flow by
12% yoy to $1.9 bn was driven by
the increase in sales margins.
12m 2017
fINANcIAL ANd
OpErAtING
rEVIEw
stEEL prOduct sALEs
INcrEAsEd
tO A rEcOrd
16.5
M T
EbItdA GrEw
GrOup rEVENuE tOtALLEd
TO
$2.7
bN
(+37% yoy), driven by
improved sales economics
and Strategy 2017 gains
$10.1 bN
(+32% yoy), driven by the growth of
average steel product prices, increase in
volume and growth of share of finished
product sales
NEt INcOmE GrEw
by
55% yOy
TO
$1.45
bN
NEt dEbt/EbItdA**
dEcrEAsEd
TO
0.35х
(0.39х in 2016) on strong
business profitability
frEE cAsH fLOw INcrEAsEd
by
TO
M
$174
$1.27
bN
driven by growth
of cash flow from
operations
(+12% yoy) and
moderate growth
of capex (+6% yoy)
44 annual report 2017
* 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
** See the glossary on p. 46
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
42
Outflow of cash funds due to increase
in working capital totalled $380 m (vs.
a release of $37 m in 2016):
• Growth of prices: increase in
the cost of raw materials and WIP,
resulting in an increase of $221 m
• Growth of accounts receivable due
to the growth of sales volumes
• Growth of slab inventories at
the European and US sites to
support the growth in demand
• The above-mentioned factors were
partially offset by the decrease in
raw material stocks, the decrease
in stocks of finished products at
NLMK Russia Long Products due to
sales being shifted to export, and
the growth of accounts payable.
inveStment
NLMK Group 2017 investment
grew by 6% to $592 m, due to the
launch of the BF-6 overhaul project
at NLMK Lipetsk, and the growth in
payments to contractors under the
Pelletizing Plant construction project
at Stoilensky.
debt leverage
Russian Long Products
Total debt grew by 1% yoy to $2.3 bn,
with debt structure changing towards
an increased share of LT debt to
83% in 2017 (vs. 79% in 2016). In
September, NLMK Group bought back
Eurobonds for a total of $317 m, using
proceeds from a new 7-year Eurobond
placement for a total of $500 m. In
October 2017, NLMK repaid ruble
bonds for a total of 10 bn rubles.
Net debt grew by 21% yoy to $923 m
due to the decrease in cash and cash
equivalents on the balance sheet, used
for dividend payments. Net debt/
EBITDA decreased to 0.35х compared
to 0.39х in 2016 due to the increase in
profitability.
EBITDA increased by 10% to $152 m.
Lower growth rates compared
to revenue were associated with
the narrowing of spreads triggered by
the late start of the construction season
in Russia and growth of scrap prices.
Growth of scrap prices outstripped
the decrease in the EBITDA margin by
3 p.p. to 8%.
Mining Segment
EBITDA doubled yoy to $0.64 bn,
supported by growth of average prices
and increase in the share of pellet
supplies.
NLMK USA
Financial guarantees for NBH liabilities
totalled $304 m (+19% yoy), including
due to the strengthening of the EUR/
US$ FX rate.
EBITDA was $0.2 bn (+11% yoy),
supported by the growth of sales,
partially offset by the narrowing of
spreads.
Decrease of financial costs by 17%
yoy to $87 m was associated with
the reduction in the average debt
portfolio rate (from 4.2% to 3.8% at
the end of 2017).
NLMK DanSteel and plate
distribution network
EBITDA grew to $2 m due to
the widening of the price spread
between thick plate and slabs.
dividendS
sEGmENtAL ANALysIs
Joint venture (NBH)
In 2017, dividend payments totalled
$1,283 m.
Russian Flat Products
EBITDA climbed by 28% yoy to
$1.7 bn, driven by the widening of
spreads between prices for steel and
main raw materials, and Strategy
2017 gains. EBITDA margin was
22% (-2 p.p. yoy), triggered by the
outstripping growth of raw material
prices (primarily coking coal) and the
strengthening of the ruble FX rate.
NLMK Group’s Board of Directors
recommended NLMK shareholders
approve Q4’17 dividends of RUB 3.36
per share. Q4’17 dividend yield* will
total 9.1%.
Taking into account declared
dividends for Q1-Q3’17, 12M’17
accrued dividends could total RUB
14.04 per share, which is equivalent
to 100% of NLMK Group’s 2017 net
profit.
EBITDA was -$24 m, due mainly to
the narrowing of price spreads between
finished steel and slabs.
reLaTed documenTS:
• 2017 IfrS financial press release
• 5-year highlights
* Dividend yield is calculated as the sum of dividends for the period converted at the exchange rate at the end of the reporting period, annualized by
multiplying the amount for the quarter by 4 and divided by the total market capitalization of the company on the last day of the relevant period
about nlmk 45
nlmk 201728303136404647 2017
highLights
ceo
stateMeNt
coMpaNy
profiLe
Where We MaKe
aNd MarKet steeL
What We MaKe
aNd MarKet
NLMK group
BusiNess ModeL
NLMK’s iNtegrated
process eNviroNMeNt
NLMK productioN
systeM
GLoSSary
high-preSSure grinding rollerS
(hpgr) technology
An iron ore crushing technology employed in the production
of concentrate. HPGR has a superior ore crushing capacity to
conventional methods. Feed is subjected to high pressure by
the rolls, which not only crush the ore but cause micro-cracks
that disrupt its mineral-crystalline structure. The resulting
supply of iron ore for onward processing at Stoilensky
requires less additional fine grinding, which delivers
significant savings in resources.
repay liabilities, pay dividends or for other corporate needs.
Free cash flow is calculated as net cash from operating
activities plus interest received net of interest paid and
capital investments.
net debt
Net debt is calculated as the sum of long-term and short-term
credits and loans less cash and cash equivalents, as well as
short-term deposits at period end.
pulveriZed coal injection (pci) technology
This technology involves feeding natural gas and fine coal
granules into the blast furnace, which enables a reduction
in the consumption of expensive raw materials. Replacing
expensive raw materials with cheaper alternatives, such
as switching from natural gas and coal to a mix of power-
generating coal, reduces the cost of pig iron and steel
production without affecting quality.
net debt/ebitda
The Company’s financial debt adjusted for the value
of liquid assets, divided by EBITDA, characterizes
the Company’s debt leverage. Used as a trigger
to determine the share of dividends to be paid.
NLMK Group’s target indicator stands at 1.0x. Net
debt / EBITDA ratio is calculated based on net debt as at
the end of the reporting period and EBITDA for the last
12 months.
iron ore pelletS
operational efficiency gainS
An enriched form of iron ore moulded into small circular
pellets that are used in the steelmaking processes. Has an
iron (Fe) content of around 65%. A pelletizing plant was
launched in November 2016 at Stoilensky to produce pellets
for NLMK operations.
Structural increase in EBITDA generated by the
implementation of initiatives to increase productivity and/
or reduce cash cost, mainly as a result of improvements
to business processes, optimization of technologies etc.,
which require zero or minimal investment.
ebitda
inveStment projectS gainS
Profit before taxes, interest and depreciation received from
NLMK Group’s core businesses. EBITDA is calculated as
operating profit before equity share in net losses of associated
and other companies accounted for using the equity method,
impairment and write-off of assets, adjusted to depreciation.
Structural increase in EBITDA generated by the
implementation of investment projects, such as the effect
of cost reduction following the launch of the Stoilensky
pelletizing plant.
net profit
NLMK Group’s profit after income and expense. One of the
elements used to determine dividend payments. Net profit
is calculated as profit for the period attributable to NLMK
shareholders.
home marKetS
Markets where production of steel products is located,
for instance, the Russian market is the home market
for NLMK Russia, North America is the home market
for NLMK USA, EU countries are the home market for
NLMK Europe.
free caSh flow
ltifr
Net cash flow after investment and interest payments refers
to cash that the Company can use to strengthen liquidity,
Lost Time Injury Frequency Rate per 1,000,000 man-hours
worked.
46 annual report 2017
2 4 6818241014 research
aNd deveLopMeNt
strategy 2017
strategy
2017 resuLts
Key perforMaNce
iNdicators
MarKet revieW
2017 fiNaNciaL
aNd operatiNg revieW
gLossary
10-Year highlights
46
47
10-year
HIGHLIGHTS
fInancIaL performance*, $ m
Sales revenue
Net income**
EBITDA
EBITDA margin, %
Operating cash flow
Investments
Net debt
Free cash flow
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
11,699
6,140
8,351
11,729
12,157
10,818
10,396
8,008
7,636
10,065
2,279
4,689
40%
2,781
1,934
850
846
215
1,414
23%
1,394
1,121
1,241
273
1,255
2,322
28%
1,431
1,463
1,471
-32
1,358
2,254
19%
1,315
2,048
3,356
-243
16%
1,825
1,453
3,631
371
596
145
773
967
935
1,900
1,480
2,381
1,943
1,943
14%
23%
24%
25%
1,333
1,806
1,622
1,699
756
563
595
2,843
1,666
1,161
559
761
1,450
2,655
26%
1,899
592
923
536
1,153
992
1,092
1,266
Dividend per share, $
0.0786
0.0071
0.0632
0.0627
0.0193
0.0192
0.0507
0.1076
0.1535
—
operaTInG performance, ‘000 t
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Steel production
10,955
10,614
11,544
12,112
14,923
15,429
15,921
15,866 16,438
16,850
Steel production with NBH
10,955
10,614
11,544
12,112
14,923
15,469
16,108
16,060 16,641
17,076
Total steel sales
10,261
10,600
11,730
12,840
15,184
14,831
15,147
15,829 15,925
16,469
Finished product sales
5,995
6,324
7,051
8,664
10,607
10,929
10,223
9,793 10,211
10,759
Sales to home markets
4,246
3,485
4,644
6,012
8,684
9,535
10,605
10,140 10,225
10,650
SuSTaInabLe deveLopmenT IndIcaTorS
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
NLMK Group headcount,
‘000 people
Labour productivity,
t of steel /person, Lipetsk site
LTIFR for NLMK Group’s
Russian assets
Specific air emissions, kg/t of steel
70.1
62.8
59.4
60
62.5
62.1
60.1
56.7
54
53.2
249
269
308
329
406
420
437
463
482
502
n/a
30.5
n/a
30.4
n/a
28.5
0.87
26.1
0.87
22.6
0.86
21.9
0.55
21.1
0.43
20.9
0.34
20.8
0.51
20.5
* Financial statements starting from 2013 are prepared based on IFrS; prior to 2013 financials are uS gaap-based (for reference purposes)
** Income for the period, attributable to nlmk shareholders
about nlmk 47
nlmk 2017283031364042 highLights
2017
48
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
HIGHLIGHTS
2017
48 2017 annual report
50515254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
occupaTIonaL HeaLTH
and SafeTy
IncreaSed Labour
producTIvITy
loSt time injury frequency
rate (ltifr) iS better than
the global induStry average
continued labour
productivity growth
acroSS the group
2.02
2.03
Industry average
nlmk group
tonnes of steel/person
321
308
283
1.21
252
268
0.97
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
almost all oHS targets were met�
Safety of production remains one
of the key priorities for nlmk group�
the Company continued to implement
its risk management programme�
nlmk’s efforts to consistently
enhance the efficiency of its business
and drive employee engagement
supported the high growth rate
in labour productivity, delivering
an increase across nlmk group of
27% vs� the 2013 level�
profeSSIonaL
deveLopmenT
of our empLoyeeS
inveStment in training
(cumulative)
focuS on LocaL
communITIeS
nlmK group’S Social
inveStment at itS ruSSian
operationS (cumulative)
rub m
1,072
rub bn
806
547
345
8.5
5.2
13.9
11.5
174
2.3
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
In 2017, nlmk group focused on
the professional development of its
employees� personnel development
is a prerequisite to the Company’s
leadership in the industry�
In 2017, the Company contributed
rub 2�4 billion to the development
of the regions where it operates
in russia� this investment was used
to promote sport, health, education,
culture, children and youth outreach,
and charitable activities�
our team 49
NLMK 201762727681 highLights
2017
NLMK
vaLues
50
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
51
nLmK
vaLueS
rEspONsIbLE LEAdErsHIp
Responsible leadership is at the heart of NLMK Group’s
values. We are a team of professionals sharing these
values and using them as guidelines in what we do.
We understand the concept of responsible leadership as:
continuous improvement
of processes
helping customers secure
leadership
Continuous improvement of processes
and technologies to ensure efficient
production of steel products that help
improve the quality of life.
protecting the health and
safety of our employees
Unwavering commitment to protecting
health and safety of our employees and
contractors and ensuring favourable
working conditions that allow our
employees to fulfil their potential for
professional and personal growth.
efficient use of resources
Efficient use of resources and pursuit
of the best available environmental
and energy efficiency standards, with
which we also expect our partners to
comply.
Production of unique premium
quality steel products and
development of engineering solutions
that help keep our customers on
the cutting edge of innovation and
lead in their markets.
ensuring equal opportunities
for employees
Ensuring equal opportunities for
professional and personal growth of
our employees, motivating initiative
and innovation.
active approach to social
responsibility
Active approach to social responsibility
and care for cultural legacy in the
regions where we operate.
“A well-balanced development
strategy, highly efficient
operations, and the
professionalism and
engagement of our employees
in business processes enable
NLMK Group to look to the
future with confidence.
We’re proud of what we have
achieved and fully recognize
that our achievements
were made possible thanks
to the contribution of our
international team, united by
the common goal of leadership
for NLMK Group.”
oLeG baGrIn,
president and Ceo of nlmk group
(Chairman of the management
board)*
50 2017 annual report
* oleg bagrin held the position of president (Chairman of the management board) until 12 march 2018
485254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
Human
rIGHTS
proTecTIon
NLMK Group makes
the greatest possible effort
to ensure the protection
of human rights.
NLMK ensures a socially responsible
attitude towards its more than
53,000 employees across three
continents. The Company guarantees
that the labour of its employees is not
forced or compulsory and that each
employee receives commensurate
compensation. NLMK Group does not
tolerate any form or manifestation
of human rights violations in its
operational, financial or other
activities, including interaction with
stakeholders. Our corporate policy
calls for all employees of the Group
to comply with internationally
recognized principles and norms,
as well as international agreements
of the Russian Federation and
other countries where NLMK Group
operates, as applicable under the
labour laws of any country and
irrespective of its business practices.
Our approach to human rights
protection is derived from
established UN guidelines, including
UN Human Rights Norms for
Business, UN Global Compact
and ILO Conventions, and from
ISO 26000 Guidance on Social
Responsibility and prevailing
legislation in the countries where
NLMK Group operates.
nLmK’S fundamenTaL prIncIpLeS of Human rIGHTS proTecTIon:
j proHIbITIon of forced
Labour:
j reSpecT for THe rIGHT
To a mInImum waGe:
The Company prohibits forced
labour, prison labour and
military labour, slavery, and
human trafficking. All types of
labour in the Company are purely
voluntary.
The Company sets remunerations
in accordance with the
applicable statutory provisions
on remuneration, in particular
those that establish the minimum
wage, acceptable working hours
and compensation for overtime.
j proHIbITIon of cHILd
Labour:
The Company only signs
employment contracts with
people who satisfy the minimum
age requirements set out in
the prevailing legislation. The
Company would not resort to
using child labour.
j proHIbITIon of
dIScrImInaTIon:
The Company’s employees are
free from any form of harassment
and unlawful discrimination,
irrespective of their race, colour,
religion, ethnicity, gender, age,
family status, or any other status
protected by the legislation of the
countries where the Company
operates.
j promoTInG freedom
of aSSocIaTIon and
THe rIGHT for coLLecTIve
barGaInInG:
The Company does not limit
the freedom of its employees
for establishing associations to
promote their interests among
shareholders. The Company
builds its relations with the
employees on social partnership
principles, direct dialogue being
an integral part of this.
our team 51
NLMK 201762727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
52
SuSTaInabLe
deveLopmenT
prIorITIeS
nLmK’S SuSTaInabLe
deveLopmenT
prIorITIeS:
j increaSing operational
efficiency
j occupational health
and Safety
j minimiZing
environmental
footprint
j energy efficiency
NLMK views its social mission as the achievement of
sustainable development goals as this meets the long-
term economic interests of the business, contributes to
community welfare and conservation of the environ-
ment, and observance of human rights in the regions
of its operation.
Sustainable development as the
bedrock for business success
increasing operational
efficiency
minimizing environmental
footprint
j perSonnel development
j developing local
communitieS
is an important part of Strategy 2017
and means, among other things,
a reduction in the consumption of
particular resources through the
introduction of advanced technologies
and advanced recycling.
occupational health
and safety
The Company operates production
facilities which are potentially
hazardous, and takes responsibility
for the welfare of its employees. The
Company is striving to achieve global
leadership in occupational health and
safety among steel companies through
the use of advanced OHS practices,
efficient risk management and by
motivating and actively involving its
employees in OHS programmes.
is one of the keys to the success
of Strategy 2017. Minimizing the
negative impact NLMK Group
facilities have on the environment
is achieved through planned
environmental and technological
initiatives that are both part of and
beyond NLMK Group’s investment
programme.
increasing energy efficiency
is one of NLMK Group’s strategic
priorities, aimed at decreasing the
amount of energy resources purchased
and growing captive energy generation
through utilizing by-product gases.
52 2017 annual report
48505154 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
personnel development
improving the quality of life
Safety
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 different levels, to
strive to create new opportunities for
using cutting-edge mechanisms for
development of the regions where
NLMK operates and resolve pressing
social issues.
NLMK sees investment into the
development of its employees as
a prerequisite for the Company’s
long-term competitiveness, dynamic
development, the increased potential
of human capital, and, ultimately,
an increased fundamental value of
the Group as a whole. High-quality
professional training provides the
standard of employee qualification
necessary to overcome 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.
in the broadest sense is one of the key
values of NLMK corporate culture:
• We provide safe working conditions
and improve occupational safety
• We take care of the health of
employees and residents of the
regions where we operate
• We increase the environmental
safety of our operations
• We monitor the quality of our
products to ensure our customers’
safety
• We do our best to protect human
rights
• We increase social security and
create confidence in the future.
our team 53
NLMK 201762727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
54
dIaLoGue wITH
STaKeHoLderS
54 2017 annual report
48505152 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
Sustainable
development, which
is one of the key
strategic goals
of the Company, is
impossible without a
regular multilateral
dialogue between
the Company and its
stakeholders
StaKeholder engagement
Active stakeholder engagement
is a key factor in the sustainable
development and long-term
industry leadership of NLMK Group.
Mutual trust, respect, transparency,
responsibility, partnership and
predictability are the underlying
principles of efficient dialogue between
the Company and its stakeholders.
The Company strives to build stable
partnerships with all stakeholders
based on respect for human rights,
compliance with Russian laws and
regulations, international and
industry-specific rules and guidelines,
and contractual obligations.
General guidelines on the Company’s
relations with stakeholders are laid
out in its Corporate Governance Code,
Corporate Ethics Code, Anticorruption
Policy, Supplier Code of Conduct and
other corporate documents.
In developing its stakeholder
management system, the Company is
guided by its own strategic and current
operational, environmental and social
priorities, and on the provisions and
principles of international standards.
In 2017, NLMK Group continued
to actively engage its stakeholders
through various formats of interaction.
our team 55
NLMK 201762727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
54
STaKeHoLder expecTaTIonS
InTeracTIon formaTS
SHareHoLderS
• Operational and financial performance
• General Shareholders’ Meetings
• Development strategy
• Market capitalization
• Business stability
InveSTmenT communITy
• Capital Markets Day
• Participation of NLMK’s top managers in industry conferences
and meetings with the investment community
• Corporate reporting
• Media publications, Company’s website
• Information availability and transparency
• Information disclosure through various communication channels
• Investment appeal
• Participation in Russian and international investment conferences
• Site visits for investors/potential investors
• One-on-one and group business meetings
• Capital Markets Day with the Company’s top management
empLoyeeS
• Employment and safe working conditions
• Regular safety trainings and programmes to improve working
• Lucrative compensation
• Professional and career growth
• Social programmes
conditions
• Social support for workers and their families, retirees (former
employees)
• Professional skills improvement programmes, personnel training
and development
• Personnel engagement monitoring
• Regular meetings with management of different levels
• Processing of inquiries submitted via the hotline, the corporate
portal, by SMS
Trade unIonS
• Compliance with labour regulations
• Collective bargaining
• Compliance with the Sectoral Tariff Agreement
• Signing of collective agreements and joint resolutions
• Compliance with collective agreements
• Joint work in various commissions and committees
• Protection of employee interests
• Conferences of workers’ associations
56 2017 annual report
48505152 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
STaKeHoLder expecTaTIonS
InTeracTIon formaTS
conSumerS
• Fulfilment of contractual obligations
• Business meetings with clients, participation in conferences,
• Stable product quality and wide product mix
• Competitive pricing
• On-time and in-full deliveries
• Advanced technologies
• Efficient feedback and claim settlement system
• Risk management and anti-corruption
compliance
industry-specific communities and associations
• Surveys of consumer expectations
• Long-term contracts
• Corporate reporting
• Media publications, Company’s website
SuppLIerS and conTracTorS, oTHer marKeT parTIcIpanTS
• Transparent tender procedures for the
procurement of goods and services
• Business stability
• Long-term cooperation
• Supplier checks to verify their reliability, supplier status, and
availability of production capacity
• Pre-qualification of suppliers
• Development of tender procedures for the procurement of goods
• Fulfilment of contractual obligations
• Efficient feedback and claim settlement system
• Risk management and anti-corruption
compliance
and services
• Negotiations with potential suppliers
• Business meetings with suppliers, participation in conferences,
industry-specific communities and associations
• Contractors performing work at NLMK facilities are required to
comply with environmental and OHS requirements
GovernmenT auTHorITIeS
• Legislative compliance
• Tax payments
• Maintaining employment level
• Reduced environmental footprint
• Meetings with heads of regions and cities where the Company
operates
• Social programmes and programmes to support and develop
social infrastructure
• Active participation in the work of advisory bodies and dedicated
• Social programmes in regions where the
expert (working) groups, public hearings, etc.
Company operates
• Investment activity
• Investment in production
• Annual disclosure of information on payments to state budgets
LocaL communITIeS
(LocaL reSIdenTS, non-profIT orGanIzaTIonS, munIcIpaL InSTITuTIonS)
• Company’s activities taking into account the
• Dialogues with representatives of local communities to raise
interests of local communities
• Company involvement in addressing the needs of
awareness about the Company’s activities in the regions where it
operates
local communities
• Corporate reporting
• Media publications, Company’s website
• Organization of industry-specific conferences and events
our team 57
NLMK 201762727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
54
With regard to the mutual influence
of the Company and its stakeholders,
NLMK is guided by top management
expert opinions that make up a
stakeholder map:
The Company conducts regular
research into the opinions of key
stakeholders through polls and
consultations, engages them in
discussions, working group meetings,
and standing committees to review
specific issues, 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.
acTIve dIaLoGue wITH Key
STaKeHoLderS*
corporate communicationS
NLMK Group employs 53,000 people
in dozens of companies in seven
countries around the world. One of
the Company’s most important tasks
is to unite them around common
values and goals and to engage them
in joint projects. This is facilitated
by efficient tools of internal
communication.
All NLMK Group companies are
covered by an extensive internal
communications network, including
an Intranet portal, newspapers,
corporate magazine, stands,
mailings, and visual campaigns.
These channels are used to inform
every employee about the activities
and projects of the Group and its
companies, to talk about opportunities
for professional and career
development, to share experience,
and, ultimately, to bring our sites and
people closer together.
In 2017, a new communication
channel was added as all
NLMK Group’s Russian sites were
58 2017 annual report
StaKeholder map
y
n
a
p
m
o
C
>
-
l
r
e
d
o
h
e
k
a
t
S
Company -> Stakeholder
equipped with TV screens connected
into a single NLMK-TV system. More
than 130 next-generation screens
were installed in production shops
and plant management offices, in
canteens and in lobbies, in health
centres and gyms, frequently
visited by NLMK Group employees.
Previously, NLMK-TV videos were
only published on the Group’s
corporate portal and social media.
The new format offers targeted
content addressing the employees
of the unit where the TV screen is
installed: now employees have access
to both corporate and site-specific
news, and to additional information
and announcements relating directly
to their shop or team. NLMK-TV
screens broadcast daily updates on
operating and other KPIs of the shops
and teams, and their benchmarking
against the established standards
and past performances. Employees
are now able to monitor their
performance, including OHS results,
directly affecting their bonuses.
Another channel of internal
communication, feedback on the
corporate Intranet portal, is becoming
increasingly popular. In 2017, about
400 employees reached out via the
feedback form; the Company’s top
managers received more than 60
personal questions from employees
via the “Management Feedback”
function. The editorial team of the
corporate portal received more
than 150 letters with questions and
local communities
Suppliers and
contractors
trade unions
employees
Investment
community
government
authorities
Consumers
Shareholders
requests from employees. More than
3,000 comments were posted to news
items published on the portal. No
question or comment was left without
a detailed answer from the managers
and employees of dedicated units.
NLMK Group’s Intranet portal and its
online functionality were recognized
by the professional community at the
‘Best Intranet Russia Awards 2017‘
XII Annual National Competition. The
portal is accessible not only in the
office, but also on the shop floor and
from mobile devices.
Team-building campaigns facilitated
greater employee engagement,
promotion of corporate values and
fostering team spirit. The most
popular project for the second
year running was the #teamNLMK
international video greeting
competition. More than 2,000
NLMK Group employees from Lipetsk,
Stary Oskol, Kaluga, the Urals, Altai,
Europe, and the US participated in the
competition in 2017. Colleagues from
Stagdok, Dolomit and Vtorchermet
Volga also joined the competition.
More than 130 photos and videos
were submitted. The project was
a huge success: the competition
brought together entire teams,
united, aside their work, by common
values, sports and creativity. The
competition culminated in a grand
award ceremony, and the winners
were awarded trips to NLMK Group
companies in the USA, Belgium,
and Altai.
* a stakeholder is an interested party, an individual or an organization, whose actions,
behaviour, or decisions can affect the company’s profits and processes.
48505152
our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
Works entered into the competition
by NLMK employees received high
acclaim from their colleagues and
from professional judges: ‘My City
is a Small Country’, a video by the
Altai-Koks Youth Union, which
received the Grand Prix of the
#teamNLMK competition, won the
‘Best Sound Engineering’ and ‘Best
Script’ awards at the 14th Annual
Metal-Vision’2017 contest. The song
of the same name, composed and
performed by NLMK employees who
made the video, topped Altai radio
charts.
The ‘Steel Tree’ environmental
initiative programme is a great
example of internal communication
tools reaching beyond the Company
and bringing together employees
and local residents for a common
cause. It was launched at the Lipetsk
site in early 2017. Thanks to broad
media coverage, it became popular
among Company employees and
local residents alike. It enabled
NLMK Lipetsk employees to execute
twelve community-oriented
environmental initiatives of their own
with the financial support of NLMK’s
‘Miloserdiye’ charity fund. They
include amelioration of the Matyr
reservoir, cleaning of the Nizhny
Park drainage system, installation of
solar batteries on a multi-apartment
residential building, creation of a
graffiti art object, green belt clean-up
and tree planting, revival of the
recreational area at Syrskoye village,
organization of an eco-quest, and an
eco-festival of intellectual games.
Local authorities also participated
in the ‘Steel Tree’ programme as
honorary judges, selecting the
winners and providing organizational
support.
In 2018, NLMK Group expanded the
scope of the ‘Steel Tree’ environmental
initiative, making grants available not
only to its employees, but also to local
residents and NGOs of the Lipetsk
region, Stary Oskol (the Belgorod
region), and Zarinsk (Altai Territory),
where key NLMK Group facilities are
located.
Viktor Togobetsky, NLMK Group Vice
President for Occupational Health,
Safety and the Environment, said:
“The idea of the ‘Steel Tree’ is to engage
proactive and motivated individuals
maKSIm ScHeTInIn
leading Specialist, maintenance
department
SerGey TafInTSev
Shopfloor Supervisor
dmITry pronyaev
process engineer
A sErIEs Of EdutAINmENt
EVENts fOr KIds
fAmILy trEE ALLEy
sEttING up AN
EcO-trAIL
IN A NAturAL rEsErVE
our team 59
NLMK 201762727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
54
by offering them the opportunity to
execute their environmental ideas
for the benefit of the community.
NLMK Group and ‘Miloserdiye’
Charity Fund have only launched
the programme last year, and its
participants have already executed
more than ten important environmental
projects. That means the ideas are
there, the proactive people are there,
so all we need to do is provide support.
And that’s precisely what we do as a
socially responsible business.”
nlmK’S dialogue with
inveStorS and analyStS
disclosure of operating
and financial performance
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.
capital markets day
NLMK Group held a Capital Markets
Day on 6 March 2017 in London. The
Company announced the results of its
Strategy 2017 and held a Q&A session
with investors. https://nlmk.com/en/
ir/cmd/cmd2017/
In the interests of keeping its investors
continuously informed, NLMK
publishes its operating and financial
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
financial results and reports under
IFRS.
http://nlmk.com/en/investor-
relations/reporting-center/
60 2017 annual report
48505152 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
meeTInGS
wITH InveSTorS
global average
nlmk
441
254
nLmK’S Ir percepTIon*
regional average
Industry average
nlmk
* extel Ir benchmarks report, maximum score is 5
Survey of international investors and analysts�
4.9
4.8
4.9
4.8
4.4
4.5
4,2
4.3
4.3
4.4
4.3
4.4
number of meetings
business knowledge
Improvements
over the year
Quality
of one-on-one
meetings
Quality of road
show/site visits
Sustainable development
disclosure
visits to production sites
awardS
NLMK regularly discloses data on
sustainable development and social
responsibility. In 2017, NLMK Group
was named one of the best companies
in the field of sustainability disclosure
among public companies in Europe.
https://nlmk.com/en/ir/for-ESG-
investors/?from=ru
For those who wish to get a 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.
For the schedule of upcoming tours,
please contact our Investor Relations
team (ir@nlmk.com).
“NLMK differentiates itself from its peers by being very open, transparent,
and accessible to investors. NLMK has good corporate governance, strong
Management team, very strong cost maintenance, reasonable capex
policy. NLMK is attractive, because they have got good cost management,
good balance sheet, strong cash generation. Investor Relations at NLMK
is excellent. Whenever we have questions, we get quick and efficient
answers.”
a quote from annual nlmk Investor perception Study
THe european InveSTmenT
communITy recoGnIzed
nLmK Group aS a LeadInG
exponenT of InveSTor
reLaTIonS amonG european
STeeL companIeS*.
ratings were compiled by Ir
magazine based on an independent
perception study among over
600 members of the european
investment community, including
portfolio managers and analysts�
nlmk group was the only russian
company to be included in the list
of top companies in the ‘materials
sector’ and was ranked no� 2 among
top three ‘best in country’ in ir
among russian companies.
* results are published in Investor
perception Study – europe 2017�
our team 61
NLMK 201762727681
highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
our
empLoyeeS
62 2017 annual report
4850515254 our
eMpLoyees
62
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
Key highlightS
our people are our greatest
asset
hr policy is a key element of
nlmK’s production System
nlmK’s hr Strategy in place
since 2015
professionalism and employee
engagement allows the
Company to achieve a leading
position in the industry.
the main objective of nlmk’s
Hr policy is to develop and
support the team, capable
of delivering success and
consistent growth.
an action plan was developed
to achieve Strategy goals, with
execution of plan and prog-
ress toward goals monitored
annually.
Teamwork, cooperation, openness and trust allow
achieving unique results and retaining leadership
positions in the industry.
Higher efficiency and personnel engagement in achieving
the Company’s goals are the main objectives of NLMK’s
HR policy.
NLMK’s HR policy
The Company’s success depends on
the efficient performance, knowledge,
and experience of its employees.
The traditional format of events for
promising young employees has taken
on a new form.
The main goal of NLMK’s HR policy
is to develop and manage talent
effectively, building a cohesive team
capable of delivering success and
consistent growth.
NLMK aims to align the financial
performance of the Company with the
financial interests of its employees, to
guarantee competitive performance-
based remuneration for each
employee in accordance with their
professional qualifications.
In 2017, the HR service merged with
the social policies department. This
transformation will facilitate the
execution of social projects, and make
the Company more responsive to the
needs and demands of its employees.
In 2017, we gave a new impetus
to our long-established initiatives.
hr policy Kpis
NLMK Group’s HR policy was approved
in 2015; it sets out the following
goals for the HR department of
NLMK Group:
• Build a management team for
the purpose of transitioning
to a divisional process-based
management structure
• Introduce uniform quality
standards for HR procedures
across the Group
• Follow up on operational efficiency
projects both within the HR service
itself and in other functional areas,
including business processes
optimization.
An action plan was developed in order
to achieve these goals, performance of
which is monitored every year.
our team 63
NLMK 2017727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
2017 prOjEcts - KEy ELEmENts:
MOTIVATION
PROjECT:
1
hR IT PROjECT:
2
• Aligning remuneration principles
• Personnel management system
across the Group
powered by SAP HCM
• The underlying idea is “Applying a
unified approach to compensation
and benefits across NLMK Group”
• The underlying idea is “Developing
a SAP ERP module, an integrated
solution for efficient personnel
management”
STRUCTURE AND PROCESS
OPTIMIzATION PROjECT:
3
• Aligning processes and rolling out
organizational design principles
across the Group, transformation
support
• The underlying idea is “Maintaining
headcount while increasing
production output”
main hr policy objectives
for 2018:
• Identification, development, and
promotion of talented employees
• Establishment of a performance-
based incentive system
• Corporate university as the main
tool for creating and disseminating
knowledge unique to NLMK Group
• Organizational efficiency
enhancement through business
process and organizational structure
re-engineering, in particular,
as part of functional areas
centralization
• High-quality HR support for the
heads of functional areas and
development of HR support for
production managers.
All the targets set for 2017 for HR service development and personnel management have been met.
Below is a list of the most important ones:
area
TarGeT
Employee motivation
New principles for payroll growth developed and
approved for implementation in 2018
STaTuS
Achieved
TarGeT
Implementation across NLMK Group
2017
2018
MBO* system to cover all employees down to the 6th
level of management
Achieved
Expansion of MBO coverage
Automation of HR processes
Implementation of basic SAP HСM** modules and
expanded SF functionality
Achieved
Process stabilization. Expanded
functionality
Full-scale operation of SAP HCM
Outsourcing of transactions
HR service formed: transactional part fully outsourced
to Shared Services Centre (SSC)
Achieved
–
Process re-engineering
Aligning processes across the Group
Achieved
BPM*** implementation
Transformation support
Achieved
Development of BSSC and outsourcing
management standard
Organizational design and
headcount management
Roll-out of organizational design principles across
the Group
Achieved
Strategic headcount management
64 2017 annual report
* mbo — management by objectives
** Sap HCm — Human Capital management
*** bpm — business process management
4850515254 our
eMpLoyees
62
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
perSonnel breaKdown by
aSSet geography
perSonnel breaKdown
by function
53,200
people
4% (2,100 people)
eu
2% (1,100 people)
uSa
1% (800 people)
other coutries
53,200
people
11% (5,800 people)
mining and raw materials
22%
(11,700 people)
maintenance
and repair
3% (1,600 people)
r&D
93% (49,200 people)
russia
42% (21,800 people)
Steel production
22% (11,700 people)
management,
administration, and
other services
perSonnel breaKdown
by age
perSonnel breaKdown
by gender
30–50
under 30
over 50
26%
21%
53%
2015
23%
24%
53%
2016
22%
25%
53%
2017
27% Women
73% men
our team 65
NLMK 2017727681
highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
employee turnover
%
10
labour productivity
tonnes of steel per employee
average monthly Salary
at nlmK’S ruSSian companieS
‘000 rubles per employee
8
9
437
463
420
5
4
252
283
268
482
502
56.6
52.0
308
321
43.7
47.4
39.6
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
nlmk lipetsk
nlmk group
divisions, 1,100 people were employed
at NLMK USA, and around 800 people
were employed in other countries
where NLMK Group assets are located.
Over 53% of NLMK Group personnel
are directly involved in the mining and
steelmaking operations, whilst 22% are
involved in repair and maintenance;
and approximately 3% are involved
in technical functions and investment
activity. The remaining 22% are
administrative and management
personnel, including services.
The key goal of NLMK Group’s
HR policy is to develop and retain
skilled professionals in the Group’s
companies. The significant efforts the
Group makes in this area mean its
companies are preferred employers
in the markets where they operate,
which has a positive impact on
turnover rates: our employees have
become increasingly loyal, while
working for NLMK has become
increasingly prestigious. In 2017,
the turnover rate for NLMK Group fell
to an all-time low of 4%.
NLMK Group is continuously
improving its team, using the best
selection practices at all management
levels. One of the priorities of NLMK
Group is to attract professionals
with unique expertise in advanced
developing areas.
NLMK has an active HR policy aimed
at attracting prospective young
workers. Young professionals have
access to specialized internships and
undergraduate training programmes.
The Group promotes ongoing
cooperation with the leading national
universities and is seeking to attract
and develop young professionals in
the industry.
NLMK Group has no gender
limitations.
labour productivity
NLMK consistently enhances
the efficiency 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.
NLMK continues to develop:
the strategic target for the next
few years is to further increase
labour productivity through,
first of all, the development
of NLMK Production System and
process optimization initiatives with
active involvement of personnel in
the process and the Management
by Objectives system. Continuous
• Development of a single integrated
HR system across NLMK Group,
providing advanced analytics
and enabling utmost efficiency of
human potential development
• Gradual introduction of advanced
technologies, including mobile
services and robotization,
to improve the quality and
accessibility of HR services, and
enhance the performance of the HR
service.
our employees
NLMK Group headcount during
2017 was 53,200 people, of which
49,200 people were employed at
NLMK’s Russian sites, 2,100 people
were employed at NLMK’s European
66 2017 annual report
4850515254 our
eMpLoyees
62
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
development and efficiency
improvement has become the
cornerstone of NLMK’s corporate
culture.
Structure and functionality
optimization
In 2017, NLMK Group’s headcount
was reduced by ca. 500 full-time
employees (-0.9%) through a
number of initiatives aimed at
boosting labour efficiency and
streamlining business processes.
At the same time, more than
300 new jobs were created, of
which over 65% are linked to
output growth and the launch
of new production facilities. The
remaining 35% are associated
with the development of auxiliary
services.
In 2017, NLMK created more than
300 jobs through:
• The launch of a briquetting
plant, a new turbine generator in
the Recovery Сogeneration Plant,
commissioning of a new crushing
and sorting facility, expansion
of the magnesium storage,
de-mothballing of GO rolling units
(the Lipetsk site)
• The development of the southern
bank of the Stoilensky deposit and
boosting of iron ore production
(Stoilensky)
• The launch of additional production
lines at NLMK Russia Long Products
facilities and VIZ-Steel.
In 2017, more
THan 2,400
nLmK Group
empLoyeeS
receIved
awardS,
IncLudInG:
25
STaTe awardS
47
InduSTry awardS
79
reGIonaL
and cITy
awardS
2,288
corporaTe awardS
our team 67
NLMK 2017727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
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
encourage every employee to
contribute more to the common cause.
NLMK Group uses several motivation
systems based on fair financial
motivation for high performance.
Result-oriented motivation remains
the most effective system currently
employed by NLMK Group. Clearly
defined objectives and a fair
assessment of their achievement is
fundamental for the motivation system
in place. NLMK Group follows the
principle of cascading performance
indicators down the administrative
and functional verticals to individual
KPIs of employees: the KPIs of
departments and employees are
aligned with the goals of the Company
and its management, while taking
into account individual development
plans. This principle serves as the basis
for the management by objectives
(MBO) system. At year-end 2017, the
MBO system covered almost 3,000
employees of NLMK Group.
sAp succEss
fActOrs
a new generation cloud-based
talent management system
powered by Sap, which includes
an entire suite of automated Hr
solutions, was introduced in 2017
to streamline Hr management
processes.
Sap Success Factors enables us
to implement flexible, integrated
performance management
models, training and evaluation
tools. all personnel covered by
the management by objectives
system were trained in the mbo
Success Factors module and
the entire mbo-2017 cycle was
performed on an automated
platform. this has significantly
increased the efficiency of the
process and improved the quality
of interaction between employees
and managers.
NLMK also offers a number of
non-financial incentives: badges
or certificates of appreciation
for employees who performed
exceptionally well, stories
about the best employees in
the corporate newspaper, their
portraits on the Recognition Board,
and management talent pool
opportunities for successful and
talented employees.
Alongside the principle of fair pay,
NLMK uses a number of non-financial
incentives: motivation, ample
opportunities for career development
and self-fulfilment, various incentives
for outstanding results and initiatives,
and other tools.
Professional contests and competitions
are important elements of
the incentive system. They help
increase employee commitment to
professional development and provide
ample career growth opportunities.
In 2017, the Company held 26 ‘Best
in Profession’ skills competitions with
1,384 participants from 34 structural
divisions of the plant. 101 participants
won prizes and 87 received extra
payments for skills mastery; the
winners also received cash prizes.
All NLMK Group’s companies adjust
wages and salaries to the inflation
over the period on a quarterly basis,
in line with their social commitments.
In 2017, 808 employees applied
to the ‘Young Leader’ competition.
This year the competition was
dedicated to environmental issues.
68 2017 annual report
4850515254 our
eMpLoyees
62
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
health culture, establishing
the conditions for a healthier lifestyle
and improving mental and physical
health.
NLMK Group runs 3 medical units
and 25 first 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.
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 pools and
fitness centres.
The Company organizes regular sports
and cultural events.
talent development
NLMK sees investment into
personnel development as
a prerequisite for the Company’s
long-term competitiveness, dynamic
development, an increased potential
of its human capital, and, ultimately,
the increased fundamental value of
the Company as a whole. Professional
• Cultural and sports events, creative
competitions
• Corporate transport to and from
work
• Housing programme (at some
NLMK Group companies)
• Non-state pension programmes (at
some NLMK Group companies)
• Comprehensive former employees
support programme (pensioners).
Our female employees enjoy
additional benefits beyond those
required by law: flexible working
hours for women with small children
and professional training and
development programmes following
maternity leave.
In addition to formalized social
support measures, the Company
actively engages in partner projects
with regional retail businesses
to develop corporate discount
programmes for NLMK Group’s
employees. All of these projects are
presented and systematized on the
corporate portal, and are openly
accessible to NLMK employees.
Alongside the competitions, a project-
based approach was introduced
at NLMK Lipetsk during the reporting
period. To this end, 11 community-
oriented environmental initiatives
were implemented as part of
the ‘Steel Tree’ programme with
the financial support of NLMK’s
‘Miloserdiye’ charity fund.
Social package
As a responsible employer, NLMK
continuously supports its employees by
providing benefits.
These benefits represent a set of
indirect material and non-material
incentives for employees, and
constitute a significant part
of the corporate staff motivation
system.
All NLMK Group employees have
access to the following social
benefits outlined in collective
agreements:
• Healthcare for employees and their
children, including private health
insurance programmes
• Hot meals
health and welfare
• Event-related material assistance
to employees and members of their
families; a system of compensatory
payments
The health and welfare of its
employees is a priority for NLMK
Group, which focuses close attention
on developing a strong corporate
our team 69
NLMK 2017727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
inveStment
in perSonnel
development
$ m
41.9
5.5
53.4
55.4
47.7
42.6
4.4
3.3
3.9
4.5
2013
2014
2015
2016
2017
Investment in personnel training and
development, $ m
number of employees who received train-
ing, ‘000
development of personnel and
relevant procedures is a key element
of NLMK’s Production System and
Strategy 2017.
Professional training provides
the level of employee qualification
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 efforts focuses on our
talent pool of promising employees,
performance reviews of managers
and line personnel, mandatory
knowledge tests for workers
(knowledge checks), induction,
coaching, leadership initiatives, and
skills competitions.
In 2017, the Company established
its Corporate University, a division
that forms and develops a common
leadership vision on issues of HR
management and the Group’s strategy
execution.
Alongside training sessions,
NLMK Group develops other forms
of training, including promotion
of self-education. The Company
has a library and is developing an
e-learning system encompassing
both general courses and company-
specific trainings.
Compulsory education, required
to carry out operations at
the workplace in line with
the regulatory requirements,
remains one of the key priorities.
70 2017 annual report
4850515254
our
eMpLoyees
62
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
Key
iNdicators
NLmK GrOup LEAdErs 2025
In 2017, the group continued the implementation of
its unique ‘nlmk group leaders 2025’ programme.
this is the first and so far the only corporate
educational programme aimed at the development
of young leadership talent for nlmk group’s key
companies. the structure of the programme is
similar to e-mba programmes offered by business
schools. In the course of the programme, promising
employees from all nlmk group’s companies
receive trainings by world-renowned professors and
executives from global companies. the programme
opens up new career and personal development
horizons, motivating employees to reach what could
have seemed unattainable. more than 50% of the
programme participants have been promoted since
its launch, including to vice president level.
inveStment into profeSSional
development by area
%
27 professional training
1 Competitions for nlmk group’s employees
$4�5
m
1 other
3 Foreign languages
3 nlmk leaders 2025
6 In-house conferences
7 Corporate training
11 leadership training
18 Cooperation with higher educational institutions
23 Compulsory training
In 2017, NLMK Group spent
$4.5 million on professional
development of its employees.
Starting from 2016–2017, investment
breakdown by areas of education
was aligned with the budget for
staff training and development.
The following items were added
to the 2016–2017 costs breakdown
vs. 2012–2015:
• Cooperation with colleges and
universities, including payments to
students and professors
• Vocational guidance
• In-house conferences
• Competitions for NLMK Group
employees.
our team 71
NLMK 2017727681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
occupaTIonaL
HeaLTH and SafeTy
the company continues to improve
its occupational health and Safety (ohS)
performance, with $98 m spent in 2017
on ohS initiatives.
72 2017 annual report
4850515254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
72
coMMuNity
deveLopMeNt
Key
iNdicators
Key highlightS
occupational health and safety
is an important element of
nlmk’s production System.
We strive for leadership in oHS
and consider it a key part of our
strategy.
a number of initiatives were
implemented in 2017 to improve
occupational safety
all of year-end targets used to
assess the effectiveness of the
Company’s occupational safety
efforts have been met.
a significant reduction in
industrial injuries
the lost time Injury Frequency
rate (ltIFr) has declined more
than two-fold since 2013.
Occupational
health and safety
is regarded as
the cornerstone
of NLMK Production
System, a key
element of
Strategy 2017
T he Company aims to be a world
leader in occupational health
and safety (OHS) among steel
companies through the application
of the best available OHS practices,
efficient risk management, provision
of incentives and active involvement of
employees in in the occupational safety
programme.
NLMK Group’s key principles:
• Employees are NLMK’s key value;
their health and well-being are key
to the success of our operation
• 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.
To achieve these goals and implement
the OHS principles, NLMK assumes
the responsibility to ensure:
• Efficient management
of potential risks to
the health and safety of our
employees, contractors and third
parties
• Strict adherence to Russian and
international occupational health
and safety requirements
• Continuous improvement of
employee skills in the area of
occupational health and safety
• Transparency of OHS indicators.
our team 73
NLMK 2017627681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
Occupational health and safety
is regarded as the cornerstone of
NLMK Production System, a key
the element of Strategy 2017.
NLMK Group’s two Russian companies
(NLMK Lipetsk and VIZ-Steel)
were certified for compliance with
the requirements of the OHSAS*
18001:2007 international standard.
Manager training. Together with
the Corporate University (see the
‘Talent Development’ section for more
details), training programmes aimed
at developing a safety culture and OHS
management skills among senior and
middle managers have been developed
and implemented.
There was a total of 31 accidents with
contractors across the Group in 2017,
of which:
• 16 at NLMK’s Russian companies
• 15 at NLMK’s international
companies.
ohS costs
Key ohS initiatives in 2017
Organizational changes that
have increased the efficiency of
occupational safety efforts:
OHS costs in 2017 increased by 51%
yoy, driven by increasing costs for
ensuring industrial safety, which
amounted to $60 million (73% yoy) and
a stronger ruble.
Regrettably, we were not able to avoid
11 work-related fatalities in 2017.
The Group has revised its relations
with contractors (see the ‘Key 2017
Initiatives’ section).
worK-related fatalitieS
in nlmK group*
*employees and contractors
1
7
1
10
1
5
5
2013
2014
2015
2016
2017
russian companies
International companies
nlmK group’S ltifr*
2.02
2.03
*employees
1.21
0.97
2013
2014
2015
2016
2017
nlmK group’s occupational
injury statistics
Occupational accidents and incidents
are reported on and investigated
in line with the prevailing laws of
the country where the Company
operates. Statistics on occupational
injuries at NLMK Group is collected
using common industry-specific
methods adopted by the Worldsteel
Association.
Lost Time Injury Frequency Rate
(LTIFR**) per 1,000,000 person-
hours worked:
• NLMK Group: 0.97
• NLMK’s Russian companies: 0.51.
There was a total of 90 accidents with
employees across the Group in 2017,
of which:
• The Company revised its relations
with contractors performing
work or rendering services on the
premises of NLMK Group companies
(including OHS qualification
and selection requirements up to
step-by-step management of their
activities)
• Leaders and professionals with
a high level of commitment to safe
production practices were selected
and trained as in-house OHS
trainers.
Risk management. NLMK Group’s
divisions continued their efforts to
implement the risk management
programme, aimed at identifying
hazardous production factors, their
elimination and efficient management
of residual risks. In 2017, close to
53,000 risks of potential occupational
trauma and material damage to
the Company’s property were
eliminated.
Personnel engagement. OHS
awareness campaigns were carried
out together with the PR team via
corporate communication channels.
At the end of the year, two videos
were filmed based on true stories of
fatalities in steelmaking operations to
prevent occupational accidents.
• 44 at NLMK’s Russian companies
Industry average
nlmk group
• 46 at NLMK’s international
companies.
74 2017 annual report
* oHSaS — occupational Health and Safety assessment Series
** ltIFr — lost time Injury Frequency rate
4850515254
our
eMpLoyees
occupatioNaL heaLth
aNd safety
72
coMMuNity
deveLopMeNt
Key
iNdicators
breaKdown of occupational health and Safety coStS
($98 m in 2017*)
%
* russian companies
oHS trainings
Healthy meals
other
Improvement of working conditions
Fire safety
1
1
3
3
5
risk management
12
personal protection equipment
14
occupational safety
61
target ohS Kpis
Occupational health and safety
2017 TarGeTS
2017 performance
proGreSS
2018 TarGeTS
Keeping lost time injury frequency
rate (LTIFR) for employees at NLMK
Group’s Russian companies below or
equal to 0.60
The lost time injury frequency
rate (LTIFR) for employees
at NLMK Group’s Russian
companies was 0.51
Target exceeded by 15%
Reducing lost time injury frequency
rate (LTIFR) for employees at
NLMK Group’s international
companies by 10% vs. 2016
The lost time injury frequency
rate (LTIFR) for employees at
NLMK Group’s international
companies was 7.13, which is
7% lower than in 2016, when
it was 7.71
Not achieved (7%
reduction vs. targeted
10%)
Keeping lost time injury frequency
rate (LTIFR) for employees and
contractors at NLMK Group below or
equal to 0.85
As part of the Risk Management
Programme:
•
Identify TOP 3 risk categories for
each department/company
• Assess operational risks as per
TOP 3 risk categories
Ensure that NLMK Group’s LTIFR for
employees does not exceed 1.00
The lost time injury frequency
rate (LTIFR) for employees at
NLMK Group was 0.97
Target achieved
• Develop company sub-
Eliminating or reducing no less than
50% of unacceptable risks identified
in 2017 and those carried over from
2016
63.3% of identified
unacceptable risks eliminated
or reduced
Target exceeded by 27%
Eliminating or reducing no less than
50% of conditionally acceptable risks
identified in 2017 and those carried
over from 2016
95.5% of identified
conditionally acceptable risks
eliminated or reduced
Target exceeded by 91%
programmes for TOP 3 risk
categories for inclusion into
the corporate OHS function’s
Maintenance and Overhaul
Programme 2019–2023
• At least 90% of OHS projects
implemented / timeliness
and budget execution of the
Maintenance and Overhaul
Programme until the end of 2018.
Implementation of best OHS
practices
Over the course of the
year the Company was
implementing best OHS
practices, incl. prevention of
injuries and other initiatives
Target achieved
Continue the implementation of best
OHS practices
our team 75
NLMK 2017627681 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
Long-term stability of business
depends on social and economic
stability of the regions where the
Company operates, that’s why
social investment is a priority for
NLMK.
communITy
deveLopmenT
Social responsibility mission
and strategic objectives
NLMK’s key social goals:
As a socially responsible company,
NLMK Group assumes its duty
to ensure the observance of
international and national law, as
well as to satisfy the social needs of its
workers, the local communities in the
regions where the Company operates,
and of society as a whole.
The Company sees its social mission
as achieving sustainability goals
that 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 operation.
• Build relationships with employees
based on the best practices of social
partnership, ensuring equal social
guarantees and creating equal
opportunities for high-performance
work, professional growth and
unlocking each employee’s creative
potential
• Support the efforts of state
authorities, local governments,
and civil society aimed at social
and economic development of the
region; as well as to initiate the
Company’s own social programmes
and projects, participate in the
strAtEGy 2017 tArGEt
INdIcAtOrs
j Social reSponSibility
miSSion and Strategic
objectiveS
j improving the Social
environment
j nlmK group’S
inveStmentS in
the regionS where it
operateS
j promotion of Sport
and culture
j promotion of
education and
Science
j worK with
children and young
people
j charitable activitieS
76 2017 annual report
4850515254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
76
Key
iNdicators
Key highlightS
as a socially responsible business, nlmK
invests in the development of the local
communities in the regions where it
operates
Improving the quality of life for the people
living in the regions where the Company
operates is one of nlmk’s key social
responsibility goals.
nlmK consistently finances and imple-
ments programmes promoting education,
healthcare, culture and sport
nlmk group’s investment in social
development of the regions of its russian
facilities totalled $41 million in 2017.
nlmK is also involved in charity work in
the regions where it operates
nlmk finances several charitable pro-
grammes, both through charitable organi-
zations established by the Company and
direct financial contributions.
Entrepreneurs and the Association of
Russian Steelmakers (AMROS).
nlmK group’s investments
in the regions where
it operates
NLMK consistently finances
programmes aimed at promoting
education, healthcare, and culture to
form the economic and social well-
being of the Company and the regions
where it operates.
development and implementation
of social programmes and projects
within the scope of public-private or
community-private partnerships
• Improve the quality of management
in the Company’s social sphere,
to enhance the efficiency of the
Company’s social activities that will
enable sustainable use of resources
to ensure the economic and social
well-being of the Company, the
regions where the Company
operates and the country as a
whole.
improving the social
environment
Improving the quality of life for
people who 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
different 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 ongoing
investments into programmes that
support science and education, culture
and sports.
The Company makes significant
efforts to support fruitful cooperation
with state and local authorities, civil
society institutions for the benefit of
wide spectrum social and economic
development and a favourable business
climate across the territories of its
operation.
NLMK supports charters and other
initiatives developed by external
parties that do not contradict the
principles of business conduct. It
actively cooperates with business
and public organizations, such as the
Russian Union of Industrialists and
Key aSpecTS
of corporaTe
reSponSIbILITy
Engagement with
local communities
Development of
regions where
NLMK operates
2017 TarGeTS
2017 performance
proGreSS
2018 TarGeTS
Initiatives promoting
sustainable development
of the regions where the
Company operates and
maintaining social and
economic stability in local
communities
Investment in social needs
and the development of the
regions where the Company
operates totalled RUB 3.3
billion, whilst ca. RUB 300
million was allocated to
charity
Target achieved
NLMK Group actively
participated in the
development of the
regions where it
operates
Further implementation
of initiatives promoting
sustainable development
of the regions where the
Company operates
Formalize the
Company’s social policy
our team 77
NLMK 2017627281 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
Key areas of social
investment:
• Promotion of culture, mass and
youth sport
• Promotion of education and science
• Work with children and young
people
• Charitable activities.
In 2017, nlmk group’s social
investment at its russian sites
totalled
rub
2.4 billion
($41 million)
promotion of sport
and culture
The Company sees the promotion of
welfare and a healthy lifestyle for its
employees and people in the regions
where 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 finances the ‘Lipetsk Metallurg’
sports club that is successfully
promoting sport in Lipetsk and creates
the conditions for NLMK Lipetsk
employees and the members of their
families, as well as all other Lipetsk
dwellers, to practice sports.
nlmK’S Social inveStment
(cumulative)
rub bn
11.4
8.5
3.3
3.0
5.2
2.9
2.3
2.3
13.8
2.4
2013
2014
2015
2016
2017
breaKdown of 2017 Social
inveStment
%
12 Charitable activities
3 Work with children
and young people
12 Healthcare
5 Sport
4 Culture
19 Hot meals
and commuting
45 others
78 2017 annual report
4850515254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
76
Key
iNdicators
In 2017, the Company allocated
close to RUB 54 million to support
educational institutions in the regions
where it operates.
work with children and young
people
NLMK invests a lot of effort into
organizing healthy recreational
activities for children. During the
summer vacation, the Company
arranges trips for the 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 courage in schools
and colleges.
promotion of education
and science
NLMK has a comprehensive
programme to support the younger
generation receiving quality technical
education and develop scientific
potential of educational institutions by
creating its own talent pool of driven
and technically qualified experts. This
includes:
• Earmarked financing of scientific
and educational activities of basic
educational institutions
• Development and expansion
of science and technology
infrastructure of scientific centres in
the metals and mining industry
• Arrangement and funding of science
related conferences, R&D creative
competitions among students of
basic educational institutions
• Arrangement of Doors Open Days
and site visits to production facilities
for schoolchildren, on-the-job
training at the Group’s facilities for
students of specialized vocational
education institutions
• Establishing the conditions
necessary for training and
motivating students to obtain
quality vocational education,
for example by implementing
scholarship programmes.
More than 20,000 residents of Lipetsk
visit NLMK sports complexes every
year. More than 2,000 schoolchildren
participate annually in the sports
competitions organized by NLMK.
The ‘Lipetsk Metallurg’ sport club
fully funded the establishment of the
Children’s and Youth Sports School
of Olympic Reserve No. 13, where
300 young athletes are trained in clay
target and rifle and pistol shooting.
As a result, half of the Russian
national shooting team are alumni of
‘Lipetsk Metallurg’ sport club. Over its
lifetime, Youth Sports School No. 13
trained 10 international masters of
sports, 35 masters of sports, more
than 60 candidate masters and more
than 350 athletes. 20 athletes from
Lipetsk are members of the Russian
national sports teams.
more THan 20,000 reSIdenTS
of LIpeTSK vISIT nLmK SporTS
compLexeS every year
Support for culture and art is one of
the most important areas of social
policy. The Company supports
cultural, historical and educational
organizations, allocates funds for the
protection and proper maintenance of
monuments of cultural, historical, and
architectural heritage in the regions
where it operates.
our team 79
NLMK 2017627281 highLights
2017
NLMK
vaLues
huMaN rights
protectioN
sustaiNaBLe deveLopMeNt
priorities
diaLogue
With staKehoLders
projecT ‘STeeL Tree’
tHE mOst mEmOrAbLE prOjEct IN 2017 wAs
tHE ‘stEEL trEE’ ENVIrONmENtAL INItIAtIVEs
prOGrAmmE
this programme was part of
the ‘Young leader’ corporate
competition. Young employees
were invited to lead project
teams and implement their
projects aimed at improving
the environment in the city of
lipetsk.
more than rub 2 million were
allocated to the project in 2017,
which allowed supporting the
following initiatives:
• melioration of the matyr
reservoir to prevent
overgrowth
• Cleaning of the nizhny park
drainage system in lipetsk
• revival of the recreational
area at Syrskoye village in the
area of the old riverbed of the
voronezh river
• Creation of an educational
eco-trail in the pine Forest site
•
‘eco-yard, eco-city, eco-world!’
residential care
•
•
•
‘From a clean slate’: planting
of a Family alley in a new city
district
‘ecology of the Future’
edutainment platform aimed
at fostering environmental
consciousness in the younger
generation
‘green is not just a colour. It
is a philosophy’: a graffiti art
object aimed at fostering an
environmentally literate and
engaged younger generation
•
‘nlmk for a clean forest’
•
•
‘Steel owl’ festival of
intellectual games
Installation of solar batteries
on a multi-apartment
residential building.
the ‘Steel tree’ project, well-loved
by the local residents, attracted
public attention and was highly
appreciated by the municipal
authorities. In 2018, nlmk group
plans to expand the project and
make it citywide.
charitable activities
NLMK contributes to charities through
its own charitable organizations as
well as through direct contributions to
other charities.
Priority areas include support for
orphans, low-income households,
pensioners and differently-abled
persons; support for victims of natural,
environmental, industrial or other
disasters; promotion of family values
in society; environmental and animal
protection.
The ‘Miloserdiye’ (‘Mercy’) social
protection fund, founded by NLMK in
1999, runs 11 programmes that cover
all aspects of social support. Priority
areas include support for orphans,
low-income households, pensioners
and differently-abled persons, as well
as people that have found themselves
in challenging life situations.
Over 30,000 people from the Lipetsk
region, who 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 Region helps promote
sports and protect cultural heritage,
also supporting veterans and
pensioners.
80 2017 annual report
4850515254 our
eMpLoyees
occupatioNaL heaLth
aNd safety
coMMuNity
deveLopMeNt
76
Key
iNdicators
81
Key
IndIcaTorS
perSonneL
Number of employees, ‘000 people
Staff turnover, %
Number of female employees, %
Salary growth, %
Investments in employee training, $ m
occupaTIonaL HeaLTH and SafeTy
Accidents, total
Employees
Contractors
Fatalities, total
Employees
Contractors
Lost time injury frequency rate (LTIFR), NLMK Group
Lost time injury frequency rate (LTIFR), Russian assets
2013
61.7
10.0
27.3
10.0
5.5
2013
217
194
23
8
8
0
2.03
0.86
2014
60.1
8.4
27.2
12.0
4.4
2014
177
151
26
0
0
0
1.55
0.55
2015
2016
56.7
8.8
27.0
8.0
3.3
54.0
4.7
28.0
10.0
3.9
2015
2016
123
102
21
6
5
1
1.12
0.43
90
73
17
5
2
3
0.82
0.34
2017
53.2
4.0
27.0
8.8
4.5
2017
121
90
31
11
5
6
0.97
0.51
Investments in OHS, $ m
34.07
39.48
24.57
65.04
98.04
LocaL communITIeS
Social investments, $ m
Social investments, RUB bn
2013
73
2.30
2014
75
2.91
2015
2016
2017
54
3.28
44
41
2.95
2.40
our team 81
NLMK 20176272 Leadership
82
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
LeaderSHIp
82 annual report 2017
91 board of directorS
NLMK’s Board of Directors was
elected on 2 June 2017. There are
five independent directors on
the Board.
Main functions
of the Board of Directors:
• To develop and implement the
corporate strategy
• To approve priority business areas
for the Сompany
• To assess risks
• To approve budgets and business
plans
• To set target indicators
• To assess the performance of the
Сompany and its bodies
• To control large-scale capital
expenses, asset acquisition, and sale
transactions, etc.
Related corporate
documents:
• Charter
• Corporate Governance Code
• Regulations on the Board
of Directors
• Regulations on remuneration
and compensation to members
of the Board of Directors
memberS of THe board of dIrecTorS*
fuLL name
poSITIon
yearS on
THe board
IndependenT
parTIcIpaTIon
In THe STraTeGIc
pLannInG
commITTee
parTIcIpaTIon
In THe audIT
commITTee
parTIcIpaTIon In THe
Human reSourceS,
remuneraTIon and
SocIaL poLIcIeS
commITTee
vLadImIr
LISIn
Chairman of the
board of directors
oLeG baGrIn
member of the
board of directors
THomaS
veraSzTo
member of the
board of directors
HeLmuT
wIeSer
nIKoLaI
GaGarIn
member of the
board of directors
member of the
board of directors
Karen
SarKISov
member of the
board of directors
STanISLav
SHeKSHnIa
member of the
board of directors
benedIcT
ScIorTIno
member of the
board of directors
franz
STruzL
member of the
board of directors
21
13
2
7
16
8
3
6
7
☑
☑
☑
☑
☑
☑
☑
Chairman
Chairman**
☑
☑
☑
☑
☑
☑
☑
☑
☑
Chairman
☑
* as of 31 december 2017
** for further information, please refer to “events after the reporting date”
Corporate governanCe 83
NLMK 2017 Leadership
82
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
board of dIrecTorS bIoGrapHIeS
vLadImIr LISIn
Year of birth: 1956
oLeG baGrIn
Year of birth: 1974
Board member since 1996, Chairman
of the Board since 1998
Chairman of the Strategic Planning
Committee and member of the Human
Resources, Remuneration and Social
Policies Committee*
President (Chairman of the
Management Board) of NLMK since
2012, Board member since 2004*
Member of the Strategic Planning
Committee
benedIcT ScIorTIno
Year of birth: 1950
Board member since 2012
(independent director)
Chairman of the Audit Committee
and member of the Strategic Planning
Committee
mr. bagrin holds a graduate degree
in operations research and a
postgraduate degree in economics
from the State university of
management, moscow, and a degree
in business administration from the
university of Cambridge, uk.
board member of a number of nlmk
subsidiary and affiliate companies;
Chairman of the board of Directors of
management company libra Capital,
investment company libra Capital,
moscow.
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.
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, finance
and legal matters, mergers and
acquisitions. mr. Sciortino serves
as a director of several operating
companies.
graduate of ordzhonikidze Siberian
metallurgic Institute, majored in
Ferrous and non-Ferrous Foundries.
In 1990, mr. lisin graduated from
the Higher School of Commerce
with the all-russian Foreign trade
academy. In 1992, he graduated
from the academy of national
economy majoring in economics
and management. ph.D., tech.; ph.D.,
ec.; professor, Winner, uSSr Council
of ministers prize for Science and
technology. Honorary metallurgist of
the rF. knight of the order of Honour.
knight of the order of alexander
nevsky.
vladimir lisin started his career in
1975 as an electrical fitter. He worked
at tulachermet, rising through the
ranks from assistant steelmaker to
deputy shop manager. From 1986,
he worked in kazakhstan, first as
Deputy Chief engineer, and later as
Deputy Ceo of the karaganda Steel
plant. member of boards of Directors
of several leading russian steel
companies since 1993.
84 annual report 2017
* for further information, please refer to “events after the reporting date”
91 THomaS veraSzTo
Year of birth: 1962
nIKoLaI GaGarIn
Year of birth: 1950
Karen SarKISov
Year of birth: 1963
Board member since 2016
(independent director)
Member of the Strategic Planning
Committee
Board member since 2001
Board member since 2010
Member of the Audit Committee
Member of the Strategic Planning
Committee and the Audit Committee
graduate of lomonosov moscow
State university, majored in law.
In 2003 – being managing partner –
he was appointed Chairman of
the board at reznik, gagarin,
abushakhmin and partners law
offices. Chairman of the board,
managing partner at reznik, gagarin
and partners law offices, moscow,
since 2009.
graduate of tashkent State
university, majored in oriental
Studies.
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 managing
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.
thomas veraszto received
a Dr. jur. in law and mag. phil. in
Slavic languages in 1984 and 1985,
respectively, both from the university
of graz, austria. In 1988, he also
received a Diploma from the bologna
Center of the School of advanced
International Studies, Johns Hopkins
university, uSa.
thomas veraszto was a partner
and managing Director with the
boston Consulting group (bCg) in
2014-2015, serving primarily clients
in the industrial goods sector on
strategy, organizational development
and operational improvement. He
continues to be a Senior advisor of
bCg in this area.
mr. veraszto has held senior
management positions in large
industrial and consulting companies
such as mckinsey & Company, where
he spent 15 years, serving clients in
various industries.
Corporate governanCe 85
NLMK 2017 Leadership
82
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
franz STruzL
Year of birth: 1942
STanISLav SHeKSHnIa
Year of birth: 1964
HeLmuT wIeSer
Year of birth: 1953
Board member since 2011
(independent director)
Board member since 2015
(independent director)
Board member since 2011
(independent director)
Member of the Strategic Planning
Committee and the Audit Committee
Chairman of the Human Resources,
Remuneration and Social Policies
Committee and member of the Audit
Committee
Member of the Strategic Planning
Committee and member of the Human
Resources, Remuneration and Social
Policies Committee
Stanislav Shekshnia has a master’s
Degree in economics, a ph.D. from
moscow State university, and an
mba from northeastern university in
boston.
Dr. Shekshnia has held senior
executive positions at russian and
international corporations, including
Hr Director of otis elevator, Coo at
vimpelCom, and Ceo of alfa-telecom.
He has served as Chairman of Suek
and vimpelcom-r. mr. Shekshnia
co-founded Zest leadership
International Consultancy.
Currently mr. Shekshnia is a Senior
partner of Howell Zest, talent equity
Consulting Company.
Dr. Shekshnia is an affiliate professor
of entrepreneurship at InSeaD. He
has over 15 years of graduate level
teaching experience in russia, France
and the united States.*
Franz Struzl graduated from the
university of economics, vienna, in
1964.
In 1967, Franz Struzl joined alpine
Steel group, later renamed
voestalpine ag, based in linz,
austria, serving the Company for
over four decades. During his career
at voestalpine, Franz Struzl held
various positions in a number of
fields including strategic planning,
commercial and technical areas.
In 1981, he was appointed Chief
Financial officer before becoming
Chief executive officer of voestalpine
long products group and a member
of the executive board in 1991.
From 1995 until 2001, he served as
vice Chief executive officer of the
group. In 2001, Franz Struzl was
appointed as voestalpine group Chief
executive officer and Chairman. He
held the position until 2004, when he
moved to become Chief executive
officer of voestalpine, brazil – villares
metals, remaining there until 2010.
From 2011 to 2016, he was general
Director of rHI ag.
Helmut Wieser received a master’s
degree in mechanical engineering and
economics in 1981 from the university of
graz, austria.
Helmut Wieser was an executive vice
president of alcoa and group president
responsible for alcoa’s global mill
products and rigid packaging businesses
until november 2011. mr. Wieser was a
member of the alcoa executive Council,
the senior leadership group that provides
strategic direction for the company.
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
Coo. earlier, he held several senior
management positions with voest alpine
in austria and venezuela, including
president of voest alpine venezuela.
In march 2014, he became a member of
management board of austria metall ag.
In april 2014, he became the company’s
Chairman of the management board
(president & Ceo). Since 2014, he is
a member of the board (Independent
director) of rain Carbon Inc.*
86 annual report 2017
* for a more detailed bio please visit
* for a more detailed bio please visit
www�nlmk�com
www�nlmk�com
91 mANAGEmENt
bOArd
The NLMK Group Management Board
as of 31 December 2017 consisted
of eight members. The Management
Board holds regular meetings.
Members of the Management Board
are in charge of the Group’s day-to-
day operations. They also establish
liaison protocol with legal entities,
shares or stakes of which are directly
or indirectly managed by NLMK.
Corporate documents
regulating the activities
of NLMK’s Management Board:
• Charter
• Corporate Governance Code
• Regulations on the Management
Board
compoSITIon of THe manaGemenT
board aS of 31 december 2017
the nlmk group management board as of 31 december 2017
consisted of eight members�
compoSITIon of THe manaGemenT
board unTIL 03 marcH 2017
fuLL name
poSITIon
fuLL name
poSITIon
oLeG baGrIn
member of the board of directors
president (Chairman of the
management board)*
oLeG baGrIn
member of the board of directors
president (Chairman of the
management board)
brIjeSH Kumar GarG
vice president, procurement
TaTyana avercHenKova
vice president, operational efficiency
ILya GuScHIn
vice president, Sales
ILya GuScHIn
vice president, Sales
barend de voS
vice president, International operations
barend de voS
vice president, International operations
SerGey LIKHarev
vice president, logistics
SerGey LIKHarev
vice president, logistics
GrIGory fedorISHIn
vice president, finance
GrIGory fedorISHIn
Senior vice president, deputy Chairman
of the management board**
SerGey fILaTov
managing director
SerGey fILaTov
managing director
STanISLav TSyrLIn
vice president, Hr & management
System***
* for further information, please refer to “events after
the reporting date”
STanISLav TSyrLIn
vice president, Hr & management
System***
yurI LarIn
advisor to the president (Chairman
of the management board) on
development programmes
** appointed Senior vice president, Deputy Chairman of the management board on 13 march 2017
*** vice president, Hr & management System until 29 December 2017
Corporate governanCe 87
NLMK 2017 Leadership
82
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
memberS of THe manaGemenT board bIoGrapHIeS
oLeG baGrIn
Year of birth: 1974
TaTyana avercHenKova
Year of birth: 1979
ILya GuScHIn
Year of birth: 1976
Member of NLMK Group’s Board
of Directors since 2004, President
(Chairman of the Management Board)
of NLMK since 2012*
Member of the Strategic Planning
Committee*
mr. bagrin holds a graduate degree
in operations research and a
postgraduate degree in economics
from the State university of
management, moscow, and a degree
in business administration from the
university of Cambridge, uk.
board member of a number of nlmk
subsidiary and affiliate companies.
Chairman of the board of Directors of
management company libra Capital,
investment company libra Capital,
moscow.
Vice President, Operational Efficiency
Vice President, Sales
Member of the Management Board
since 2017
Member of the Management Board
since 2014
ms. averchenkova graduated
from lipetsk State technical
university, majoring in economics
& management.
tatyana averchenkova has been
with nlmk since 2001. She served
as Director for Controlling and held
various senior management positions
in the Strategy Department. In 2016,
she was appointed vice president,
operational efficiency.
graduate of the Faculty of economics,
lomonosov moscow State university.
Holds a ph.D. in economics.
mr. guschin joined nlmk in 2013.
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
microsoft.
88 annual report 2017
* for further information, please refer to “events after the reporting date”
91 barend de voS
Year of birth: 1967
SerGey LIKHarev
Year of birth: 1964
GrIGory fedorISHIn
Year of birth: 1979
Vice President, International
Operations
Vice President, Logistics
Senior Vice President, Deputy
Chairman of the Management Board*
Member of the Management Board
since 2016
Member of the Management Board
since 2014
Member of the Management Board
since 2012
Holds a b.eng. (Hons) electrical and
m.eng (industrial) from the university
of pretoria.
From 2011 onwards, Director of nlmk
belgium Holdings, as well as of a
number of subsidiaries. He is Ceo,
Chairman of the management board
of nlmk International b.v., leading the
turnaround and operating efficiency
programmes.
mr. De vos joined Duferco la louvière
in belgium in 2004 and served as a
management board member of the
nlmk/Duferco Jv between 2007 and
2011.
after starting his career as
production and development engineer
in 1990, he held various management
positions at Iscor and Saldanha Steel
(now arcelormittal South africa)
between 1995 and 2003, ending with
export sales.
Sergey likharev holds a ph.D. in
physics and mathematics and a
masters of business administration
from Cornell university, uSa.
From 1990 to 1993, he worked as a
researcher at lomonosov moscow
State university.
grigory Fedorishin graduated
from the State Finance academy,
moscow. He holds a master’s degree
in business administration from
InSeaD business school, France
& Singapore. member of Certified
Financial analysts (CFa) association.
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.
after serving as Ceo of aviacor
aviation plant in Samara from 2004
to 2007, he became Ceo of the basel
aero airport group, a position he held
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.
Senior vice president, Deputy
Chairman of the management board
from march 2017 to march 2018. vice
president for Finance (CFo) from 2013
until 2017. In 2016, he headed nlmk
group’s long products Division in
russia.
From 2011 to 2013, he served as nlmk
Director of Strategy and business
Development.
From 2009 to 2011, he served as
an investment manager at libra
Capital, a moscow-based investment
management company.
From 2001 to 2009, he worked for
pricewaterhouseCoopers consulting
company, where he held positions up
to director for business restructuring
practice.
* for further information, please refer to “events after the reporting date”
Corporate governanCe 89
NLMK 2017 Leadership
82
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
SerGey fILaTov
Year of birth: 1959
Managing Director
Member of the Management Board
since 2013
STanISLav TSyrLIn
Year of birth: 1968
Vice President, HR & Management
System (until 29 December 2017)
Member of the Management Board
since 2005
mr. Filatov graduated from moscow
Institute of Steel and alloys. He holds
a ph.D., tech., and is an Honorary
metallurgist of russia.
mr. Filatov has been with nlmk
since october 2012, serving as
Deputy Senior vice president -
general Director for production and
technology. on 25 January 2013,
Sergey Filatov was appointed to the
position of nlmk’s managing Director.
From 2009 to 2012, he served as
Chief engineer at ntmk. From 2007
to 2009, he was project manager
at ntmk project management
Department.
mr. tsyrlin graduated from moscow
Institute of physics and technology
and from Stanford university.
From 2004 to 2006, he 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 boston Consulting group
from 1996 to 2003, serving initially
as a consultant, then as a project
manager before being appointed
Deputy Director.
vice president, Hr & management
System, until 29 December 2017.
90 annual report 2017
corporaTe
Governance
general information
about nlmK’S corporate
governance
As a public company, NLMK is
constantly optimizing its corporate
governance practices. In its activities,
NLMK adheres to best international
practices and the highest standards of
corporate governance.
NLMK corporate governance system is
based on the principles of sustainable
development, as well as long-term
growth of return on equity investments.
The Company maintains a policy of
maximum openness, transparency
and easy access to information. These
principles and mechanisms in place
allow our shareholders and investors
to have all the necessary information
provided in a timely manner so that
they can make day-to-day and strategic
decisions regarding the Company’s
securities.
In 2017, the Company
continued to actively
improve its corporate
governance practices
as part of the corporate
governance reform.
All documents regulating corporate
governance practices and principles
are available on NLMK Group’s official
website.
decision-making processes, the
efficiency of the Board of Directors, the
remuneration, risk management and
internal audit systems, policies regulating
disclosures on operational activities, and
plans for the future development of the
Company are important factors, which
are taken into account by shareholders,
investors, and other stakeholders
when making business decisions. In
this regard, transparency and high-
quality of information on key areas of
corporate governance are critical factors
for enhancing the credibility of the
Company.
The corporate governance
system addresses three primary
tasks the Company faces:
• Ensuring maximum efficiency
• Attracting investment
• Meeting its legal and social
obligations.
NLMK’s corporate governance system
is built on best global practices
and is fully compliant with the
requirements of the prevailing 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
the existing legislation of the countries
where the Company operates.
corporate governance
SyStem
Key principles of our
Corporate Governance:
The corporate governance system, the
established practices and approaches
that determine strategic and operational
• 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
• Ensure equal treatment of all
shareholders, including foreigners
and minority shareholders
• Ensure reliable and effective
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, affiliates, 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
Corporate governanCe 91
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
nlmK’S corporate governance Structure*
Independent
audItor
general SHareHolderS’
meetIng
StrategIC plannIng
CommIttee
Internal audIt
CommISSIon
Corporate
SeCretary
board of dIreCtorS
Human reSourCeS,
remuneratIon and SoCIal
polICIeS CommIttee
audIt CommIttee
preSIdent
(CHaIrman of tHe
management board)
Corporate audIt
and Control ServICeS
memberS of tHe management board
managIng
dIreCtor
vICe preSIdent,
Hr & management
SyStem
vICe preSIdent,
SaleS
vICe preSIdent,
logIStICS
SenIor vICe preSIdent,
deputy CHaIrman of tHe
management board
vICe preSIdent,
operatIonal effICIenCy
vICe preSIdent,
InternatIonal
operatIonS
→ for further information, please refer to “events after the reporting date”
* as of 31 december 2017
• General Shareholders’ Meeting,
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 the strategic
management of NLMK, controls
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 significant
corporate events
• Board of Directors Committees,
established to perform the
preliminary review for key matters
of NLMK Group’s business, which
provide assistance to the Board
• Promote a policy of complying
with business ethics in conducting
its operations.
nlmK’S corporate
governance
Structure
According to acting corporate
documents, NLMK’s corporate
governance structure includes:
92 annual report 2017
82 of Directors in devising and
reaching decisions within their
areas of expertise, as well as
providing preliminary and more
detailed examination of matters
to be brought before the Board of
Directors for consideration
• 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 efficient operation, while
implementing the objectives set by
the Board of Directors
• 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, the
Audit Committee, and Audit
Department that oversee financial
and economic activities.
improving corporate
governance practiceS
in 2017
During 2017, the Company continued
to actively enhance its corporate
governance practices. For the purposes
of ensuring the most favourable
conditions for participating in the
General Shareholders’ Meeting, the
Board of Directors can resolve to offer
its shareholders the option of voting
online on the Company’s website.
By resolution of the Company’s Board
of Directors, the Annual General
Shareholders’ Meeting on the results
of 2016 was video broadcast online.
Live video broadcasts are another step
towards better transparency of the
Company.
Aiming to improve the quality of
corporate governance, and taking
the to the prevailing legislation into
consideration, NLMK approved its
corporate documents. In particular, the
General Shareholders’ Meeting held
in December 2017 adopted revised
versions of NLMK Charter, Regulations
on the General Shareholders’ Meeting,
and Regulations on the Board of
Directors, in full compliance with the
prevailing Russian legislation.
In November 2017, NLMK Group
received the ‘Active Corporate Policy
on Information Disclosure’ award
established by news agencies. This
award is testimony to the Company’s
efficient approach to information
transparency. Its success recognized
once again, NLMK will continue
improving the quality of information
disclosure and refining its balanced
approach to information transparency.
Based on an annual assessment
of corporate governance practices
performed by several research
institutes, NLMK Group was ranked
among the leaders in terms of the
quality of its corporate governance.
This index assesses the corporate
governance maturity level, which
determines the degree of conformity
to the principles of the national
Corporate Governance Code.
Based on the results of the annual
study conducted by a research centre
with the support of the Moscow Stock
Exchange, the Company was ranked
among TOP 10 companies with the
best corporate governance disclosure
practices.
general ShareholderS’
meeting
rights and responsibilities
of shareholders
NLMK’s shareholders enjoy a collection
of rights that they can exercise
themselves or through their proxies by
participating in General Shareholders’
Meetings with the right to vote on all
issues within its remit.
The Company provides objective and
exhaustive information to shareholders
in a regular and timely manner on
items included into the agenda of a
General Shareholders’ Meetings and on
the Company’s operations, sufficient
to make informed decisions regarding
their shares. The convocation,
preparation and holding of the General
Shareholders’ Meeting are governed
by the Regulations on the General
Shareholders’ Meeting.
The Company offers its shareholders
an efficient procedure for submitting
proposals on the agenda items for the
General Shareholders’ Meeting and for
nominating candidates to its governing
bodies. The Company has established an
extended period for the submission of
proposals on the agenda items and for
the nomination of candidates compared
to the one set by the Russian legislation.
Participation of the maximum possible
number of shareholders in the
decision-making process at the General
Shareholders’ Meeting serves the
interests of the Company.
nlmK’s corporate
governance in action
The General Shareholders’ Meeting,
NLMK’s supreme governing body, is
held upon the resolution of the Board
of Directors at its own discretion,
upon the request of the Internal
Audit Commission, the Auditor, or
shareholder(s) holding no less than 10
per cent of the Company’s voting shares
at the date of the request to convene
the General Shareholders’ Meeting.
The information (materials) provided
to persons entitled to participate in
the General Shareholders’ Meeting
is published on NLMK’s website
(www.nlmk.com) according to the
procedure and within the timeframe
Corporate governanCe 93
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
the person responsible for the
Company’s accounting, nominees to
the Company’s governing bodies to be
voted on at the General Shareholders’
Meeting, and other persons.
Persons entitled to participate in the
General Shareholders’ Meeting have
the right to put forward questions to
members of the governing bodies, the
person responsible for the Company’s
accounting, the Company’s auditors,
and nominees to the Company’s
governing bodies.
Participants of the General
Shareholders’ Meeting are entitled
to freely contact and consult each
other on issues on the meeting’s
agenda without violating the meeting
procedure (regulations).
By resolution of the Board
of Directors, the General
Shareholders’ Meeting can be video
broadcast live on the Company’s
official website.
As a rule, the Chairman of the Board
of Directors presides at the General
Shareholders’ Meeting (or one of the
members of the Board of Directors on
his behalf).
Voting at the General Shareholders’
Meeting is carried out by voting
ballots. Each shareholder is sent the
voting ballots within the timeframe
established by the Russian legislation
and the Charter.
For the purposes of ensuring the most
favourable conditions for participating
in the General Shareholders’ Meeting,
the Board of Directors can resolve to
offer its shareholders the option of
voting online on the Company’s website.
The independent registrar of
the Company functions as the
counting commission of the General
Shareholders’ Meeting.
The voting results and resolutions
passed by the General Shareholders’
Meeting are disclosed in accordance
with the requirements of the Russian
legislation.
activity in 2017
Three General Shareholders’ Meetings
were held in 2017.
GeneraL SHareHoLderS’
meeTInG by STaTuS (formaT)
annual meeting (in person)
extraordinary meeting
(absentee voting)
1
2
NLMK’s 2016 Annual General
Shareholders’ Meeting was held
on 2 June 2017. Shareholders and
shareholder representatives holding a
total of 90.76% of NLMK’s shareholder
capital were present, meeting the
quorum requirements. During the
meeting, the following issues were
reviewed and decisions taken:
Resolution 1: Approve NLMK’s 2016
Annual Report.
Resolution 2: Approve NLMK’s 2016
annual financial statements, including
profit and loss statement.
Resolution 3: Approve NLMK’s FY2016
profit distribution:
• Pay (declare) 2016 dividends in
the amount of 9.22 rubles per
common share, including out
of previous profits. Taking into
account interim dividends paid
in the amount of 5.84 rubles per
common share, the amount of
dividends payable is 3.38 rubles
per common share. Set the date
upon which the persons entitled
to dividends are determined as
14 June 2017.
Resolution 4: Pay (declare) Q1 2017
dividends in the amount of 2.35 rubles
per сommon share. Set the date upon
which the persons entitled to dividends
are determined as 14 June 2017.
established by the Company’s
Charter and the laws of the Russian
Federation.
In addition to the information that the
notice of the General Shareholders’
Meeting is required to contain by law,
it also specifies:
• The exact location of the General
Shareholders’ Meeting, including
information on the venue where the
meeting is going to be held
• Information on documents required
for admission to the premises where
the General Shareholders’ Meeting
is to be held
• Information on how to access the
General Shareholders’ Meeting
remotely, if a respective decision is
made by the Company’s Board of
Directors.
Besides obligatory materials required by
law, the Company shall provide
its shareholders with additional
information and materials pertaining
to the agenda items of the General
Shareholders’ Meeting in line with the
recommendations of the Corporate
Governance Code. The Company shall
also post a map of how to get to the
GSM, an approximate form of a power
of attorney that may be issued by a
shareholder to their representative
for participation in the GSM, and
information on certifying such a power
of attorney.
The Company also publishes all
the information specified in this item
in English to ensure equal treatment
of all shareholders, including
foreigners.
The Company invites the
following persons to the General
Shareholders’ Meeting: members of the
Board of Directors and Internal Audit
Commission, members of the
Management Board and President
(Chairman of the Management
Board), the Company’s auditors,
94 annual report 2017
82 Resolution 5: Elect NLMK’s Board of
Directors as follows:
NLMK’s Extraordinary General
Shareholders’ Meetings were held by
absentee ballot:
and has other key functions in the
Company.
• Oleg Bagrin
• Thomas Veraszto
• Helmut Wieser
• Nikolai Gagarin
• Vladimir Lisin
• Karen Sarkisov
• Stanislav Shekshnia
• Benedict Sciortino
• Franz Struzl.
Resolution 6: Elect Oleg Bagrin as
NLMK’s President (Chairman of the
Management Board).
Resolution 7: Elect NLMK’s Internal
Audit Commission as follows:
• Yulia Kunikhina
daTe
percenTaGe of
SHareHoLderS
parTIcIpaTInG
In THe meeTInG
29�09�2017
90�92%
22�12�2017
90�82%
At NLMK’s Extraordinary General
Shareholders’ Meeting held on
29 September 2017, shareholders
passed the resolution to pay
(declare) H1 2017 dividends in the
amount of 3.20 rubles per common
share.
At NLMK’s Extraordinary General
Shareholders’ Meeting held on
22 December 2017, shareholders
passed the following resolutions:
• Pay (declare) 9M 2017 dividends
in the amount of 5.13 rubles per
common share
• Approve the revised version of the
• Mikhail Makeev
Company’s Charter
• Approve the revised version
of the Company’s Regulations
on the General Shareholders’
Meeting
NLMK’s Board of Directors reports to
the Company’s 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.
According to the current corporate
documents, the Board of Directors,
acting within its powers:
• Ensures execution of resolutions
passed by the General
Shareholders’ Meeting
• Assesses political, financial,
and other risks impacting
the Company’s operations
as well as operations of its
subsidiaries, associates, and
other legal entities in which
NLMK is a founder, participant,
or member
• Determines approaches to
investment and participation
in other organizations
• Natalia Savina
• Elena Skladchikova
• Sergey Ushkov.
Resolution 8: Approve the resolution
on the payment of remuneration
to the members of NLMK’s Board
of Directors.
Resolution 9.1: Approve
PricewaterhouseCoopers Audit /OGRN
1027700148431/ as the Auditor
of NLMK’s 2017 RAS Accounting
(Financial) Statements.
Resolution 9.2: Engage
PricewaterhouseCoopers
Audit /OGRN 1027700148431/
to carry out an audit of NLMK’s
2017 IFRS Consolidated Financial
Statements.
• Approve the revised version of
• Assesses the performance of the
NLMK’s Regulations on the Board
of Directors.
Company and its bodies
board of directorS
nlmK’s corporate
governance in action
A key element of the Company’s
corporate governance responsible
for the strategic management of the
Company, the Board of Directors
determines the principles of and
approaches to the risk management
and internal control system, controls
the activity of executive bodies,
• Determines the terms of dividend
payment
• Develops remuneration incentive
methods and systems for
Company’s 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
Corporate governanCe 95
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
• Defines materiality criteria for
the subsidiaries, associates and
other legal entities in which
NLMK 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.
Meetings of the Board of Directors
are held on a regular basis at least
6 times a year in accordance with the
approved schedule.
person (convening and holding the
Annual General Shareholders’ Meeting,
including recommendations on
the distribution of profits and payment
of dividends, preliminary approval
of the Company’s annual reports,
financial statements and budget, etc.).
As a rule, the most critical matters
on the agenda of the Board of
Directors are first reviewed by the
Board committees, facilitating
their all-round consideration and
developing recommendations for the
Board of Directors on the decisions to
be made.
The format of NLMK’s Board of
Director’s meetings is determined
based on the importance of the issues
on the agenda. The most important
issues are resolved at meetings of
NLMK’s Board of Directors held in
Information on the activities
ofNLMK’s Board of Directors,
including information on its member-
list, its committees, meetings held,
and resolutions passed is published
on the Company’s official website.
chairman of the board
of directors
The Chairman of the Board of Directors
ensures the efficient functioning of the
Board of Directors.
The Chairman of the Board of Directors
arranges for the Board’s schedule to be
developed, supervises the execution of
resolutions passed by the Board, forms
the agenda and makes sure that the
most efficient decisions on the agenda
items are made.
The Chairman of the Board of Directors
ensures that the Committees of the
Board of Directors function efficiently,
including through the nomination of
members of the Board of Directors to
the Board Committees based on their
professional and personal qualities,
and taking into account the proposals
96 annual report 2017
82 received from the Board members on
setting up the Committees.
The Chairman of the Board of Directors
is elected by its members 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
The main principle behind the
composition of the Board of Directors in
terms of its independence and
professional competence is the principle
of balance. Independent directors on
the Company’s Board contribute to the
formation of an objective, balanced
approach by the Board of Directors to
items discussed, improve management
efficiency, and have a positive impact on
the Company’s image.
Thanks to their extensive experience in
governance, independent directors serve
to assist in solving such issues as devising
the Company’s development strategy,
assessing the conformity of the activities
of executive bodies with the Company’s
chosen strategy and ensuring there are
effective systems of internal control and
risk management, providing an objective
assessment of the quality of work
undertaken by the executive bodies,
and establishing an efficient motivation
system, ensuring that the interests of
Company’s shareholders are observed.
The Corporate Secretary on behalf
of the Company regularly conducts
a preliminary analysis and assessment
of the Board members’ compliance
with the Independence Criteria.
SHareS owned by memberS of nLmK board of dIrecTorS*
fuLL name
poSITIon
SHare of THe auTHorIzed
capITaL STocK of nLmK
vLadImIr LISIn
Chairman of the board of directors not an nlmk shareholder
oLeG baGrIn
member of the board of directors
not an nlmk shareholder
THomaS veraSzTo
member of the board of directors
not an nlmk shareholder
HeLmuT wIeSer
member of the board of directors
not an nlmk shareholder
nIKoLaI GaGarIn
member of the board of directors
not an nlmk shareholder
Karen SarKISov
member of the board of directors
not an nlmk shareholder
STanISLav SHeKSHnIa member of the board of directors
not an nlmk shareholder
benedIcT ScIorTIno
member of the board of directors
not an nlmk shareholder
franz STruzL
member of the board of directors
not an nlmk shareholder
* more information on the structure of the share capital is available
in the “Information for Shareholders” section
Governance Code recommended by the
Bank of Russia.
• Clarification of the goals
and priorities of the Board
of Directors
evaluation of the board
of directors
In line with the recommendations
of the Corporate Governance Code
and the best international practices,
the Company has been conducting an
annual performance evaluation of the
Board of Directors since 2016.
The formal evaluation procedure does
not only cover the Board of Directors as
a whole, but also assesses the work of
the Board committees and each member
of the Board, including its Chairman.
The main purpose of the Board’s
performance evaluation is to determine
the efficiency of its performance
as a collective governing body and
enhance the Board’s role in achieving
the Company’s goal of successful
development.
• Balance of independence and
qualification in the Board of
Directors
• Optimization of each member’s
contribution to the Board’s
activities
• Improvement of the work of
the Board and communication with
the management
• Identification of areas for
training and development
of Board members.
Board performance evaluation
ensures:
• An opportunity to make timely
adjustments to the plans
and the working methods of
the Board of Directors and of
its members, which creates
the conditions necessary
for supporting the efficient
functioning of the Board
Corporate governanCe 97
Independent directors, who make
up the majority of the Company’s
Board, fully meet the independence
criteria stipulated by the Corporate
The key goals of the annual
evaluation of the Board’s
performance include:
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
• Greater shareholder confidence
in the Board of Directors
• An increase in the Company’s
investment appeal, as the
evaluation demonstrates the
Company’s committed approach to
corporate governance
The results of the Board members’
self-assessment were discussed at an
in-person meeting of the Board of
Directors in March 2017. The Board
of Directors decided to hold the next
regular evaluation in February 2018
and another evaluation involving an
independent organization (consultant)
in February 2019.
• The possibility of using the
results of the evaluation as
grounds when electing a new
Board of Directors at the Annual
Shareholders’ Meeting.
The methodology used to evaluate
the Board of Directors includes an
online survey of the members of
the Board of Directors, as approved
by NLMK’s Human Resources,
Remuneration and Social Policies
Committee.
In line with the formal procedure,
an evaluation (self-assessment) of
the Board’s performance was held in
January 2017.
induction for newly elected
members of nlmK’s board
of directors
An induction programme for newly
elected members of NLMK’s Board
of Directors was developed and
approved by the Human Resources,
Remuneration and Social Policies
Committee, in compliance with the
best corporate governance practices,
to ensure the efficient functioning of
the Board of Directors.
The main goal of the Programme
is to ensure that the newly elected
members of the Board of Directors are
promptly and efficiently introduced
to NLMK Group’s key operational and
financial indicators, its systems of risk
management, internal control and
corporate governance.
Meetings with the President
(Chairman of the Management
Board), members of the Board
of Directors, members of the
Management Board, and top managers
of the Company are organized as part
of the Programme. Newcomers also
have an opportunity to get acquainted
with the Company’s core facilities,
technology and products.
composition of the board
of directors
The composition of the Company’s
Board of Directors is balanced in
terms of qualification, experience,
knowledge, and business acumen.
The members of the Board of
compoSITIon of THe board of dIrecTorS of nLmK aS of 31 december 2017
fuLL name
poSITIon
yearS on
THe board
IndependenT
parTIcIpaTIon
In THe
STraTeGIc
pLannInG
commITTee
parTIcIpaTIon
In THe audIT
commITTee
parTIcIpaTIon
In THe Human
reSourceS,
remuneraTIon
and SocIaL
poLIcIeS
commITTee
vLadImIr LISIn
Chairman of the board of directors
21
Chairman*
oLeG baGrIn
member of the board of directors
13
THomaS veraSzTo
member of the board of directors
2
HeLmuT wIeSer
member of the board of directors
7
nIKoLaI GaGarIn
member of the board of directors
16
Karen SarKISov
member of the board of directors
STanISLav SHeKSHnIa member of the board of directors
benedIcT ScIorTIno
member of the board of directors
franz STruzL
member of the board of directors
8
3
6
7
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
☑
Chairman
☑
☑
☑
Chairman
98 annual report 2017
* for further information, please refer to “events after the reporting date”
82 directorS’ expertiSe
and profeSSional bacKground
7
5
metals and mining
economics
and business
administration
2
law
directorS’
location
directorS’ expertiSe
in the Steel Sector
directorS’ length
of tenure*
4
4-10 years
2
under 4 years
3
over 10 years
* as of 31 december 2017
compoSition of the board
of directorS by director
StatuS
4
europe
5
russia
1
up to 10 years
3
10-20 years
5
over 20 years
3
non-executive
director
1
executive director
5
Independent
director
Directors have impeccable business
reputation, knowledge, skills and
experience in steelmaking, mining,
science, economics, business
management, and law.
Information on the conflict of
interests of members of the Board.
of Directors. There was no conflict
of interests between NLMK Board of
Directors members in 2017.
As of 31 December 2017, the Board
of Directors, elected at the Annual
General Shareholders’ Meeting
on 2 June 2017, consisted of nine
members, including five independent
directors. There were no changes
to the composition of the Board of
Directors in 2017.
Information on transactions
performed by members
of the Board of Directors
with NLMK shares. In 2017, members
of the Board of Directors did not
participate in any transactions with
NLMK shares.
Meeting and proposals on
nomination of candidates
to NLMK’s governing bodies
• Convocation of the Annual
General Shareholders’ Meeting
• Approving the Company’s
annual financial statements,
including the 2016 profit
and loss statement, as well as
the NLMK’s IFRS 2016 annual
consolidated financial
statements
activity of the board
of directors in 2017
In 2017, there were six meetings
of the Board of Directors of NLMK,
three of which were held by absentee
ballot.
The following are the main
issues that were examined by
the Group’s Board of Directors
in 2017:
• Providing recommendations
to NLMK’s Annual General
Shareholders’ Meeting regarding
the distribution of profits
• Reviewing proposals on the
agenda of the General Shareholders’
• Evaluating the performance
of NLMK’s Board of Directors
Corporate governanCe 99
NLMK 2017
Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
(declaration) of 6M and 9M
2017 dividends
Strategic planning
committee
• Convocation of the EGM
• Approval of remuneration to be
paid for the services of NLMK’s
Auditor
• Including the item on internal
documents approval into the EGM
agenda
• Approving the consolidated budget
of the Group for 2018.
committeeS
of the board
of directorS
Committees of the Board of
Directors are the advisory bodies of the
Board of Directors. Their function is to
ensure preliminary examination and
study of the most essential matters
in the area of expertise of the Board
of Directors. The composition
of the Committees facilitates a
comprehensive examination of the
issues at hand, taking into account
various opinions.
Members of the Committees have
professional qualifications, knowledge
and experience in the Committee’s
area as well as other specific expertise,
ability and time required to serve and
fulfil their functions as Committee
members.
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.
In order to balance approaches to
problem solving in relation to risk
management and the protection
of shareholders’ interests, independent
directors were appointed as chairs of
two out of three committees of the
Board of Directors in 2017.
Committee’s activities
and powers
The Strategic Planning Committee,
headed by the Chairman of the Board
of Directors, provides support to
the Board of Directors in reviewing
matters connected to increasing the
efficiency of the Company’s activity
in the long-term, promoting asset
growth, profitability and a stronger
investment case.
The Strategic Planning Committee
is fully accountable to the Board
of Directors of NLMK and is an
advisory body.
Committee composition
as of 31 December 2017
The Committee includes:
• Vladimir Lisin (Chairman of the
Committee)*
• Oleg Bagrin
• Benedict Sciortino (independent
director)
• Thomas Veraszto (independent
director)
• Helmut Wieser (independent
director)
• Franz Struzl (independent
director)
• Karen Sarkisov
• Karl Doering.
* for further information, please refer to “events
after the reporting date”
Secretary of the Committee:
Grigory Fedorishin, previously
• Reports on the performance of
the Committees of NLMK’s Board
of Directors
• Approving the 2016 NLMK
report on interested-party
transactions
• Approving the composition
of the NLMK Management
Board
• Providing recommendations
to NLMK’s Annual General
Shareholders’ Meeting regarding
payment/declaration of Q1 2017
dividends
• Approving the Company’s 2016
draft annual report
• Providing recommendations
to the Annual General
Shareholders’ Meeting regarding
the payment of remuneration
to members of NLMK’s Board of
Directors
• Providing recommendations to
the Annual General Shareholders’
Meeting regarding the approval
of NLMK’s Auditor
• Approving the agenda, draft
documents and measures necessary
for preparing for and holding the
Annual General Shareholders’
Meeting
• NLMK’s interest in other
companies
• Election of the Chairman of NLMK’s
Board of Directors
• Forming Committees of NLMK’s
Board of Directors
• Approving the meeting schedule for
NLMK’s Board of Directors
• Providing recommendations
to the Extraordinary General
Shareholders’ Meeting
regarding the payment
100 annual report 2017
82 parTIcIpaTIon of THe commITTee memberS
In commITTee meeTInGS In 2017
fuLL name
poSITIon
vLadImIr LISIn
Chairman of the Committee*
oLeG baGrIn
member of the Committee
parTIcIpaTIon
In commITTee
meeTInGS In 2017
4
4
benedIcT ScIorTIno
member of the Committee
3 (1**)
THomaS veraSzTo
member of the Committee
HeLmuT wIeSer
member of the Committee
franz STruzL
member of the Committee
Karen SarKISov
member of the Committee
KarL doerInG
member of the Committee
4
2
3
4
4
* for further information, please refer to “events after the reporting date”
** participated via teleconference
• Status update on NLMK Group’s
investment programme.
The Committee reviewed key projects
for the development of hot-end
operations at the Lipetsk site and an
extensive set of questions related to
Stoilensky. The Committee also looked
into concepts for flat steel production
development at the Lipetsk site and
at the European facilities, as well
as development strategies for long
products, electrical steels, and plate
production in Europe.
In 2018, the Committee plans to work
actively on development programmes
for NLMK USA and Group functional
areas, including energy, sales, and
logistics, as well as on its consolidated
Strategy 2022.
Vice President, Finance (CFO), and
later Senior Vice President, Deputy
Chairman of the Management
Board, was Secretary of the
Committee until 06 March 2018.
Starting from 06 March 2018,
Konstantin Arshakuni, NLMK
Director for Strategic Development,
was appointed Secretary of the
Committee.
Committee’s activity
in 2017
audit committee
In 2017, the Strategic Planning
Committee held four meetings.
Committee’s activities
and powers
The Committee reviewed and passed
resolutions on the following key
issues:
The Audit Committee, chaired by
an independent director, develops
and submits recommendations to
the Board of Directors on efficient
supervision of the Company’s
The composition of the Committee did
not change in 2017.
• Main areas for key investment
projects
parTIcIpaTIon of memberS of THe board of dIrecTorS In bod and bod commITTee meeTInGS
member of THe board
of dIrecTorS In THe
reporTInG year
IndependenT
dIrecTor
parTIcIpaTIon
In bod
(6) meeTInGS
audIT
commITTee
(4) meeTInGS
Human reSourceS,
remuneraTIon and SocIaL
poLIcIeS commITTee
(5) meeTInGS
STraTeGIc
pLannInG
commITTee
(4) meeTInGS
oLeG baGrIn
THomaS veraSzTo
HeLmuT wIeSer
nIKoLaI GaGarIn
vLadImIr LISIn
Karen SarKISov
☑
☑
STanISLav SHeKSHnIa ☑
benedIcT ScIorTIno
franz STruzL
☑
☑
* participated via teleconference
6
6
6
6
6
6
6
6
6
5
5
5
4
4
4
4
4
4
4
2
4
4
3 (1*)
3
Corporate governanCe 101
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
The composition
of the Committee
as of 31 December 2017:
The Committee includes:
• Benedict Sciortino (Chairman of the
Committee, independent director)
• Karen Sarkisov
• Nikolai Gagarin
• Stanislav Shekshnia (independent
director)
• Franz Struzl (independent director).
Secretary of the Committee:
Andrey Dozhdikov, Head of
Consolidated Financial Statements
Department, was the Secretary
of the Committee until 20 April
2017. Starting from 20 April 2018,
Mikhail Makeev, Audit Director,
was appointed Secretary of the
Committee.
The composition of the Committee did
not change in 2017.
Committee’s activity in 2017
The Committee passed resolutions on
the following key issues:
• Review of the results of the audit
of NLMK’s 2016 IFRS Consolidated
Financial Statements
• Review of the results of the audit
of NLMK’s 2016 RAS (Russian
Accounting Standards) Accounting
(Financial) Statements
• Review of draft interim abridged
IFRS Consolidated Financial
Statements for Q1, H1, and 9M
2017
• Review of the Auditor’s
Opinion Evaluation, issued by
PricewaterhouseCoopers Audit,
on NLMK 2016 RAS accounting
(financial) statements
• Review and approval of the
candidate for the position of
the Secretary of the Audit
Committee of NLMK’s Board
of Directors
• Review of the report on anti-
corruption activities
• Review of the report on the
performance of NLMK’s Internal
Audit Department in FY2016,
Q1 and Q2 2017
In 2017, there were four meetings of
the Audit Committee.
• Approval of the Audit Committee
meeting plan for 2017.
parTIcIpaTIon of commITTee memberS
In commITTee meeTInGS In 2017
fuLL name
poSITIon
number of
commITTee meeTInGS
aTTended In 2017
benedIcT ScIorTIno
Chairman of the Committee
Karen SarKISov
member of the Committee
nIKoLaI GaGarIn
member of the Committee
STanISLav SHeKSHnIa
member of the Committee
franz STruzL
member of the Committee
4
4
4
4
4
financial and business activities,
including annual independent audits
of financial statements, the quality of
services provided by the auditor, and
compliance with the requirements for
auditor independence.
The Audit Committee is fully
accountable to the Board of Directors
of NLMK and is an advisory body.
In order to submit reliable and
independent recommendations to the
Board of Directors, the Committee
exercises the following functions in
risk management, internal control
and corporate governance, in line
with its assigned duties:
• Control over the reliability and
efficient functioning of the risk
management, internal control and
corporate governance systems,
including the efficiency evaluation
of risk management and internal
control procedures established
in the Company, corporate
governance practices, and
development of proposals on their
improvement
• Analysis and assessment of risk
management and internal control
policy performance
• Control of procedures governing
the Company’s compliance
with legislative requirements,
as well as the code of ethics,
the Company’s rules and
procedures, and stock exchange
requirements
• Analysis and assessment of
execution of the conflict-of-interest
management policy.
Most of the Committee members
are independent directors.
The Audit Committee also
includes an independent director
with a background in the
preparation, analysis, evaluation,
and audit of accounting (financial)
statements.
102 annual report 2017
82 Financial reporting
NLMK’s Audit Committee reviews
the Group’s IFRS consolidated
financial statements and NLMK’s
annual stand-alone statutory
RAS financials on a quarterly
basis. The Committee pays special
attention to significant financial
reporting judgements, comments
to the statements and accounting
policies. Along with the quarterly
IFRS financials, the Committee
reviews and discusses NLMK Group’s
financial standing, results, and cash
flows with the senior management
and external auditors of the
Company, and seeks explanations
on the key changes in the Group’s
operating and financial performance,
whenever necessary.
Risk management and
internal control
NLMK’s Audit Committee
exercises control over the
reliability and efficient functioning
of the risk management, internal
control and corporate governance
systems, including the efficiency
evaluation of the risk management
and internal control procedures
established in the Company, its
corporate governance practices,
and development of proposals on
their improvement. In fulfilling
its oversight responsibilities,
the Committee reviews reports
and the Group’s updated risk
map developed by the Vice
President for Risk Management
Department, internal audit and
the external auditor reports, and
holds regular meetings with the
Audit Director and the external
auditor’s team.
In 2016, the Committee charged
the Audit Director with the task
of carrying out an external quality
assessment of NLMK Group’s
internal audit service. In the
appraiser’s (Deloitte) opinion,
the Company’s internal audit
activities in 2016–2017 generally
conformed with the Institute
of Internal Auditors (IIA)
International Standards for the
Professional Practice of Internal
Auditing and the Code of Ethics.
Internal Audit
NLMK’s Audit Committee is
responsible for monitoring
and evaluating the efficiency
of the internal audit function.
This is done via discussions
with the Audit Director and
approval of the annual internal
audit plan. Progress reports,
key findings, and issued
recommendations are submitted
to the Committee throughout the
year to ensure that the actions taken
by the executive management are
efficient.
To ensure independence, the
Audit Director reports directly to
the Board of Directors. The Audit
Director has the right to raise
any matter he deems important,
and the obligation to report to
the Committee, including on
the results of audits above a
certain threshold of materiality,
and/or in line with obligatory
disclosure requirements, and
meets with the external auditors as
required.
The Internal Audit Department
performs annual self-assessments of
its compliance with the International
Standards for the Professional
Practice of Internal Auditors and
the Code of Ethics, as well as an
independent external quality
assessment every five years. The
results of these assessments are
submitted for consideration to the
Audit Committee.
External audit
PricewaterhouseCoopers Audit (PwC)
has been the auditor of the Group
since 2003.
NLMK Group companies
engage PwC from time to time
to provide non-audit services.
NLMK management is sure that
these services do not impair
the auditor’s independence
and are not related to financial
reporting. In 2017, the share of
non-audit services in the total
amount of services provided by
PwC was at an acceptable level,
not exceeding 10%. PwC
regularly rotates the key staff
in its audit team (at least
once every 7 years) to ensure
compliance with independence
requirements.
PwC reports to the Committee
quarterly, and the Committee
members review and discuss
key matters of audit with
external auditors. In particular,
the Committee paid specific
attention to the following
significant items:
• Impairment considerations
for fixed assets, goodwill,
intangible assets, and
investments
• New requirements for the
disclosure of the expected
effect from the application of
new IFRS standards
• Reducing financial close/
reporting cycle times
• Transition from the current SAP
ERP system to SAP S/4HANA.
As a result of these reviews,
the Committee concluded that
the external audit process was
efficient.
Corporate governanCe 103
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
human resources,
remuneration and Social
policies committee
Committee’s activities
and powers
The composition of the Committee
did not change in 2017.
Committee’s activity in 2017
• Professional qualification
of candidates to NLMK’s
Board of Directors to be voted
on at the Annual General
Shareholders’ Meeting on
the results of 2016
In 2017, the Human Resources,
Remuneration and Social Policies
Committee held five meetings
including three in-person meetings,
and two meetings in the form of
absentee voting.
• Recommendations to NLMK’s
Board of Directors on the amount
of remuneration to NLMK Board
members
• Succession system
The Committee passed resolutions on
the following issues:
• Composition of the Board of
Directors and update on the search
for independent directors
• Results of Stage 1 of the Long-
Term Incentive Programme for
NLMK Group’s Management
• Review and approval of the results
of performance evaluation of
NLMK’s Board members in 2016
• Achievement of NLMK Group’s
key performance indicators, target
quantitative and project KPIs
and payment of bonuses to top
managers for 2016
• Execution and update of NLMK
• Review and approval of the
Group’s HR strategy.
results of the Human Resources,
Remuneration and Social
Policies Committee performance
in 2016
• Approval of the appointment of the
Secretary of the Human Resources,
Remuneration and Social Policies
Committee of NLMK’s Board of
Directors
• Compliance with independent
director status of candidates to
NLMK’s Board of Directors, to be
voted on at the Annual General
Shareholders’ Meeting on the
results of 2016
In 2017, the Human Resources,
Remuneration and Social Policies
Committee continued to exercise
its functions to ensure the interests
of the Company, following the
recommendations of the Corporate
Governance Code and best global
practices.
A regular performance evaluation of
the Board of Directors was organized,
including an online survey of the
members of the Board of Directors, in
a format approved by the Committee,
followed by an interview of each
Board member by the Chairman
parTIcIpaTIon of commITTee memberS In commITTee meeTInGS In 2017
fuLL name
poSITIon
STanISLav SHeKSHnIa
Chairman of the Committee
vLadImIr LISIn
member of the Committee
HeLmuT wIeSer
member of the Committee
number of
commITTee meeTInGS
aTTended In 2017
5
5
5
The Human Resources, Remuneration
and Social Policies Committee,
headed by an independent director,
assists the Board of Directors
with reviewing issues related to
the development of efficient and
transparent practices of remuneration
paid to the Board of Directors,
executive bodies, and other managers
of the Company, human resource
planning, and enhancing the Board’s
areas of expertise and performance.
The majority of members of the
Human Resources, Remuneration
and Social Policies Committee
are independent directors. The
Committee includes an independent
director, competent in matters of
motivational management and
personnel administration.
The composition
of the Committee
as of 31 December 2017
The Committee includes:
• Stanislav Shekshnia (Chairman
of the Committee, independent
director)
• Vladimir Lisin
• Helmut Wieser (independent
director).
Secretary of the Committee:
Irina Bevz, Director for Personnel
Training and Development, was the
Secretary of the Committee until
3 March 2017. Starting from 3 March
2017, Valery Loskutov, Corporate
Secretary of NLMK, was appointed
to the position.
104 annual report 2017
82 of the Committee. The next stage
in the development of the Board
performance evaluation will be an
evaluation with the participation of
an external organization (consultant)
in February 2019.
In addition, the Committee reviewed
the results of Stage 1 of the Long-
Term Motivation Programme of
NLMK Group management, and
approved the achievement of NLMK
top management’s quantitative and
project KPIs for 2016.
The Committee also approved
new approaches to NLMK Group’s
succession system and reviewed the
implementation status of NLMK Group’s
HR strategy and its new priorities.
corporate Secretary
The Company’s Corporate
Secretary represents a link to the
system of corporate governance
ensuring efficient day-to-day
interaction with shareholders,
coordination of the Company’s
activities aimed at the protection of
shareholders’ rights and interests, and
supporting the efficient operation of
the Board of Directors.
NLMK’s Corporate Secretary
acts as a guarantor that the
Company’s executives and
governing bodies comply with
the procedural requirements
ensuring that the legitimate rights
and interests of shareholders are
observed.
In addition to supporting the activities
of the Board of Directors, NLMK’s
Corporate Secretary also supports the
Management Board. The combination
of these functions provides for an
enhancement in the effectiveness of
interaction between the Company’s
management and its Board of Directors.
procedures both as required by law
and as laid out in the Corporate
Governance Code recommended
by the Bank of Russia, provides for
the establishment of a dynamic
and balanced system of corporate
governance, ensuring effective
interaction between the Company’s
shareholders, Board of Directors, and
Management.
Functionally reporting to
the Board of Directors and
administratively reporting to
NLMK’s President (Chairman
of the Management Board), the
Corporate Secretary is appointed and
dismissed by the President (Chairman
of the Management Board) following
a resolution of the Board of Directors.
The Corporate Secretary oversees the
Corporate Secretary Office.
Valery Loskutov has been the
Company’s Corporate Secretary since
2005.
management board
nlmK’s corporate
governance in action
The Management Board is in
charge of managing the day-to-
day operations of the Company,
implementing the approved strategy
and specific resolutions of the Board
of Directors.
The main objective of the
Management Board is to ensure that
the Company is operating efficiently.
In order to reach its objective, the
Management Board is guided by the
following principles:
• Efficient and objective decision-
making that favours the
interests of the Company and its
shareholders
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
affiliates; and submitting them to the
Board of Directors for approval
• Developing modes of interaction
between the Company and legal
entities in which NLMK holds
shares or interest (directly or
indirectly) or of which NLMK is
a founder, participant, or member
• Approving proposals
concerning the agenda of the
General Shareholders’ Meetings/
participants as well as the list
of candidates to the governing
bodies, which supervise the legal
entities in which NLMK holds
shares or interest (directly or
indirectly) or of which NLMK is
a founder, participant, or member
• Approving the Company’s
representatives for participation
in the General Shareholders’
Meetings/participants of legal
entities in which NLMK holds
shares or interest (directly or
indirectly) or of which NLMK is
a founder, participant, or member
as well as approving guidelines for
voting on agenda items for those
representatives
NLMK Corporate Secretary’s
support for the Company’s corporate
• Fair, timely, and efficient execution
of the decisions of the General
• Giving recommendations and
opinions on issues concerning
Corporate governanCe 105
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
the approval of budgets,
key development trends,
governance structure, and
other critical issues, which are
considered by the governing
bodies of legal entities in which
NLMK holds shares or interest
(directly or indirectly) or of which
NLMK 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 as of the last reporting
date (with the exception of
transactions in the ordinary course
of business)
• Deciding on Company
participation or termination
of participation in other
organizations in cases where the
value of the acquired (disposed)
property is less than 2% of the
Company’s asset book value as
of the last reporting date (with
the exception of organizations
resolutions on which the Charter
refers to the competence of the
General Shareholders’ Meeting or
the Board of Directors)
• Setting up and dissolving
Company’s branches and
representative offices, as well as
approving, revising and amending
regulations on branches and
representative offices.
The make-up and structure 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)
The President (Chairman of the
Management Board) manages the
day-to-day activities of the Company,
arranges for the execution of the
resolutions passed by the General
Shareholders’ Meeting and the
Board of Directors, organizes the
work of the Management Board,
and ensures the timely adoption
of resolutions by the Management
Board.
The rights and obligations of
the President (Chairman of the
Management Board) are determined
by the prevailing legislation of
the Russian Federation, as well as
compoSITIon of THe manaGemenT
board aS of 31 december 2017
nlmk group management board as of 31 december 2017
consisted of eight members�
fuLL name
poSITIon
oLeG baGrIn
member of the board of directors
president (Chairman of the management
board)*
compoSITIon of THe manaGemenT
board unTIL 03 marcH 2017
fuLL name
poSITIon
oLeG baGrIn
member of the board of directors
president (Chairman of the management
board)*
brIjeSH Kumar GarG
vice president, procurement
TaTyana avercHenKova
vice president, operational efficiency
ILya GuScHIn
vice president, Sales
ILya GuScHIn
vice president, Sales
barend de voS
vice president, International operations
barend de voS
vice president, International operations
SerGey LIKHarev
vice president, logistics
SerGey LIKHarev
vice president, logistics
GrIGory fedorISHIn
vice president, finance
GrIGory fedorISHIn
Senior vice president, deputy Chairman
of the management board **
SerGey fILaTov
managing director
STanISLav TSyrLIn
vice president, Hr & management
System ***
yurI LarIn
advisor to the president (Chairman
of the management board) on
development programmes
SerGey fILaTov
managing director
STanISLav TSyrLIn
vice president, Hr & management
System ***
* for further information, please refer to “events after the reporting date”
** appointed Senior vice president, deputy Chairman of the management
board on 13 march 2017
*** vice president, Hr & management System until 29 december 2017
106 annual report 2017
82 the President’s contract with the
Company.
activity of the management
board in 2017
SHareS owned by memberS of THe manaGemenT board
member of THe
manaGemenT board
parTIcIpaTIon
In meeTInGS
oLeG baGrIn
fuLL name
poSITIon
member of the board of directors
president (Chairman of the
management board)*
SHare of THe
auTHorIzed capITaL
STocK of nLmK, %
not an nlmk shareholder
parTIcIpaTIon of memberS
of THe manaGemenT
board In manaGemenT
board meeTInGS In 2017
oLeG baGrIn
TaTyana avercHenKova
brIjeSH Kumar GarG
ILya GuScHIn
barend de voS
yurI LarIn
SerGey LIKHarev
GrIGory fedorISHIn
SerGey fILaTov
STanISLav TSyrLIn
40
341
32
40
40
63
40
40
40
40
1 tatyana averchenkova was appointed member
of the management board at the meeting of
the board of directors held on 3 march 2017�
2 brijesh kumar garg was a member of the
management board until 3 march 2017�
3 yuri larin was a member of the management
board until 3 march 2017�
According to the prevailing corporate
documents, the President (Chairman
of the Management Board) cannot
simultaneously be the Chairman
of the Board of Directors of the
Company.
The President (Chairman of the
Management Board) is elected by the
General Shareholders’ Meeting for a
period lasting until the next Annual
Meeting, unless otherwise stipulated
by the General Shareholders’
Meeting.
Oleg Bagrin has been the President
(Chairman of the Management
Board) since 2012 and is also a
member of the Board of Directors.
He was last reelected on 2 June
2017*.
* for further information, please refer to
“events after the reporting date”
TaTyana
vice president, operational efficiency
not an nlmk shareholder
avercHenKova
brIjeSH Kumar GarG **
vice president, procurement
not an nlmk shareholder
ILya GuScHIn
vice president, Sales
not an nlmk shareholder
barend de voS
vice president, International operations not an nlmk shareholder
SerGey LIKHarev
vice president, logistics
not an nlmk shareholder
GrIGory fedorISHIn
Senior vice president, deputy Chairman
of the management board*
not an nlmk shareholder
SerGey fILaTov
managing director
not an nlmk shareholder
STanISLav TSyrLIn
vice president, Hr & management
System***
not an nlmk shareholder
yurI LarIn**
advisor to the president (Chairman
of the management board) on
development programmes
0,00083
* for further information, please refer to “events after the reporting date”
** members of the board of directors until 3 march 2017
*** vice president, Hr & management System until 29 december 2017
In 2017, there were 40 meetings
of the Management Board,
including 17 meetings that were held by
ballot. The following issues were
considered at these meetings:
• Progress against NLMK Group’s
target performance indicators
in occupational health & safety
• Approval of draft resolutions on
matters within the competence of
the General Shareholders’ Meetings
of companies in which the Group is
the sole participant/shareholder
• Development programmes for
NLMK’s divisions (functional
areas), operations, including
within the scope of Strategy 2022
• Divisional operational efficiency
programmes
• NLMK Group’s consolidated budget
execution
• Recommendations to the
• Working capital report
• Progress against NLMK Group’s
key performance indicators
and execution of its companies’
optimization programmes
• Participation/withdrawing
participation of the Group in other
companies
Company’s Board of Directors
(with regard to approval of related
party transactions, dividend
payments and NLMK’s draft annual
report for 2016)
• Recommendations to the
governing bodies of subsidiaries
and affiliates
• Approval of transactions
Corporate governanCe 107
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
• Efficiency of sales portfolio
management
Officer (Chairman of the Management
Board).
• Risk management system
• Approval of the Management
Board’s meeting schedule for 2018.
information on any
conflicts of interest
of members of the
management board
There was no conflict of interests
between NLMK Management Board
members in 2017.
events after
the reporting date
NLMK Group’s Board of Directors
resolved to elect Mr. Oleg Bagrin as
Chairman of the Strategic Planning
Committee at the meeting held on
13 February 2018.
At the Extraordinary General
Meeting held on 12 March 2018, NLMK
Group shareholders voted to elect Mr.
Grigory Fedorishin, previously Senior
Vice President of the Company, as the
Group’s President and Chief Executive
At the meeting held on 5 March 2018,
NLMK Group’s Board of Directors
recommended the Company’s
shareholders to approve the payment of
2017 dividends of RUB 14.04 per
share (taking into account the interim
dividends in the amount of RUB 10.68
per common share, the outstanding
amount to be paid in dividends is RUB
3.36 per common share).
report
on remuneration
to governing bodieS
remuneration and
compensation of members
of the board of directors
The levels of remuneration are
sufficient to attract, motivate and
retain competent and qualified
executives. Remuneration is paid
to members of NLMK’s Board
of Directors in accordance with
the approved Regulations on
Remuneration.
The Regulations of Remuneration
contain transparent criteria
remuneraTIon paId To board memberS In 2016–2017, ‘000 rubLeS
payments to board members, incl�:
remuneration*
Salary
bonuses
Commission
benefits
refunded expenses
other types of remuneration
2017
126,113
2016**
125,701
123,956
123,930
0
0
0
0
2,157
0
0
0
0
0
1,771
0
* remunerations to members of the board of directors for 2017 are determined on the basis of
a preliminary calculation in accordance with the regulations on remuneration to members of
nlmk’s board of directors
** any variance from the data published in the 2016 annual report is related to the adjustments
made based on actual payments in 2017
for determining the amount of
remuneration paid to the Board
members, and govern all types of
compensation and benefits offered
to them.
Remunerations
The remuneration system for
members of the Board of Directors
serves to align their financial interests
with the long-term financial 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, approved by the General
Shareholders’ Meeting on 5 June
2015. The Regulations are published
on the Company’s official website
(www.nlmk.com).
Remuneration is paid to 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
Shareholders’ Meeting. The Annual
General Shareholders’ Meeting based
on the results of 2016, held on 2 June
2017, passed the resolution to pay
remuneration to members of NLMK
Board of Directors in the amount of
$2.192 million.
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
108 annual report 2017
82 IndIvIduaL amounT
of remuneraTIon and
compenSaTIon of expenSeS
of board memberS paId In 2017
ToTaL
remuneraTIon,
‘000 rubLeS
19,449
11,308
11,308
13,569
11,308
13,569
14,925
14,925
board member
vLadImIr LISIn
oLeG baGrIn
THomaS veraSzTo
HeLmuT wIeSer
nIKoLaI GaGarIn
Karen SarKISov
STanISLav
SHeKSHnIa
benedIcT
ScIorTIno
franz STruzL
13,569
Committees and recommendations
given by the Human Resources,
Remuneration and Social Policies
Committee.
NLMK’s General Shareholders’
Meeting passes the resolution on
remuneration payments.
Regulations on Remuneration
of Members of the Board of
Directors of NLMK set the rules
for reimbursing Board members’
work-related expenses. The
following expenses are considered
reimbursable:
• Transportation costs of the
members of the Board of Directors
incurred while travelling to
meetings
at the meetings of the Board of
Directors.
The maximum amount of a Board
member’s expenses reimbursed by
NLMK during the reporting period
is determined by a resolution of the
General Shareholders’ Meeting 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, the right
to sell NLMK shares is not linked to
performance.
The resolution of the payment of
remuneration to members of the
Board of Directors based on the
results of 2017 will be passed at
the Annual General Shareholders’
Meeting on 8 June 2018.
remuneration and
compensation of members
of the management board
The efficiency of members of the
Management Board, who are in
charge of the day-to-day management
of the Company’s activities, ensuring
profitability, competitiveness,
financial and economic stability of
the business, is of critical importance
for the Company. In this regard,
the Company has introduced a
Management Board motivation
system, which is aimed at ensuring
their material interest in achieving
strategic goals and increasing the
economic efficiency of management.
• Accommodation costs incurred
while attending meetings
• Representation expenses
• Costs associated with obtaining
the professional advice of experts
on issues under consideration
In accordance with the Regulations
on the Management Board,
members of the Board shall receive
remuneration and compensation for
expenses that relate to the execution
of their duties as members of the
Board throughout their period of
service. The rights, obligations, and
responsibilities of the parties, and the
social guarantees for members of the
Management Board are determined
by NLMK’s internal documents and
the contracts concluded between the
Company and the members of the
Management Board.
The material interest of the members
of the Management Board in
achieving the Company’s strategic
goals is provided for through short-
term and long-term motivation
systems.
Short-term motivation is based
on the existing system of key
performance indicators (KPIs). The
amount paid to the members of the
Board in bonuses depends on their
KPIs. The KPIs used to determine
rewards for top management are
related to NLMK’s financial and
operating performance and are
intrinsically linked to the creation of
shareholder value.
The Company has introduced a long-
term motivation systems for members
of the executive bodies and other top
managers of the Company.
The following principles outline
the mechanism for determining the
amount of compensation that is
awarded to NLMK top management:
• Honest and efficient performance
of their duties by members of the
Management Board
• Rational use of the rights that are
granted to them
• Bonuses awarded to members
of the Management Board are
dependent on their progress
against their 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.
Corporate governanCe 109
NLMK 2017 Leadership
corporate
goverNaNce
91
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
remuneraTIon paId To manaGemenT board
memberS In 2016-2017, ‘000 rubLeS.
2017
2016**
payments to management board members, incl�:
1,278,053
Salary
bonuses*
Commission
benefits
refunded expenses
other types of remuneration
256,517
997,132
-
-
1,381
23,023
1,579,467
166,429
1,406,203
-
-
6,724
111
* bonuses to members of the management board for 2017 include payment liabilities based on a
preliminary reporting year-end calculation, and an estimated liability for achieving the Company’s
strategic goals in 2017–2018 in line with the long-term motivation programme� bonuses for 2016
include remuneration for the long-term motivation programme for achieving the Company’s
strategic goals in 2014–2016, paid in 2017
** any variance from the data published in the 2016 annual report is related to the adjustments
made based on actual payments in 2017 and the inclusion of remuneration of the long-term
motivation programme for achieving the Company’s strategic goals in 2014–2016, paid in 2017
110 annual report 2017
82 operaTIonaL conTroL
and rISK manaGemenT
SuperviSion over
the financial and
buSineSS activitieS
independent auditor
PricewaterhouseCoopers Audit
(PwC) has been the auditor of
the Group since 2003. Last year,
the Group carried out a tender
procedure with all Big 4 firms, where
the current auditor became the
winner. The Committee was satisfied
with the quality of provided services
and recommended to re-appoint
PwC as the Group’s auditor for
2017–2018.
PwC rotates key engagement personal
on a regular basis (at least once in
7 years) to ensure its compliance
with independence requirements.
In line with this policy, in 2017,
rotation of the auditing partner took
place, and Alexei Ivanov headed the
auditing of consolidated financial
statements and signed the auditor’s
opinion for 2017, replacing Richard
Pollard, who signed the auditor’s
opinion for 2016.
NLMK Group engages PwC and
other PricewaterhouseCoopers
companies (hereinafter jointly
referred to as PwC) to provide
consulting (non-audit) services.
The management of NLMK has
conducted the necessary procedures,
and is sure that these services do
not affect the independence of
the auditor and are not related to
financial reporting. The share of
consulting (non-audit) services
provided by PwC for NLMK Group
companies in 2017 did not exceed
10% of the total amount of services
performed.
NLMK’s Board of Directors
has determined the value of
remuneration for the provision of
audit services (audit) of the interim
and annual IFRS consolidated
financial statements of NLMK for
2017, as well as for the audit of
the 2017 RAS statements in the
amount of 66,095,814 rubles (VAT
excluded).
audit committee
The Audit Committee, chaired
by an independent director,
contributes to effective
performance of functions related
to supervision of the Company’s
financial and business activities by
the Board of Directors.
The Audit Committee is fully
accountable to the Board of
Directors of NLMK and is an
advisory body.
The areas of expertise and
responsibilities of the Committee
extend to priority areas in
accounting (financial) reporting and
consolidated financial reporting, risk
management, internal control and
corporate governance, internal and
external audit, as well as countering
wrongdoings.
Key activities in 2017
Accounting (financial) statements
and consolidated financial
statements
NLMK’s Audit Committee reviews
the Group’s IFRS consolidated
financial statements, and
NLMK’s annual stand-alone RAS
financials on a quarterly basis.
The Committee pays special
attention to significant financial
reporting judgements, comments
to the statements, and accounting
policies. Along with the quarterly
IFRS financials, the Committee
reviews and discusses NLMK Group’s
financial standing, its performance
and cash flows with the senior
management and external auditors,
and seeks explanations on the key
changes in the Group’s operating and
financial performance, whenever
necessary.
Risk management
and internal control
NLMK’s Audit Committee
exercises control over the reliability
and efficient functioning of
the risk management, internal
control and corporate governance
systems, including the efficiency
evaluation of risk management
and internal control procedures
established in the Company, its
practices of corporate governance,
and development of proposals on
their improvement. In fulfilling
its oversight responsibilities,
the Committee reviews reports
and the Group’s updated risk
map, developed by the Vice
President for Risk Management
Department, internal audit and
the external auditor reports, and
holds regular meetings with the
Audit Director and the external
auditor’s team.
In 2016, the Committee charged
the Audit Director with the task of
carrying out an external quality
Corporate governanCe 111
NLMK 2017 Leadership
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
assessment of NLMK Group’s internal
audit service. In the appraiser’s
(Deloitte) opinion, the Company’s
internal audit activities in 2016–2017
generally conformed with the
Institute of Internal Auditors (IIA)
International Standards for the
Professional Practice of Internal
Auditing and the Code of Ethics.
Internal audit
NLMK’s Audit Committee is
responsible for monitoring and
evaluating the efficiency of the
internal audit function. This is
done via discussions with the
Audit Director and approval of
the annual internal audit plan.
Progress reports, key findings
and issued recommendations
are submitted to the Committee
throughout the year to ensure that
the actions taken by the executive
management are efficient.
To ensure independence, the Audit
Director reports directly to the Board
of Directors. The Audit Director
has the right to raise any matter he
deems important and the obligation
to report to the Committee on the
findings of the audits above a certain
threshold of materiality, and/or
in line with obligatory disclosure
requirements, and meets with the
external auditors as required.
The Internal Audit Department
performs annual self-assessments of
its compliance with the International
Standards for the Professional
Practice of Internal Auditors
and the Code of Ethics, as well
as independent external quality
assessment every five years. The
results of these assessments are
submitted for consideration to the
Audit Committee.
External audit
NLMK Group companies
engage PwC from time to time
to provide non-audit services.
NLMK management is sure that
these services do not impair the
auditor’s independence and are
not related to financial reporting.
In 2017, the share of non-audit
services in the total amount of
services provided by PwC was at
an acceptable level, not exceeding
10%. PwC regularly rotates the
key staff in its audit team (at least
once every 7 years) to ensure
compliance with independence
requirements.
In order to ensure the
effectiveness of the external
audit process, PwC presented an
annual audit plan with PwC top-
down, risk-based audit approach
and critical success factors for
review by members of the Audit
Committee. PwC reports to the
Committee on a quarterly basis,
and the Committee members
review and discuss key matters of
audit with external auditors. In
particular, the Committee paid
specific attention to the following
significant items:
internal audit commission
Corporate governance in action
The Internal Audit Commission is a
full-time internal control authority
exercising continuous supervision
over the financial and business
activities of the Company. The Internal
Audit Commission operates under
the Charter and the Internal Audit
Commission Regulations. It audits
the financial and business activities
of NLMK Group in order to obtain
adequate assurance that the Company
reports and accounts contain no
material misstatements.
The General Shareholders’ Meeting
elects the Internal Audit Commission
for a term until the next Annual
General Shareholders’ Meeting.
The Internal Audit Commission was
elected on 2 June 2017 at the Annual
General Shareholders’ Meeting. As
of 31 December 2017, the Internal
Audit Commission had the following
composition:
• Yulia Kunikhina
• Impairment considerations
• Mikhail Makeev
for fixed assets and goodwill,
intangible assets and investments
• Elena Skladchikova
• Determining the book value of
investments in NLMK Belgium
Holdings
• Sergey Ushkov
• Natalia Savina.
• New requirements for the
disclosure of the expected effect
from the application of new IFRS
standards
Activities of the Internal Audit
Commission in 2017
• Reducing financial close/reporting
cycle times
• Transition from the current SAP
ERP system to SAP S/4HANA.
The Internal Audit Commission in the
said composition held one meeting to
discuss its operation in 2017, elect its
chair, and approve an audit plan and
programme.
PricewaterhouseCoopers Audit (PwC)
has been the auditor of the Group
since 2003.
As a result of these reviews, the
Committee concluded that the
external audit process was efficient.
On the basis of the audit of the
Company’s financial and economic
activities in 2016, the Internal Audit
112 annual report 2017
8291 remuneraTIon paId To InTernaL audIT
commISSIon memberS In 2016-2017
payments to Commission members, incl�
Salary
bonuses
remuneration for participation in the Commission’s
activities
refunded expenses
other types of remuneration
* 2016 data in actual amounts
2017
‘000 rubles
2016*
‘000 rubles
17,932
12,281
5,613
-
-
38
30,979
7,918
23,061
-
-
-
• Audit activities to assess the
management of critical risks and
business processes risks
• Internal control assessment
activities, including quality
assurance of control procedures
aimed at minimizing the risks of
business processes
• Consulting services provided
to business units of the
Company’s Lipetsk site and
other NLMK Group’s companies
on specific issues relating to
financial and business activities;
auditors participated in
meetings held by commissions
and work groups and shared
their opinions on the relevant
subject matter.
In 2017, an independent external
performance evaluation of the
Company’s Internal Audit Service
was performed. Following this
evaluation, an opinion was
issued that the activities of the
Internal Audit Department generally
comply with the International
Standards for the Professional
Practice of Internal Auditors and the
Code of Ethics.
NLMK Group’s performance, through
a systematic and consistent approach
to assessing and increasing the
efficiency of risk management, control
and corporate governance processes.
Internal auditing activity in NLMK
Group is performed by the Internal
Audit Department.
The key functions of the Internal Audit
Department are as follows:
• Assess efficiency of the internal
control system
• Assess efficiency of the risk
management system
• Assess efficiency of corporate
riSK management
governance
• Consulting.
Activity of the Internal Audit
Department in 2017
NLMK’s risk management and internal
control systems are aimed at ensuring
the implementation of the Company’s
strategy. They are integrated into
business- and decision-making
processes.
The goal of 2017 internal auditing
activities was to maintain or increase
the value of the Company through a
set of objective internal audits based
on a risk-oriented approach, providing
recommendations and exchanging
knowledge.
In 2017, Internal Audit experts
performed the following activities:
risk management system
NLMK’s risk management system
presupposes the division of
responsibility into several levels of
protection.
The procedure for risk management
is a continuous, cyclical process
that ensures the effectiveness of
Corporate governanCe 113
Commission as it was composed until
2 June 2017, submitted a Statement on
the reliability of data contained in the
reports and other financial documents
for the Company’s Annual Report.
Remuneration
Remuneration to members of the
Internal Audit Commission is paid
in accordance with the Regulations
on NLMK Group’s Internal Audit
Commission. According to the
Regulations, the main criterion
for determining the remuneration
is participation in audits of the
Company’s financial 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.
internal audit department
Corporate governance in action
Internal auditing is performed in
order to provide members of the
Board of Directors (Audit Committee),
the President (Chairman of the
Management Board) with independent
and objective guarantees and
consultation aimed at improving
NLMK 2017 Leadership
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
management and responsiveness
identified threats.
implement limit control and stop
shipment functions in line with the
Credit Policy.
development of the corporate
risk management System
in 2017
Key risks
Production risks include business
continuity risks and equipment
productivity reduction risks, and
low quality product risks. Key
mitigation measures: maintenance
and repair programmes, a system for
controlling incoming raw materials
and supplies, operational efficiency
programme. The impact of business
continuity risk declined in 2017, due
to the implementation of measures
aimed at improving the efficiency
and sustainability of the production
process.
Commercial risks include price
risks on raw material markets, credit
risk, risks of inefficient inventory
management. Key mitigation
measures: continuous monitoring
of price spreads, development of a
purchasing strategy by category of
material, credit security, accounts
receivable insurance, limits on certain
types of credit, and concentration risk
management.
Financial risks are mainly represented
by currency risks. NLMK monitors an
open currency position and maintains
a set of tools to balance it on an
ongoing basis.
Operational risks are managed
through a variety of tools, such
as implementation of the latest
environmental technologies as part
of a comprehensive environmental
investment programme, the Company’s
committed efforts to enhance
operational and labour safety,
and promotion of the Company’s
Anti-Corruption Policy and Code of
Ethics principles. As a result of the
implementation of NLMK Group’s
Environmental Programme, the impact
of the key operational risk was reduced
in 2017.
In 2017, the emphasis in the
development of the risk management
system was made on the transition
to quantitative risk assessments.
NLMK Group is constantly searching
for and researching the most
advanced methods of risk analysis and
assessment. In particular, scenario
analysis and stress testing models were
developed for assessing currency and
price risks, as well as risk assessment
models for investment projects. More
than 70% of critical and significant
risks are quantified (in line with best
practices), which enables the Company
to determine risk management
activities more accurately and
efficiently.
NLMK Group also focused on the
development of risk management
processes, both in terms of
preventing undesirable events and
team efforts in case various factors
occur. Ensuring business continuity
and safe working conditions is a
priority in the development of risk
technologies. In 2017, medium-term
Maintenance Programme and the
Environmental Programme were
developed.
The Group is actively working on ways
to automate risk management using
advanced information systems:
• An IT project to automate the
Group’s maintenance programme
development was completed.
The aim of the project was to
reduce the time required for
collecting investment initiatives
as part of Maintenance and Capex
programmes
• An IT project for credit management
was launched. NLMK plans to
114 annual report 2017
Investment risks are mitigated
through the application of project
management principles, assessment
of risks related to each project,
root cause analysis for key risks
and the development of preventive
measures.
internal control
The risk management functional area,
together with dedicated managers
and experts implemented a number
of initiatives in 2017 aimed at further
improving the reliability of the internal
control system, including:
• Implementation of the Governance
Risk & Compliance SAP module,
which controls the segregation of
the most critical duties in the main
ERP system of the Group, as well as
regular automated monitoring of
significant deviations in business
processes
• Assessment of the internal
control system was performed
for critical business processes
at NLMK Lipetsk, including
Procurement, Maintenance,
Investment, and Sales. The Risk
Management Committee approved
plans to improve internal control
processes and monitors their
implementation.
anti-corruption compliance
NLMK Group is guided by high ethical
standards and principles of business
transparency.
Assessment of corruption risks was
carried out for business processes at
NLMK’s Russian subsidiaries, as well
as its European sales office. Business
processes were selected for analysis
based on their criticality in terms of
the corruption risk for the business
unit, coverage in previous periods and
historical data on deviations in the
processes.
8291 In line with the principles stipulated
by the Code of Ethics and the Anti-
Corruption Policy, the focus of the
2017 corruption risks analysis was on
the following areas:
• Strengthening control over
intermediaries (dealers,
distributors, and traders)
when supplying materials and
equipment, including analysis of
the counterparties’ value added
in the supply chain, selection
transparency, and supplier
relations
• Transparency and efficiency of the
rejected product sales to Russian
customers
• Extensive training of employees
on how to identify and
resolve conflicts of interest.
Scheduled training on anti-
corruption measures and
preventing conflicts of interests
was organized on the platform of
NLMK’s Corporate University for
several thousand managers and
specialists
• Formalization of the process
of exchange of business gifts and
tokens of business hospitality.
Corruption risk assessment is typically
reviewed by the Risk Management
Committee as part of the Group’s
corporate risk reporting.
Corporate governanCe 115
NLMK 2017 Leadership
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
116
InformaTIon
for SHareHoLderS
ordinary ShareS
nLmK TIcKerS
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).
indices that include
nlmK shares
• RTS Index (NLMK’s share as at
20.03.18 – 1.44%)
• MOEX Russia Index (former
MICEX Index) (NLMK’s share as at
20.03.18 – 1.44%)
• MICEX Metals & Mining Industrial
Index (NLMK’s share as at
20.03.18 – 13.56%)
• FTSE Russia IOB index
lSe (london) ticker Code
mICex (moscow) ticker
Code
bloomberg ticker Code
reuters ticker Code
nlmk
nlmk
nlmk lI for gdS traded on the lSe
nlmk rx for shares traded on the mICex platform of the
moscow exchange
nlmkq�l for gdS traded on the lSe
nlmk�mm for shares traded on the mICex platform of the
moscow Stock exchange
market capitalization
taxation
In 2017, average market
capitalization of the Company
on the London Stock Exchange
was US$12.5 billion (+57%
year-on-year). At the end of 2017,
NLMK share price was US$2.55, or
US$25.52 per GDS, consistent with
capitalization of US$15.29 billion
(+37% year-on-year).
Legal entities
Tax treatment of organizations’
revenues received as dividends on
shares is governed by Chapter 25
‘Tax on Organizations’ Profit’ of the
Russian Tax Code. Dividends paid
to organizations that are Russian
SHare prIce
nLmK GLobaL depoSITary SHareS
on THe London STocK excHanGe
• MSCI Russia and MSCI Emerging
Markets indices.
prIce of GdS (uS$)
maximum
minimum
mean
end of year
2017
25�68
17�60
20�80
25�52
2016
19�20
6�92
13�29
18�60
%
34
154
57
37
ordInary nLmK SHareS on THe moScow STocK excHanGe
SHare prIce (rub)
maximum
minimum
mean
end of year
2017
148�25
100�70
122�09
147�22
2016
123�06
57�20
88�18
114�98
%
20
76
38
28
global depositary Shares
(gdS)
The ratio of Global Depositary
Shares to ordinary shares is 1:10.
The volume of Global Depositary
Shares issued by NLMK and traded
on the London Stock Exchange
amounted to 7.43% of share
capital as of 31 December 2017.
The Company’s depositary bank
is Deutsche Bank Trust Company
Americas.
116 annual report 2017
8291 nlmK marKet capitaliZation
on the london StocK exchange (lSe) (uS$ m)
Company shareholders in line with
the Board’s recommendations.
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
y
r
a
u
n
a
J
l
i
r
p
A
t
s
u
g
u
A
2013
r
e
b
m
e
c
e
D
NLMK
y
r
a
u
n
a
J
l
i
r
p
A
t
s
u
g
u
A
2014
MMK
y
r
a
u
n
a
J
r
e
b
m
e
c
e
D
l
i
r
p
A
t
s
u
g
u
A
2015
y
r
a
u
n
a
J
r
e
b
m
e
c
e
D
l
i
r
p
A
t
s
u
g
u
A
2016
y
r
a
u
n
a
J
r
e
b
m
e
c
e
D
l
i
r
p
A
t
s
u
g
u
A
2017
r
e
b
m
e
c
e
D
SVST
dividends on gdS
Any dividends paid on
shares certified by GDS will
be declared and paid to the
Depositary in rubles 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 NLMK’s Annual General
Shareholders’ Meeting pay 2017
dividends for ordinary shares in the
amount of RUB 14.04 in cash one
ordinary share (taking into account
the interim dividends in the amount
of RUB 10.68 per ordinary share, the
outstanding amount to be paid in
dividends is RUB 3.36 per ordinary
share), which is equivalent to 100%
of NLMK Group’s 2017 net profit.
corporate documents
The Group’s corporate documents,
including the Company Charter, are
available at www.nlmk.com.
cash flow calculated based on US
GAAP/IFRS consolidated financial
statements
• If Net Debt/EBITDA exceeds
1.0x: 30% of net profit and 30%
of free cash flow calculated on
US GAAP/IFRS consolidated
financial statements.
Dividends are paid annually. If
conditions for financial stability are
maintained, NLMK will strive to pay
interim dividends on a quarterly
basis.
The amount to be paid as a dividend
for a specific period is approved by
taxpayers are subject to a 0% or 13%
income tax (Items 3.1 and 3.2, Article
284 of the Russian Tax Code); foreign
organizations are subject to a 15%
income tax (Item 3.3, Article 284 of
the Russian Tax Code).
Individuals
The personal income tax rate is 13%
for Russian residents (Item 1, Article
224 of the Russian Tax Code) and
15% for non-residents (Item 3.2,
Article 224 of the Russian Tax Code).
Note: information on taxation is
provided for reference only. Potential
and existing investors should consult
with their own advisors regarding the
tax consequences of investing in the
Company’s shares, including Global
Depositary Shares (GDS).
dividendS
dividend policy
According to the current dividend policy,
dividends are determined as follows:
• If Net Debt/EBITDA is 1.0 or less:
50% of net income and 50% of free
nlmK Share price on the moScow StocK exchange (index, 01.01.2016=100)
250
200
150
100
50
0
y
r
a
u
n
a
J
y
r
a
u
r
b
e
F
h
c
r
a
M
l
i
r
p
A
y
a
M
e
n
u
J
l
y
u
J
2016
t
s
u
g
u
A
r
e
b
m
e
t
p
e
S
r
e
b
o
t
c
O
r
e
b
m
e
v
o
N
r
e
b
m
e
c
e
D
y
r
a
u
n
a
J
y
r
a
u
r
b
e
F
h
c
r
a
M
l
i
r
p
A
y
a
M
e
n
u
J
l
y
u
J
2017
t
s
u
g
u
A
r
e
b
m
e
t
p
e
S
r
e
b
o
t
c
O
r
e
b
m
e
v
o
N
r
e
b
m
e
c
e
D
NLMK share price, MOEX
MICEX Metals & Mining Index
Corporate governanCe 117
NLMK 2017 Leadership
corporate
goverNaNce
operatioNaL coNtroL
aNd risK MaNageMeNt
111
iNforMatioN
for sharehoLders
40
Structure of Share capital
aS of 31 december 2017
dividend hiStory, $ m
84%
Fletcher group
Holdings
limited*
16%
other free
floating
shares**
* the Company’s beneficiary is vladimir
lisin, according to the definition of
‘beneficiary’ in the russian legislation
** Including global depositary shares
traded on the london Stock exchange
(deutsche bank trust Company
americas is nlmk’s depositary bank) and
shares traded on the moscow exchange
1600
1400
1200
1000
800
600
400
200
0
738
660 683
386
125
62
471
379 376
43
116
115
920
645
304
1,452
140%
120%
100%
80%
60%
40%
20%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2016
2017
(draft)
Declared dividends for the year
Dividend payout ratio (dividend/net profit), rhs
Dividend payout ratio (dividend/free cash flow), rhs
regional marKet cap leaderShip*, $ bn
15.3
11.1
12.7
12.9
8.4
6.0
nlmk
2017
2016
* Capitalization at year-end
peer 1
peer 2
financial reporting
and disclosure
The Group posts announcements
of financial results on the London
Stock Exchange website via the
regulatory news service (RNS)
and then publishes them on the
Group website in the form of press
releases, and distributes them to
the media. The Company publishes
its financial results on a quarterly
basis. The annual report is published
in electronic form on the Group
website, www.nlmk.com, on the
day of its official publication. The
Company announces its publication
in a special press release. A hard copy
of the annual report is available on
request in the office of the Register
of Shareholders and NLMK PR
Consultants’ office in London.
118 annual report 2017
8291 fInancIaL caLendar for 2018
daTe
evenT
17 january
Q4 and 12m 2017 trading update
20 february
12m 2017 IfrS Consolidated financial results� Strategy
2017 results� Conference call
20 february
raS (russian accounting Standards) 2017 financial
results for the group’s major Companies
5 marcH
meeting of the board of directors� Q4 2017 dividend
recommendation by the board
13 aprIL
Q1 2018 trading update
24 aprIL
Q1 2018 IfrS financial results� Conference call
27 aprIL
meeting of the board of directors� Q1 2018 dividend
recommendation by the board
8 june
annual general Shareholders’ meeting (Q4 2017 and
Q1 2018 dividend declaration)
13 juLy
Q2 2018 trading update
30 juLy –
3 auGuST
30 juLy –
3 auGuST
Q2 2018 IfrS financial results� Conference call
meeting of the board of directors� Q2 2018 dividend
recommendation by the board
24-28
extraordinary general Shareholders’ meeting (Q2 2018
SepTember
dividend declaration)
24-28
SepTember
Capital markets day - Strategy 2022 presentation
15 ocTober
Q3 2018 trading update
22-26 ocTober
meeting of the board of directors Q3 2018 dividends
recommendation by the board
22-26 ocTober
Q3 2018 Interim IfrS financial results� Conference call
17-21 december
extraordinary general Shareholders’ meeting
(Q3 2018 dividend declaration)
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
depository bank
Deutsche Bank Trust Company Americas
Office in New York
60 Wall St., New York, NY, 10005
USA
Office in London
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
Telephone: +7 (4742) 44 49 89
E-mail: loskutov_va@nlmk.com
investor relations
Telephone: +7 (495) 504 05 04
E-mail: ir@nlmk.com
Corporate governanCe 119
NLMK 2017 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
120
2017 envIronmenTaL
HIGHLIGHTS
NLMK Group improved the environmental
performance of its operations in 2017
TarGeT IndIcaTorS
SucceSSfuLLy acHIeved
major envIronmenTaL
InveSTmenTS
reduced aIr
emISSIonS
nlmK group’S 2017
environmental
targetS achieved
Support of major
inveStmentS to enSure
environmental Safety
of operationS
reduction of Specific
emiSSionS*
kg / per tonne of steel
28.8
5.7
21.9
21.1
20.9
20.8
20.5
33%
overachieved
67%
achieved
9.7
5.4
4.3
23.1
7.1
16.0
6.3
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Investment, rub bn
* nlmk group’s russian sites
100%
of nLmK Group’S
TarGeTS acHIeved
the Company continues to invest
in environmental projects� the
Company’s environmental investment
increased
34%by
since 2013
group’s air emission rate reduced
to a record low of
20.5
kg per
tonne
of steel
→ For more details, please refer to page 9
120 annual report 2017
122128
eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
Key factS and figureS
Successful implementation of environ-
mental initiatives
the group achieved all the 2017 targets,
including a reduction of specific emission
rates.
efficient use of natural resources
ongoing reduction of water consumption
and high recycling rates lower cash cost
and environmental impact.
Significant improvement in energy
efficiency
Specific energy consumption has been
sequentially declining since 2014.
effIcIenT uSe of waTer
reSourceS
effIcIenT waSTe
manaGemenT
enerGy effIcIency
high waSte recycling rate
conSiStent reduction
of Specific water
conSumption
m3/t
6.3
6.3
5.9
5.8
89%
5.3
93%
93%
88%
76%
reduction of Specific
energy intenSity
(the lipetSK Site)
gCal/t
5.72
5.67
5.66
5.60
5.49
2013
2014
2015
2016
2017
nlmk
lipetsk
vIz
Steel
nlmk
kaluga
nlmk
ural
nlmk
metalware
2013
2014
2015
2016
2017
97%
the share of recycled water
in nlmk group’s total water
consumption
86.9%
waste recycling rate across
nlmk group in 2017 (excluding
low-hazard mining waste)
84.1%
the share of in-house energy
generation using secondary fuel
gases in 2017
envIronment 121
NLMK 2017142149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
122
nLmK Group’S
envIronmenTaL
acTIvITIeS
122 annual report 2017
120128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
Key factS and figureS
environmental protection
is a priority for nlmK group
nlmK group has an active
environmental policy
total investment in
the group’s environmental
activities since 2013 amounted
to rub 29 billion.
the group’s key targets are
environmental safety and
process efficiency, in line with
the best global practices.
an environmentally respon-
sible approach enables
business success
adherence to high
environmental standards
allows for efficient production
of high-quality products
with minimal environmental
footprint in regions of
operation.
Reduction of environmental footprint
and sustainable use of natural resources
are NLMK’s key environmental priorities.
“Leadership in sustainable
development was one of the
four key goals of Strategy
2017 that we’ve executed
since 2014. Investment in
environmental projects and
initiatives over the past five
years totalled approximately
RUB 29 billion. As a result,
we were able to cut our
specific emissions by 6%, to
decrease our specific water
consumption by 16%, and to
decrease waste production by
15%, whilst increasing steel
output by 11%. Our goal is to
minimize our environmental
footprint. We will continue to
implement the best available
technologies.”
GaLIna KHrISToforova,
nlmk group director
for the environment
NLMK uses annual analytical
reports from Roshydromet
and Rospotrebnadzor,
among others, for an independent
and comprehensive assessment of
NLMK Group’s environmental impact
in the regions where it operates.
According to these reports, in 2014,
Lipetsk, home to the Group’s largest
production site accounting for
over 80% of its crude steel output
(13 million tonnes, or 23% of Russia’s
total steel output), was recognized as
the cleanest steelmaking city in Russia
with a record low Integrated Air
Pollution Index (IAPI).
The ‘Year of the Environment’ was
an opportunity for us to share our
experience with a wider audience.
NLMK signed a four-way agreement
with the Ministry of Natural Resources
and the Environment of the Russian
Federation, the Federal Service for
Supervision of Natural Resources,
and the Administration of the Lipetsk
region. Several projects were executed
as part of the agreement with a total
investment of over RUB 5 billion.
envIronment 123
142149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
122
In 2017, nLmK commISSIoned new deduSTInG
unITS THaT are In LIne wITH THe beST avaILabLe
TecHnoLoGIeS aT 6 SecTIonS aT THe LIpeTSK SITe
SITe
facILITy
projecT
Lipetsk site
Sinter operations
Revamping of dedusting units (DU) of the lime
feeding duct and car dumpers Nos. 1 and 2 with the
construction of a dedusting system for lime receiving
hoppers
Lipetsk site
Refractory Shop
Construction of a central gas cleaning system
downstream of shaft furnaces Nos. 1–3
Lipetsk site
Refractory Shop
Revamping of dedusting unit No. 20
Lipetsk site
Refractory Shop
Revamping of dedusting units Nos. 1, 2, 3, 7, 8 of the
bulk materials discharging and feeding duct, at station
No. 3 with replacement for bag filters
Lipetsk site
Refractory Shop
Upgrade of dust collectors for rotary kiln No. 3 with
the replacement of electric filters
Lipetsk site
BF Shop No. 1
Construction of a modular dedusting system at BF-4
In 2017, THe Group Grew ITS
STeeL ouTpuT
by
2.2%
yoy
wHILe freSH waTer
conSumpTIon reduced
5.6by
million m3
(-6% yoy)
THe amounT of dIScHarGeS InTo
waTer bodIeS reduced by
0.239
million
tonnes
(-1% yoy)
and waSTe GeneraTIon reduced
2.8by
million tonnes
(-5% yoy)
aS a reSuLT, SpecIfIc
envIronmenTaL ImpacT of STeeL
producTIon decreaSed
These process solutions can be applied
at any plant, and are not limited to
the steel sector, so these projects were
widely discussed at various public
events.
NLMK Group achieved an all-time
low level of specific air emissions
of 20.5 kg per tonne of steel,
while maintaining a high level
of recycling and a high share a
circulated water.
In 2017, the ‘Year of the
Environment’, NLMK launched
its ‘Steel Tree’ initiative aimed at
engaging the local communities in
the regions where it operates into
addressing important environmental
issues. 12 Lipetsk natives received
grants and were able to execute
12 environmental, educational,
and social projects in Lipetsk and
the Lipetsk region with the support
of NLMK’s ‘Miloserdiye’ charity
fund. 4,000 volunteers participated
in these initiatives cleaning up over
20 ha, collecting over 300 m3 of
waste, and planting around 400 trees
and bushes. Innovative and energy-
efficient technologies were used for
these projects.
Broad and comprehensive coverage of
the project helped to communicate the
importance of environmental protection
to 200,000 residents of the city.
brief description of nlmK
operations and coverage
NLMK Group is a vertically integrated
company, which includes:
• Mining facilities
• Production of raw materials for
further processing (sintering and
pelletizing, as well as lime and coke,
and chemical operations)
• Steelmaking facilities that
manufacture commodity and
conversion pig iron, crude steel, and
slabs that are sold as commodity or
processed downstream
• Rolling facilities
• Auxiliary facilities that collect and
process scrap, and manufacture
steel products and metalware.
The Environmental Report includes
information on NLMK Group’s
Russian companies:
NLMK Lipetsk, Stoilensky, Altai-Koks,
NLMK Kaluga, STAGDOK, Dolomit,
VIZ-Steel, VIZ, NLMK Ural, NLMK
recycL ed waTer In
nLmK Group’S T oTaL
waTer conSumpTIon, %
97.0
97.0
97.1
96.8
96.8
2013
2014
2015
2016
2017
124 annual report 2017
120128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
photo: Inhabitants of nlmk’s Swan lake park, an eco-project located on lipetsk site grounds
Metalware, and Vtorchermet NLMK
companies.
The report is prepared in line with
the Global Reporting Initiative (GRI)
sustainability reporting standards,
related to environmental topics
(GRI 303, GRI 304, GRI 305, GRI 306,
GRI 307, GRI 308).
Systematic approach to
sustainability and nlmK
group’s environmental policy
NLMK Group aims to make products
that meet the requirements of its
consumers whilst constantly improving
its processes, ensuring safe working
conditions, reducing its environmental
impact, rationally using resources, and
adhering to generally recognized social
responsibility practices.
NLMK Group believes that a safe
environment and rational use of
natural resources are key to sustainable
economic and social development in
the long term. The Company assumes
the responsibility of maintaining
a favourable environment for the
communities in the regions where it
operates by improving the efficiency
of resource use and utilizing environ-
mentally friendly and safe production
technologies.
These ideas are laid out in NLMK
Group’s Environmental Policy goals:
• Ensure environmental efficiency of
production processes
• Compliance with the best global
practices concerning effects on
the environment and resource
management
• Be a leader in specific environmental
impact indicators.
NLMK Group’s Environmental Policy
was used as the basis for Strategy
2013–2017, as well as the 2018–2022
Environmental Programme.
nLmK Group’S envIronmenTaL
poLIcy IS a Key eLemenT of THe
company’S STraTeGIc cycLeS.
envIronmenTaL poLIcy GoaLS
wILL be uSed aS THe baSIS for
STraTeGy 2022.
Achievement of environmental
objectives is ensured by the
Environmental Management System
that complies with the international
ISO 14001 standard, which has been
annually confirmed by independent
auditors since 2002.
envIronment 125
NLMK 2017142149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
122
nLmK Group’S envIronmenTaL manaGemenT SySTemS (emS) are cerTIfIed for compLIance
wITH THe InTernaTIonaL STandard ISo 14001:2015 In THe foLLowInG areaS
company
ITem
no.
year of
cerTIfIcaTIon
coveraGe
1
NLMK Lipetsk
2002
Production of sinter, coke and coking by-products, pig iron, slabs, HR and CR carbon and
LA steel flats, incl. galvanized and polymer coated steel flats, electrical NGO and GO steel
coils and sheets, as well as auxiliary operations supporting the production of the specified
products
2
3
4
5
6
7
8
9
Stoilensky
2007
Production and shipment of iron sinter ore, iron ore sinter concentrate, iron ore pellets,
crushed ferrous magnetite quartzites, chalk, rubble, sand
VIZ-Steel
NLMK Kaluga
Altai-Koks
Stagdok
2012
2016
2016
2011
Production of cold-rolled GO and NGO electrical steel
Production of continuously cast billets, long products and sections
Production of coke and chemical products of coking
Production and shipment of calcareous limestone, technological limestone, crushed flux
limestone for construction works, rubble for public roads
Dolomit
2011
Production and shipment of crude metallurgical dolomite and dolomite powder
NLMK Metalware
2015
Development, production, and shipment of metalware for industrial applications and fixing
hardware for general machine-building applications
NLMK Ural
2015
Development and production of continuously cast billets, long products and sections
126 annual report 2017
120128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
nlmK’s environmental
strategic objectives for
2013–2017
The 5-year strategic cycle ended in
2017, and all environmental goals have
been successfully achieved.
Environmental targets for the next
5 years will be determined in line
with the Environmental Policy during
the development of NLMK Group’s
Strategy 2022.
nLmK’S envIronmenTaL STraTeGIc objecTIveS
for 2013–2017
IndIcaTor
2013
2014
2015
2016
2017
baT*
Steel output, m t
14.6
15.2
15.4
15.9
16.2
Air emissions, ‘000 t
319.7
321.6
322.0
330.9
332.0
Specific air emissions, kg/t of steel
21.9
21.1
20.9
20.8
20.5
18.9
Specific water consumption, m3/t
6.3
6.3
5.9
5.8
5.3
7.0
Recycled water in total water
consumption, %
96.8% 96.8% 97.0%
97.0%
97.1%
100%
Specific waste production, t/t of steel
4.1
4.1
4.1
3.8
3.5
-
Waste disposal (w/o stripping waste and
beneficiation tailings), %
95.9% 93.7% 95.9% 93.6% 86.9% -
2017 envIronmenTaL KpIs
corporaTe reSponSIbILITy:
Key aSpecTS
2017 TarGeTS
2017 performance
2017 TarGeTS
acHIeved
2018 TarGeTS
Management of potential risks to reduce
or minimize environmental impact
NLMK Group's
Environmental Programme
for 2018–2022
Target achieved
The Group's
Environmental Programme
was adopted by the
Investment Committee on
17 November 2017
Implementation of NLMK
Group's Environmental
Programme 2018–2022
projects
Reduction of specific
emissions by 0.1 kg/t steel
vs. 2016
Reduction by 0.3 kg/t
Target achieved
Reduction of specific
emissions by 0.1 kg/t steel
vs. 2017
Minimization of environmental impact of
NLMK Group’s operations
Reduction of specific water
consumption by 0.05 m3/t
steel vs. 2016
Reduction by 0.5 m3/t
Target achieved
At or below BAT* level
Increase NLMK Group's
overall recycling rate by
15% (total)
Increased by 15 % (total)
vs. 2016
Target achieved
Maintain the recycling
rate at the 2017 level
Change-over of the filter
material with residual dust
content up to 10 mg/m3
for bag filters according to
the approved schedule
The filter material with
residual dust content up to
10 mg/m3 was replaced in
bag filters according to the
approved schedule
Target achieved
Continue the change-over
of the filter material with
residual dust content
up to 10 mg/m3 for bag
filters according to the
approved schedule
Compliance with the best practices in
technical upgrade and operation
Transfer of marketable
waste into by-products
(steel slag, coke breeze)
Target achieved
Reduced waste
by 0.3 kg/t per unit
of product
—
* best available technology
envIronment 127
NLMK 2017142149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
128
InveSTmenTS
In envIronmenTaL
InITIaTIveS
128 annual report 2017
120122 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
M inimization of negative
environmental footprint
is achieved through
NLMK Group’s comprehensive
capex programme, as well as
through planned environmental and
technological initiatives outside the
scope of the investment process.
Investment in environmental projects
and initiatives over the Strategy 2017
cycle totalled RUB 28,814 million.
NLMK Group spent around
RUB 5.7 billion on environmental
projects and initiatives in 2017. The
majority of investments in 2017 went
towards projects and initiatives to
improve air quality. For instance,
NLMK Lipetsk upgraded its dedusting
systems in line with the BAT, at six
sections at the refractory, sintering
and blast furnace shops. NLMK
Group’s other facilities executed
projects aimed at the reclamation
of former landfill sites, construction
of sewage treatment plants and
reduction of noise pollution, among
others.
nLmK Group’S
InveSTmenTS In
envIronmenTaL
InITIaTIveS,
rub bn
16.0
6.3
9.7
5.4
4.3
28.8
5.7
23.1
7.1
2013
2014
2015
2016
2017
TypeS of coSTS
2013
2014
2015
2016
2017
Environmental spending, net of revenues from sales
of by-products (waste), RUB m, including:
4,279
5,434
6,318
7,058
5,726
Investment projects aimed at reducing and
preventing negative environmental footprint,
RUB m
1,238
1,843
2,973
3,157
1,767
Operating costs, capital repairs and maintenance
costs of environmental assets and payment for
environmental services, RUB m
3,201
3,352
3,344
4,089
4,295
Payments for negative environmental footprint under
the Russian legislation, RUB m
135
193
194
109
109
envIronment 129
142149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
envIronmenTaL
proTecTIon
130 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
gri 303: water
Disclosure 303-1 Water withdrawal
by source
а. NLMK Group uses surface water
(rivers, ponds), ground water (wells,
water dump sites, drainage waters of
mines), and rainwater for industrial
water supply. Stoilensky, Stagdok,
Dolomit, NLMK Metalware, and
Vtorchermet NLMK use ground water.
NLMK Group’s companies do not use
wastewater from other organizations
or water from municipal water supply
systems for production. The volume of
water withdrawal by source is given in
Table 303-1-1:
TabLe 303-1-1. voLumeS of waTer wITHdrawaL
for nLmK Group operaTIonS, ‘000 m3
Source
2013
2014
2015
2016
2017
Surface water
34,666
36,211
33,238
31,814
30,802
Ground water
57,995
59,851
57,317
59,759
55,233
Rainwater
0
210
106
71
32
Total
92,660
96,272
90,661
91,645
86,066
Specific water consumption, m3/t of steel
6.3
6.3
5.9
5.8
5.3
photo: nlmk’s Swan lake has been thriving for almost four decades�
envIronment 131
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
NLMK Group companies withdraw
water for potable water supply.
The withdrawal volumes are given in
Table 303-1-2.
NLMK Group collects water in
accordance with the permits (water
use agreements, licenses, permits)
and fulfils all the requirements set
forth in these documents.
b. This section uses data provided in
2-TP state statistical observation form
(water management) (Rosstat’s order
No. 230 of 19 October 2009). 98% of
the consumption data are obtained
from measuring tools that were
properly calibrated. The measurement
error does not exceed 1%. 2% of
the consumption data have been
calculated.
Disclosure 303-2 Water sources
significantly affected by withdrawal
of water
а. NLMK Group’s water withdrawal
does not affect significantly any water
TabLe 303-1-2. waTer wITHdrawaL for poTabLe waTer
SuppLy of nLmK Group’S companIeS, ‘000 m3
2013
2014
2015
2016
2017
Potable water withdrawal
12,648
12,528
12,716
11,963
10,726
sources, which is confirmed by the
data in Table 303-2-1.
The companies’ water withdrawal
accounts for less than 5% of the
average annual volume of the water
bodies. The water bodies from which
NLMK Group companies withdraw
water are not particularly sensitive due
to their relative size, function, or status
as a rare, threatened, or endangered
system. The Group’s companies do
not withdraw water from any wetland
listed in the Ramsar Convention* or
any other nationally or internationally
proclaimed conservation area.
Consequently, NLMK Group’s water
withdrawal does not affect water
sources significantly. To exclude
potential fish kills, all water-inlets
have protection structures (protective
nets).
b. Information from the water use
agreements was used as data on the
average annual flow of rivers and the
annual watercourse of reservoirs. The
annual volume of the watercourse
of a reservoir is defined as the sum
of the volume of the reservoir at the
highest retaining level and 50% of
the annual run-off volume**. Data
on the companies’ water withdrawal
are determined using state-registered
TabLe 303-2-1. waTer SourceS SIGnIfIcanTLy affecTed by nLmK Group’S wITHdrawaL of waTer
company
waTer Source
name
averaGe
annuaL waTer
conSumpTIon, m3/S
annuaL
voLume of THe
waTercourSe,
‘000 m3
annuaL
averaGe waTer
wITHdrawaL
over fIve
yearS, ‘000 m3
ImpacT of THe
company’S waTer
wITHdrawaL
on THe waTer
Source, %
NLMK Lipetsk
The Voronezh River
Altai-Koks
The Chumysh River
NLMK Kaluga
The Protva River
51.8
111
11.9
1,633,655
21,974
3,500,496
6,254
375,378
1,382
NLMK Ural
Revdinsky Reservoir
177,900
1,108
Revda
Nizhniye Sergi
Nizhneserginsky Reservoir
140,600
1,706
VIZ Steel
Verkh-Isetsky Reservoir
83,500
921
1.3
0.2
0.4
0.6
1.2
1.1
132 annual report 2017
* ramsar Convention on Wetlands of International Importance� for more information, please follow the link
** average annual run-off volume
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
metering devices that were properly
calibrated.
TabLe 303-3-1. ToTaL voLume of waTer recycLed
and reuSed by nLmK Group, ‘000 m3
Disclosure 303-3 Water recycled and
reused
а. For the purpose of preserving water
resources, NLMK Group uses water-
recycling systems. NLMK Group’s
companies (NLMK Lipetsk, Altai-Koks,
VIZ-Steel, NLMK Kaluga, Stoilensky)
have water recycling schemes both
locally, in individual sections, and
closed loop water systems for the entire
plants resulting in zero-discharge into
surface water bodies.
In exceptional cases (the formation
of residual water), discharge into
surface water bodies is possible after
purification at treatment facilities.
b. The share of recycled water in NLMK
Group’s total water consumption for
industrial needs has been at a very
high level of 97% over the last three
years.
c. This section uses data provided in
2-TP state statistical observation form
(water management) (Rosstat’s order
No. 230 of 19 October 2009). 98% of
the volume data are obtained from
measuring tools that were properly
calibrated. The measurement error
does not exceed 1%. 2% of the volume
data have been calculated.
waTer uSed
2013
2014
2015
2016
2017
Recycled
2,809,876
2,905,103
2,896,021
2,922,971
2,879,928
Reused
80,700
78,873
74,506
67,674
70,598
TabLe 303-3-2. THe SHare of recycLed waTer
In nLmK Group’S ToTaL waTer conSumpTIon, %
2013
2014
2015
2016
2017
Recycled water
96.8
96.8
97.0
97.0
97.1
nlmK group’S Specific water
conSumption
nlmK group’S Specific water
conSumption by Site
m3/t
6.3
6.3
7.0
5.9
5.8
5.3
2013
2014
2015
2016
2017
bat
best available technologies in the industry
40% nlmk
lipetsk
6% altai-koks
6% other assets
48% Stoilensky
THe SHare of cIrcuLaTed waTer In nLmK Group’S ToTaL
waTer conSumpTIon In 2017
98.2%
98.7%
98.3%
98.2%
98.1%
98.3%
90.8%
nlmk
lipetsk
Stoilensky
nlmk
kaluga
nlmk ural
altai-koks
nlmk
metalware
vIz-Steel
envIronment 133
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
gri 304: biodiversity
Disclosure 304-1 Operational sites
owned, leased, managed in, or
adjacent to, protected areas and
areas of high biodiversity value
outside protected areas
NLMK Group’s operations are located
on industrial lands and in residential
areas.
The production sites of NLMK Group are
located in regions of intensive economic
activity, such as the Central European
part of Russia (NLMK Kaluga, NLMK
Lipetsk, Stoilensky), in the Ural Region
(NLMK Ural, VIZ-Steel, VIZ, NLMK
Metalware), and in Siberia (Altai-Koks
in Altai Territory).
Economic development of the
territories where the Group’s
steelmaking business is located (the
Urals, the Lipetsk region) dates back to
the Petrine times, to the beginning of
the 18th century.
NLMK Group has no operational sites,
owned or leased, which are located
in protected areas and areas of high
biodiversity value outside protected
areas.
Disclosure 304-2 Significant impacts
of activities, products, and services on
biodiversity
NLMK Group’s activity, products,
and services do not have a significant
impact on biodiversity.
Disclosure 304-3 Habitats protected
or restored
Since NLMK Group does not have a
significant impact on biodiversity,
its companies are not required to
protect or restore habitats. However,
NLMK Group’s companies regularly
restore lands disturbed by the mining
activities of the Group (Stagdok,
Dolomit). They carry out stage-by-stage
reclamation (in the course of deposit
development) to restore the landscape
134 annual report 2017
and vegetation cover, thus returning
these lands into economic turnover.
The Company allocated over RUB 461
million to this cause in 2017.
Disclosure 304-4 IUCN Red List
species and national conservation list
species with habitats in areas affected
by operations
NLMK Group’s operations do not affect
endangered animals and plants.
gri 305: emissions
Disclosure 305-6 Emissions of ozone-
depleting substances (ODS)
NLMK Group does not produce,
emit, or use ozone-depleting
substances in its processes, except
for the use as a reagent in chemical
laboratory analyses in extremely
limited quantities, as well as for
refuelling compressor equipment, air
conditioning and fire extinguishing
systems.
Disclosure 305-7 Nitrogen oxides
(NOX), sulfur oxides (SOX), and other
significant air emissions
а. While the Group stepped up its
steel output by 2.2%, and Stoilensky’s
pelletizing plant reached its design
capacity in 2017, NLMK Group’s 2017
total air emissions increased by only
0.3%. Specific emissions decreased to
20.5 kg per tonne of steel. Data on air
emissions are given in Table 305-7-1.
b. This section uses data provided
in 2-TP state statistical observation
form (air) (Rosstat’s order No. 387
of 4 August 2016). NLMK Group’s air
emissions are covered by emission
permits for hazardous substances in
accordance with the established MPE*
standards.
TabLe 305-7-1. emISSIonS
emISSIonS
2013
2014
2015
2016
2017
Total, t
319,668
321,553
321,973
330,903
331,993
Specific, kg/t
21.9
21.1
20.9
20.8
20.5
СО, t
NOx, t
SOx, t
250,708
248,547
244,567
249,228
245,651
16,589
17,496
21,165
23,828
25,329
26,040
28,115
27,598
28,893
31,723
Solid, t
25,204
25,352
25,385
25,168
25,630
Volatile organic compounds
(VOC), t
1,996
2,059
2,345
2,467
2,415
Hazard class 1 substances, t
2
2
2
1
1
* maximum permissible emissions
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
gri 306: effluents and waste
Disclosure 306-1 Water discharge by
quality and destination
а. With a zero-discharge system, typical
for most of the Group’s facilities, the
volume of water discharge to water
bodies is mainly generated by domestic
sewage (73% of the water discharge
nlmK group’S Specific air
emiSSionS
kg/t of steel
21.9
21.1
20.9
20.8
20.5
18.9
2013
2014
2015
2016
2017
bat
best available technologies in the industry
nlmK group’S emiSSionS
by Site
83% nlmk lipetsk
2% other assets
10% altai-koks
5% Stoilensky
nlmK group’S emiSSionS by
type, %
74% Carbon
monoxide
1% other
emissions
8% nitrogen
oxides
8% Suspended
substances
9% Sulfur oxides
volume) or industrial effluents and
rainwater (27% of the water discharge
volume).
instruments that were properly
calibrated.
NLMK Group’s discharge of these
effluents is given in Table 306-1-1.
With the enactment of federal law
No. 416-FZ “On water supply and
sanitation”, NLMK Lipetsk stopped
handing over sewage to the Lipetsk
water sanitation authorities (LISA
MUE) and took over responsibility
for the discharge of industrial and
domestic sewage through local
sewage treatment facilities, resulting
in a change in the overall pollutants
discharge balance and its structure
within the Group. NLMK Group
companies do not transfer industrial
wastewater for reuse to other
organizations. RUB 200 million were
spent in 2017 to ensure compliance
of the wastewater quality with the
regulatory guidelines.
b. This section uses data provided
in 2-TP state statistical observation
form (water management) (Rosstat’s
order No. 230 of 19 October 2009). All
NLMK Group’s discharges are carried
out in accordance with the permitting
documentation, taking into account
regulatory guidelines. The volume of
discharges calculated using measuring
TabLe 306-1-1. waTer dIScHarGe
Disclosure 306-2 Waste by type and
disposal method
а.b. Data on waste generation and use
are given in Table 306-2-1.
Specific multi-tonnage steelmaking
waste includes slag, sludge (product
of wet waste gas cleaning systems),
dust (product of dry waste gas cleaning
systems), scale (oily and oil-free), and
spent refractory materials. Mining
operations lead to the formation of
stripping waste and beneficiation
tailings.
According to the national
environmental hazard classification,
these wastes are classified as hazard
class IV and/or V (oily scale with more
than 15% oil content is hazard class III;
the amount of such waste is less than
0.1% of the total volume). According
to the international classification these
wastes are no hazard (hazard class
V) or low hazard (hazard class IV)
requiring no special treatment.
Waste of hazard class V (i.e. practically
non-hazardous) accounts for 97.1% of
the total volume of waste generated by
NLMK Group.
2013
2014
2015
2016
2017
Water discharge in surface water bodies,
‘000 m3
14,139
11,144
13,189
14,715
15,076
including the discharge of insufficiently
purified domestic sewage from treatment
facilities (mechanical, biological
treatment and disinfection), ‘000 m3
12,468
10,286
11,655
12,333
11,014
Pollutants discharge, t
2,936
197
16,399
16,112
15,873
envIronment 135
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
Handling of mining waste is
complicated by the fact that it
cannot be marketed and can only
be used on-site to form dams and
embankments and for technical
reclamation of disturbed lands.
In 2017, some types of waste were
reclassified as products resulting in
lower waste generation. NLMK Group’s
parent company accounts for the
biggest share of this reduction. In 2017,
specific waste generation was reduced
to 3.5 tonnes per tonne of steel.
Without taking into account the
mining waste (overburden and host
rocks, beneficiation tailings), the
Group has a rather high percentage of
waste recycling. The waste is recycled
either at the Group’s companies or at
licensed companies.
с. Due to the mineral composition
of steelmaking waste, such disposal
technologies as composting and
incineration (mass burn) are not
applicable; and because of its solid
state, deep well injection technology
is excluded, as well as the possibility
of placing in the worked out cavities
in case of open-pit mining of iron
ores. NLMK Group’s companies
make steel products that, with the
TabLe 306-2-1. waSTe GeneraTIon and uSe
Waste generation, t
59,305,165
62,783,801
63,045,353
59,590,326
56,762,093
2013
2014
2015
2016
2017
Including Hazard class I, t
159
55
140
38
227
% of total generated volume
<0.001
<0.001
<0.001
<0.001
<0.001
including Hazard class II, t
% of total generated volume
1,462
0.002
1.684
0.003
885
0.001
399
263
<0.001
<0.001
including Hazard class III, t
60,040
59,114
57,470
58,358
55,250
% of total generated volume
0.10
0.09
0.01
0.10
0.10
including Hazard class IV, t
% of total generated volume
4,146,300
4,209,281
3,608,312
3,039,867
1,566,513
7.0
7.1
5.7
5.1
2.8
including Hazard class V, t
55,097,425
58,513,384
59,385,515
56,491,665
55,139,839
% of total generated volume
92.9
92.9
94.3
94.8
97.1
of which: overburden, t
37,504,794
40,186,258
40,635,292
37,769,761
35,719,247
of which: beneficiation tailings, t
16,299,407
16,983,899
17,433,812
17,567,324
18,188,756
Specific waste generation, t/t
4.1
4.1
4.1
3.8
3.5
Total weight of disposed (recycled and decontaminated)
waste, t
9,438,511
9,645,744
8,852,834
8,664,412
7,300,661
including by the Group's companies, t
9,079,889
9,279,248
8,516,465
8,334,925
6,695,152
including by third parties, t
358,621
366,496
336,367
329,487
605,509
Waste disposal, %
Waste disposal without mining waste, %
15.9
95.9
15.4
93.7
14.0
95.9
14.5
93.6
12.9
86.9
136 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
loss of consumer properties, fully
assimilate in the environment.
Ferrous metal products, which have
lost their consumer properties, are
valuable feedstock for steelmakers
(steelmaking companies purchase
scrap in volumes determined by
their steel smelting process and
production scale). 100% of NLMK
Group’s products can be recycled.
About 25% of the steel is produced
from ferrous scrap. NLMK Group’s
operations are part of the closed-loop
economy.
This section uses data provided in
2-TP state statistical observation form
(waste) (Rosstat’s order No. 529 of
10 August 2017). NLMK Group’s waste
management is carried out in line with
permitting documentation.
Disclosure 306-3 Significant spills
There were no significant spills in
2017. Nonetheless, the procedure for
eliminating such incidents and their
consequences has been developed as
part of an integrated management
system.
Disclosure 306-4 Transport
of hazardous waste
NLMK Group companies do not
import or export hazardous waste
or ship it internationally.
Transportation of waste outside
the Group’s premises is carried out
by specialized organizations with
appropriate licenses. Waste recycling
(disposal) volumes are given in Table
306-2-1.
Disclosure 306-5 Water bodies
affected by water discharges and/or
runoff
NLMK Group’s water discharges
do not significantly affect water
bodies, because they make up
much less than 5% of the annual
average volume of the water bodies.
The information is given in sections
303-2 and 306-1.
gri 307: environmental
compliance
For the purpose of environmental
compliance assessment, NLMK Group
companies use the certification
procedure and external audit of
compliance with the requirements of
the international standard ISO 14001
“Environmental Management Systems.
Requirements with guidance for use”,
as well as internal audits.
Legal requirement compliance is
a basic requirement of the ISO
14001:2015 standard (and its previous
versions) and an integral procedure
of the environmental management
system (EMS). Such self-evaluation
reduces compliance risks.
The EMS also provides for
an independent third party (auditor)
evaluation. Every year, NLMK Group’s
companies confirm the compliance
of their Environmental Management
Systems with the requirements
of ISO 14001 in supervisory and
recertification audits. The certification
body is BSI (British Standards
Institute), UK. The Company’s
systematic approach to environmental
management is evidence of its
adherence to environmental principles
and responsibility to the community
for the state of the environment.
Mining and steelmaking companies
are subject to regular scheduled
and unscheduled inspections by the
supervisory authorities.
In 2017, 59 audits, mainly by the
territorial bodies of Rosprirodnadzor
(more than 50% of cases), the
Interregional Nature Protection
Prosecutor’s Office, the territorial
bodies of Rospotrebnadzor, and the
Prosecutor’s Office, were held at the
Group’s companies. These audits
identified 34 deficiencies. Most of the
findings were eliminated during the
audits. The compliance progress was
reported to the controlling bodies in
a timely manner. No recommendations
remain unimplemented. No significant
penalties and non-financial sanctions
were brought against NLMK Group
companies.
Environmental Risk Management
System
Throughout the life cycle of
a production facility, NLMK Group
assesses environmental risks, from
nlmK group’S waSte
production
m/t
5.50
5.61
4.98
4.25
2.85
2013
2014
2015
2016
2017
waSte production
breaKdown
75% nlmk
lipetsk
3% other sites
22% long
products
Division
nlmK group’S recycling
96%
96%
94%
94%
87%
2013
2014
2015
2016
2017
envIronment 137
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
For contractors, the evaluation is
based on the internal corporate
document ‘Standard requirements
to contractor organizations for
environmental protection, approved
on 8 April 2016’.
Disclosure 308-2 Significant actual
and potential negative environmental
impacts in the supply chain and
actions taken
NLMK Group conducts supplier audits
to assess the compliance of qualified
suppliers with the requirements of the
Russian environmental legislation.
All products are delivered to NLMK
Group’s facilities with safety data
sheets, which regulate possible hazards
when handling products, and the
necessary precautions.
Based on the results of the audits of
all qualified suppliers, their activities
comply with the environmental
criteria used by NLMK Group. Their
environmental impact is not significant
for issuing non-conformity resolutions
and for terminating the relationship
with them.
public appraisal
NLMK Group’s environmental
achievements were recognized by
multiple awards.
In March, NLMK Lipetsk was
nominated for ‘Development
Award 2017’, a prestigious national
competition aimed at creating a
favourable investment climate in
Russia. The panel of judges recognized
NLMK’s noise pollution reduction
initiatives as the best environmental
and green tech project.
In May, NLMK was awarded the gold
medal in the ‘100 Best Companies in
Russia. Ecology and Environmental
Management’ national competition.
Viktor Togobetsky, NLMK Vice
President for Occupational Health
and Safety and the Environment,
was awarded the ‘Environmentalist
of the Year 2017’ honorary badge for
achievements in the field of rational
environmental management.
In November, a team of experts
from NLMK, NLMK Engineering and
Ecotech received a gold medal at
TabLe 308-2-1. number of raw maTerIaL, maTerIaL
and eQuIpmenT SuppLIerS aSSeSSed
for envIronmenTaL ImpacTS durInG audITS
New suppliers
Audits of suppliers
2016
4
21
2017
9
36
TabLe 308-2-2. SHare of SuppLIerS wITH wHom ImprovemenTS
Have been aGreed baSed on THe reSuLTS of THe audITS
Share of suppliers with environmental compliance improvement
activities based on findings in audits of the total number of audits
conducted
2016
2017
30
69
the stage of the business concept and
design to its operation and liquidation.
In order to avoid situations when the
companies’ activities are restricted
for environmental reasons, NLMK
Group has introduced Regulations
on identification and assessment
of environmental risks across its
companies, which effectively prevents
possible negative consequences for the
environment, as well as financial losses
associated with the elimination of
environmental damage.
gri 308: Supplier
environmental assessment
Disclosure 308-1 New suppliers that
were screened using environmental
criteria
NLMK Group has introduced
a qualification procedure for all
suppliers, including their compliance
with environmental requirements.
Environmental criteria for the
evaluation of suppliers are set
out in NLMK Group’s regulatory
documents. A key environmental
criterion for evaluating suppliers
of NLMK Group is their compliance
with the requirements of the
Russian environmental legislation.
All NLMK Group’s suppliers of raw
materials, materials and equipment,
and service providers (contractors)
are evaluated for compliance with
the requirements of the Russian
environmental legislation during
qualifications and audits. Based
on the results of qualifications and
audits, counterparties that were
found to be non-compliant with the
established criteria, are not allowed
to supply raw materials, materials
and equipment, and to perform
services for NLMK Group companies.
100% of new service providers were
evaluated by environmental criteria
in 2016–2017.
138 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
the ‘Metal-Expo exhibition 2017’ for
the development and execution of
an integrated dust emission control
project at the Lipetsk site.
In December, NLMK Lipetsk was
awarded a certificate for its active
environmental policy during the ‘Year
of the Environment’. The award was
presented by Artem Sidorov, head of
Rosprirodnadzor, at the meeting of
the Federal Environmental Council,
held at the V National Congress on
Environmental Protection at Ecotech
exhibition and forum.
In 2017, the Lipetsk Rosprirodnadzor
and the Regional Department of the
Environment and Natural Resources
awarded NLMK a diploma for its
environmental projects and its active
environmental policy during the ‘Year
of the Environment’.
In 2017, VIZ-Steel was recognized
at the ‘100 Best Companies in
Russia. Ecology and Environmental
Management’ national competition
in the category ‘For Rational Nature
Management and Environmental
Protection’. S. Olkov, Executive
Director, was awarded the
‘Environmentalist of the Year 2017’/
‘For achievements in the field of
rational environmental management’
honorary badge.
VIZ-Steel was awarded a special prize
‘The Golden Bough of the Planet’ for its
balanced environment.
VIZ-Steel’s IEC laboratory was
recognized at the ‘100 Best Companies
in Russia. Ecology and Environmental
Management’ national competition
in the ‘Best Environmental Service’
category.
NLMK Kaluga was awarded a letter
of appreciation from the Ministry of
Natural Resources and the Environment
of the Kaluga region on the World
Environment Day. It also came
first in the ‘Eco-organization 2017’
competition in the ‘Implementation of
the most efficient environmental and
resource-saving technologies among
large companies’ category.
At the III International Environmental
Forum NLMK Kaluga was awarded a
diploma for its significant achievements
in the field of environmentally
responsible approach to the organization
of production and for ensuring
environmental safety and preservation
of a favourable environment, as
well as a letter of appreciation and
an ‘Environmental Hero’ title as a
participant in the nationwide ‘Recycling’
environmental marathon.
envIronment 139
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
disclosure of environmental
information
As a public company, NLMK Group
annually discloses operating
information, including non-financial
reporting data (information on
environmental activities).
Environmental reports are available
on the Company’s website at
www.nlmk.com, as well as on
corporate social media platforms
at http://vk.com/nlmk.ru,
www.twitter.com/nlmk, and
www.facebook.com/nlmk. Each
company of the Group has its local
website: https://lipetsk.nlmk.com,
www.sgok.ru, www.altai-koks.ru,
www.nlmk-sort.ru, www.viz-steel.ru,
www.rudnik.ru.
There is a corporate portal for
the Company’s employees at
http://home.nlmk.ru.
In order to increase public awareness,
NLMK Lipetsk, the flagship company
of the Group, additionally publishes
the following information on its
website:
Magazine, Our Plant, Verkh-Isetsky
Worker, NLMK Sort, Coke Engineer of
Altai, and Big Ore newspapers, and in
the annually published Environmental
Protection booklet.
• Forms of state environmental
statistical reporting (annually)
• Air monitoring data at the border
of the sanitary protection area
(monthly).
For immediate notification, the
current (daily) information on
the state of atmospheric air at
the boundary of the sanitary area
is shared with the Department
of the Environment and Natural
Resources of the Lipetsk Region
for publication on its website at
http://ekolip.ru.
Information is also available
in the corporate periodicals: NLMK
Stakeholders are invited to contact
the Company using the contacts
published on the corporate or local
websites with all inquiries related
to environmental issues. Employees
can also anonymously call the 06
Help Line. All information will be
received and registered by NLMK’s
Environmental Department.
Inquiries are considered on the
day of the inquiry, and the reply is
sent to the address indicated by the
stakeholder or posted on the local
website in case of an anonymous
inquiry. 13 inquiries were filed in
2017. All of them were examined in
terms of the causes of the deficiencies
and appropriate measures to
eliminate them.
140 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
130
NLMK Group believes the following
persons to be its stakeholders* in
terms of receiving environmental
information:
• Public business organizations:
• Local communities
✓ Russian Union of Industrialists
• Employees.
and Entrepreneurs
• Shareholders, investors, partners
✓ Chambers of commerce and
industry (regional)
• Executive agencies:
• Public environmental organizations:
✓ Territorial bodies of federal
supervision (Rosprirodnadzor,
Rospotrebnadzor, Rosvodresursy,
Rosleskhoz, Rosnedra,
Rosrybolovstvo, Roshydromet)
✓ Prosecutor’s supervision bodies
(Interdistrict Prosecutor’s office
for Environmental Protection)
✓ Regional environmental
management bodies
(administration of the
constituent territories)
✓ Public Chamber (regional
offices)
✓ All-Russian Society for Nature
Conservation
✓ Forest patrol
✓ Public environmental
associations (clubs)
* For further information, please refer to the Dialogue
with stakeholders section
envIronment 141
NLMK 2017142149 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
enerGy effIcIency
the goal of reducing energy costs is achieved both
through optimization measures and by increasing
the share of in-house power generation.
142 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
142
Key factS and figureS
Systematic improvement of
energy efficiency a key priority
area for the group
the main objective is to ensure
a reliable supply of energy
resources and reduce costs.
an increase in the share
of captive power generation
growth of power generation
capacity
the share of power generated
in-house from the recovery of
by-product fuel gases increased
to 84% in 2017.
Following the installation
of a new turbine generator
unit no. 5 at the lipetsk
Cogeneration plant in 2017,
the share of in-house power
generation will increase to 59%.
Increased captive
power generation
and lower energy
consumption
boost efficiency
and minimize
the Сompany’s
environmental
footprint
S ustainable energy use and
systematic efforts to enhance
energy efficiency are among
the key activities for NLMK Group’s
businesses.
NLMK Group’s main energy
procurement goals are to ensure stable
supply of energy resources and cost
reduction (energy costs account for
about 10% of the production cost)
through enhancing energy efficiency.
NLMK Group has an energy policy,
which defines the Company’s
mission, objectives, and principles of
sustainable energy use.
Policy goals:
• Achieve the optimal level of energy
intensity
• Leadership in application of
advanced energy efficient
technologies, including introduction
and continuous improvement of
Energy management systems.
The goal of reducing energy costs is
achieved both through optimization
measures and by increasing the share
of in-house power generation.
envIronment 143
149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
development of in-house
power generation
NLMK Lipetsk’s captive power
generation:
in-houSe power generation
in total energy conSumption
• Ensures business continuity
• Reduces cost: the cost of captive
power generation at the Lipetsk
site is 29% lower than the cost of
purchased electricity
• Reduces environmental footprint.
Power generating capacities: the total
installed in-house generation capacity
is 522 MW. Electricity is produced
at Cogeneration Plant, Recovery
Cogeneration Plant, and two top-
pressure recovery turbines.
Generation resources: more than
84% of electricity at the Lipetsk
site is generated from the recovery
of by-product gases from coke and
chemical and blast furnace operations.
The main fuels for NLMK’s
Cogeneration Plant and Recovery
Cogeneration Plant are blast-furnace
and coke-oven gases; top-pressure
recovery turbines are used to generate
electrical power through the efficient
use of blast furnace gas overpressure.
There is a 200 MW power plant at
Altai-Koks that operates on coke
oven gas and completely covers the
company’s electricity needs.
59%
54%
53%
57%
55%
53%
2013
2014
2015
2016
2017
target
in-houSe energy generation
МW
388.4
443.6
417.0
408.8
403.1
2013
2014
2015
2016
2017
in-houSe power generation
from Secondary fuel gaSeS
84%
81%
In-house generation development
capex projects in 2014-2017:
78%
77%
78%
• 2014: capital improvement of
50 MW capacity turbine generator
unit No. 4 at the Cogeneration Plant
• 2015: launch of the Blast Furnace
No. 7 top-pressure recovery turbine
• 2016: capital improvement of the
Blast Furnace No. 6 top-pressure
recovery turbine with 20 MW
capacity generators
• 2015–2016: a range of optimization
measures was implemented at
NLMK’s Cogeneration Plant and
2013
2014
2015
2016
2017
Recovery Cogeneration Plant,
including those aimed at reducing
the repair time of generators,
selecting efficient turbine loading
regimes, and optimizing the water
cycle operation of turbine generator
units
The development of captive generating
capacities is an important element
of securing power supply and energy
efficiency of the Company.
caSe STudy
NEw turbINE
GENErAtOr uNIt
NO. 5
In 2017, installation of a new
turbine generator unit no. 5 with
a 60 mW capacity at the lipetsk
Cogeneration plant continued. the
new turbine generator replaces
a unit with a similar capacity
launched in 1958, which has
come to the end of its life cycle.
the outgoing turbine generator
was equipped with a hydrogen
cooling system, whereas the
replacement is cooled using
cold air, which makes it safer
to operate and more reliable.
the project was launched in Q2
2016. nlmk engineering, one of
the leading design institutes in
the russian steel sector, is the
general designer of the project.
the total investment in the project
exceeded rub 1.8 billion.
Sergey Chebotarev, nlmk vice
president for energy said: “this
project enhances the safety and
stability of the Cogeneration
plant, and reduces the operating
costs for electricity and heat
generation. this will enable us
to increase the efficiency of our
energy-generating facilities, and
increase the share of in-house
power generation from 53% to a
record 59%.”
144 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
142
• 2016–2017: a new 60 MW capacity
turbine generator No. 5 at NLMK’s
Cogeneration Plant; capital
overhaul of turbine generators
Nos. 1, 2 and 3 and steam
generating units Nos. 1, 2, 3 of the
Recovery Cogeneration Plant. As a
result, the share of captive power
generation will increase to 59%.
The decrease in the share of captive
power generation in 2017 was due to
the fact that turbine generator No. 5
at NLMK’s Cogeneration Plant was
taken down for overhaul, and turbine
generators Nos. 1, 2 and 3 and steam
generating units Nos. 1, 2, 3 of the
Recovery Cogeneration Plant were
under repair. This was partially offset
by the increase in the efficiency of
other installed turbine generator units
and a scale up of TRT energy output.
In 2017, 84% of electricity generated at
the plant resulted from the recovery of
by-product gas.
nlmK group’S power
conSumption in 2017
55%
nlmk lipetsk
10%
nlmk group’s
international
facilities
35%
other russian
facilities
nlmK group’S natural
gaS conSumption in 2017
79%
nlmk lipetsk
12%
nlmk group’s
international
facilities
9%
other russian
facilities
envIronment 145
caSe STudy
GrEEN ENErGy ANd NLmK
nlmk steel production is becoming increasingly effective in terms of green
energy. electric power at nlmk is produced not only by burning blast furnace
gas, but also thanks to excess pressure of blast furnace gas using top-pressure
recovering turbines (trts). turbines that use blast furnace gas are installed at
bF-7 and bF-6.
moreover, nlmk’s products are widely used in green energy. For instance,
nlmk DanSteel a/S, part of nlmk europe plate, supplies plates with special
dimensions made from high-strength steel for the construction of offshore wind
turbines.
In 2017, nlmk group supplied transformer steel to the Siemens transformers
plant based in the city of voronezh, Central russia. the steel product will be
used to make a transformer for burnoye Solar-2 solar power park, which is
currently under construction in kazakhstan. burnoye Solar is a successful case
of developing sources of renewable energy. burnoye Solar-1, stage 1 of the solar
park project with a capacity of 50 mW, was constructed in 2015. Construction of
burnoye Solar-2, which will have the same capacity as burnoye Solar-1, will be
completed in 2018. the two solar parks will combine to form one of the largest
solar generators in eastern europe and the biggest in Central asia.
photo: DanSteel is one of the leading suppliers of steel for green energy facilties in europe
NLMK 2017149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
energy consumption and
optimization activities
Electric power
In 2017, total electricity consumption
by all NLMK Group production
facilities amounted to 12.1 billion
kWh (+2.6% yoy), of which 55% was
consumed by NLMK Lipetsk. Facilities
using electric arc furnaces for steel
production (20% of production)
accounted for 20.7% of the consumed
electricity.
Natural gas
Total natural gas consumption by all
NLMK Group’s production facilities
amounted to 2.7 billion m3 (-7.5%
yoy), of which 79% was consumed
by NLMK Lipetsk, where natural
gas is widely used in blast furnace
operations, in reheating furnaces and
heat treatment units and, in part, in
electricity generation.
• Boosting operational efficiency
and distribution of air separation
products
2017 optimization activities
• Boosting captive energy generation
Activities: more than 200 optimization
measures aimed at improving energy
efficiency across the Group’s facilities
in Russia and abroad.
• Optimization of gas consuming
facility operations
• Lighting upgrades
Total gains: ca. RUB 800 million
($13.7 million), which enabled a
286 million m3 reduction in the
consumption of purchased natural gas
(10.5% of total consumption).
In 2017, the following key areas were
covered by optimization activities:
• Automation of energy consumption
control, etc.
These optimization measures enabled
a reduction in blast furnace gas losses
from NLMK’s gas supply system by
33.5% vs. 2015, from 4.6% to 2.8% of
total blast furnace gas output.
• Efficiency improvement of
secondary fuel gases utilization
Efforts to reduce oxygen losses
in the process of its production,
transportation and consumption by
146 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
142
metallurgical and steelmaking units
continue. Over the last three years,
oxygen losses have been reduced by
40%, from 11.5% in 2014 to 6.95%
in 2017, driven by measures aimed at
regulating oxygen-making capacity
utilization and ensuring efficient
interaction between the core and
energy departments.
Optimization of generating capacity
utilization and an increase in their
operating time enabled an increase in
the utilization rate of the Cogeneration
Plant and Recovery Cogeneration Plant
installed capacity to 93% and 89%,
respectively.
In 2017, Altai-Koks saved more than
RUB 17 million due to the rational use
of energy resources in its processes.
NLMK Kaluga upgraded its ceiling
lighting in its EAF and rolling shops.
In 2016–2017, NLMK Ural
implemented a set of measures that
reduced energy consumption by 9%
in the EAF shop. The company saved
more than RUB 18 million due to
equipment upgrades resulting in a
1.9 million kWh per year reduction
in electricity consumption, while its
automated information-measuring
accounting system saved an additional
800,000 kWh per year. Equipment
upgrade projects enabled a reduction
in the specific energy intensity of
production at the EAF shop from
0.76 to 0.69 Gcal per tonne, while
specific energy intensity of the rolling
operations at NLMK Metalware
decreased from 0.50 to 0.47 Gcal per
tonne.
Specific energy intenSity at
the lipetSK Site
gcal/t
5.72
5.67
5.66
5.60
5.49
5.10
2013
2014
2015
2016
2017
target
envIronment 147
NLMK 2017149130 2017 eNviroNMeNtaL highLights
NLMK group’s eNviroNMeNtaL activities
iNvestMeNts iN eNviroNMeNtaL iNitiatives
caSe STudy
LIGHtING upGrAdEs
nlmk group embarked on
a large-scale upgrade of
industrial lighting enabled by
philips in 2011. as part of this
initiative in 2017, nlmk kaluga
implemented a project to
upgrade ceiling lighting in the
eaF and rolling shops, which
brought tangible results. Capex
amounted to ca. rub 39 million.
2,117 incandescent lamps were
replaced by energy saving lamps
manufactured by philips, which
enabled a reduction in electricity
consumption for lighting from
9.9 million kW/h per year to 2.8
million kW/h per year. this project
not only enabled a reduction
in electricity consumption for
ceiling lighting and the costs of
recycling mercury-containing
lamps, but also ensured
compliance with regulatory
guidelines for workplace lighting.
enmS certification
and energy surveys
2018 objectives:
• Increase in the efficiency of fuel gas
utilization in power generation
• Optimization of energy
transportation networks load and
configuration across all companies
• Optimization of industrial gas
equipment operation
• Reduction of heat energy losses
during its transportation through
stop valves sealing
• Use of energy-efficient pump and
compressor equipment
• Launch of turbine generator unit
No. 5 at NLMK’s Cogeneration Plant
after major overhaul, etc.
public appraisal
Significant efforts to ensure
sustainable use of energy are highly
appreciated. In 2017, NLMK won the
ENES-2017 nationwide competition
among energy saving and energy
efficiency projects, held under the
auspices of the Ministry of Energy
of the Russian Federation. NLMK
submitted its project on electricity
generation without fuel combustion in
blast furnace operations.
The cycle of recertification audits of
the Energy Management Systems of
NLMK Group’s main production sites
was completed. The ultimate goal of
these audits was the transfer of the
local EnMS to an “umbrella” system,
with NLMK Lipetsk being the holder
of the main certificate. NLMK was
awarded the ENMS 598731 certificate.
In compliance with the requirements of
the federal legislation on energy saving
and energy efficiency improvement,
energy passports for Altai-Koks,
NLMK Ural, and VIZ-Steel were
developed, approved, and entered into
the register of energy auditors. In 2018,
NLMK plans to continue the work on
developing energy passports for its
Russian facilities and on improving its
existing Energy Management Systems.
growth of energy efficiency
Consistent improvement of energy
efficiency is possible through
equipment upgrade and optimization
efforts.
In 2017, specific energy intensity of
the Lipetsk site reduced by 2% to
5.5 Gcal/t, while the best available
technology (BAT) level for integrated
production is 5.1 Gcal/t.
Other sites also demonstrated a
positive trend, for example, energy
intensity at NLMK Kaluga reduced by
2% year-on-year to 0.53 Gcal/t, at
NLMK Ural by 4.6% to 0.69 Gcal/t.
148 annual report 2017
120122128 eNviroNMeNtaL protectioN
eNergy efficieNcy
Key highLights
149
Key
HIGHLIGHTS*
Steel output, m t
Air emissions, '000 t, incl:
NOx
SO2
CO
— per unit of product, kg/t
Water consumption for production purposes, m m3
- per unit of product, m3/t
Pollutants discharge, ‘000 t
— per unit of product, kg/t
Waste production, m t
Waste disposal, %
Additional:
— stripping waste, m t
— beneficiation tailings, m t
Total waste production, m t
2013
14.6
2014
2015
2016
2017
15.23
15.41
15.88
16.23
319.4
321.5
322.0
330.5
332.0
16.6
26.0
17.5
28.2
21.0
27.6
24.0
28.9
25.3
31.7
250.7
248.5
244.6
249.2
245.7
21.9
92.7
6.35
2.9
0.2
21.1
96.1
6.31
0.2
0.0
5.50
5.61
20.9
90.6
5.88
16.4
1.1
4.98
20.8
91.6
5.77
16.1
1.0
4.25
20.5
86.1
5.30
15.9
1.0
2.85
95.9%
93.7%
95.9%
93.6%
86.9%
37.5
16.3
59.3
40.2
17.0
62.8
40.6
17.4
63
37.8
17.6
59.6
35.7
18.2
56.8
Waste disposal including mining waste, %
15.9%
15.4%
14.0%
14.5%
12.9%
Environmental spendings**, $ m
134.5
143.1
104.1
105.3
Capital costs, $ m
Operating costs, $ m
38.9
100.6
48.5
88.3
49.1
55.6
50.9
57.1
98.1
37.6
66.3
Total energy consumption, m kWh
39,383
40,015
39,379
39,244
37,312
Specific energy intensity***, Gcal/t
5.7
5.7
5.7
5.6
5.5
Energy consumption, m kWh
10,024
10,417
10,392
10,667
10,853
Fuel consumption – natural gas, m m3
2,713
2,730
2,729
2,616
2,381
* nlmk group’s russian facilities
** excluding revenue from by-products (waste) sales
*** energy intensity calculations include coal, coke, heat, gas, electricity and other energy resources
envIronment 149
NLMK 2017142130 (cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:400)(cid:410)(cid:258)(cid:410)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:258)(cid:393)(cid:393)(cid:286)(cid:374)(cid:282)(cid:349)(cid:454)(cid:3)
(cid:4)(cid:87)(cid:87)(cid:28)(cid:69)(cid:24)(cid:47)(cid:121)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:400)(cid:410)(cid:258)(cid:410)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)
(cid:258)(cid:374)(cid:282)(cid:3)(cid:258)(cid:393)(cid:393)(cid:286)(cid:374)(cid:282)(cid:349)(cid:454)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:1005)(cid:3)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:856)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1011)(cid:3)(cid:4)(cid:374)(cid:374)(cid:437)(cid:258)(cid:367)(cid:3)(cid:90)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)
Financial statements and appendix
RESPONSIBILITY STATEMENT
NLMK management, having considered the information available regarding the activities of the Company,
confirms its responsibility for:
Preparation and reliability of the Group’s consolidated financial statements, prepared in accordance with
IFRS, as of December 31, 2017 and also for the year ended on that data, 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.
The completeness and correctness of the information submitted in the NLMK Group Annual Report for 2017,
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 2017 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) G. Fedorishin
2 ............................................................................................................................................ 2017 Annual Report
Financial statements and appendix
PJSC Novolipetsk Steel Internal Audit Commission
FINAL REPORT
on financial results and operational activities audit for FY2017
Lipetsk
April 19, 2018
The Internal Audit Commission of the PJSC Novolipetsk Steel (hereinafter referred to as PJSC NLMK,
Company) has conducted an audit of the financial results and operational activities for FY2017 to verify the
accuracy of the data contained in the PJSC NLMK Annual Accounting (Financial) statements and PJSC NLMK
Annual Report for the year 2017. As well as to verify the compliance of the data with the requirements of
current legislation, internal organizational and administrative documents of the Company.
The Internal Audit Commission performed the audit in accordance with the current legislation, the
Company's Charter, the Regulations on the Internal Audit Commission of the Company.
As a part of the audit, a sampling study of facts and circumstances that possibly could lead to distortion
of information on business transactions reflected in the Company's accounting records was carried out.
The sampling study included an audit of documents and a study of evidence supporting the accounting
data and notes disclosed in the Annual Accounting (Financial) statements and the PJSC NLMK Annual Report
for the year 2017.
The Internal Audit Commission has not identified any significant errors, violations of the current
legislation, orders and other administrative documents of the Company, serious violations of the established
procedure of maintaining the accounting records of assets, liabilities and business transactions that could
materially distort information about the Company's financial position and significantly affect the fairness of
the Annual Accounting (Financial) statements and the Annual Report for the year 2017 of PJSC NLMK.
Members of the Internal Audit Commission have reasonable grounds to confirm the accuracy of the
data contained in the PJSC NLMK Annual accounting (financial) statements and PJSC NLMK Annual Report for
the year 2017 in all material aspects.
Chairman of the Internal Audit Commission
PJSC NLMK
M. Makeev
2017 Annual Report ........................................................................................................................................... 3
Financial statements and appendix
Information about Annual Report 2017 approval procedure
№
Stage
Document
1
2
Preliminary approve NLMK’s 2017 Annual
Report by the Board of Directors.
MoM № 255 dd. 27.04.2018
Approval of NLMK’s 2017 Annual Report
by the General Shareholders’ meeting.
MoM № 50 dd. 08.06.2018
4 ............................................................................................................................................ 2017 Annual Report
Financial statements and appendix
Compliance with the requirements of Regulations on Information Disclosure by Issuers of Issue-
Grade Securities
No. Requirement
Reference to an item
of Regulations
Status
Comments
1
2
3
4
5
6
Availability of data on
the status of a joint-
stock company in the
industry
Availability of data on
the priority lines of a
joint-stock
company’s
operations
The report of the
Board of Directors on
the results of a joint-
stock company’s
development split by
priority lines of its
operations
Information on the
quantities of each of
the energy resources
used in the reporting
year in natural and
monetary terms
Data on the
development
prospects
Report on the
payment of declared
(accrued) dividends
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
7
Description of key
risk factors
70.3.
In compliance
The information is
presented in About
NLMK booklet, NLMK
Profile section
The information is
presented in About
NLMK booklet,
Strategy section,
Analysis of NLMK’s
operations in 2017
The information is
presented in About
NLMK booklet,
Strategy 2017 results
section
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in About
NLMK booklet,
Strategy 2017 section
The information is
presented in
Corporate
Governance booklet,
For Shareholders
section and in the
Appendix to the
Annual Report
The information is
presented in
Corporate
Governance booklet,
Operational Control
2017 Annual Report ............................................................................................................................................ 5
and Risk Management
section
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in
Corporate
Governance booklet,
Management
Composition section,
Report on the
Management Board’s
Activity
The information is
presented in
Corporate
Governance booklet,
Management
Composition section
Financial statements and appendix
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
8
9
10
List of transactions
recognized to be
major transactions in
accordance with
Federal Law “On Joint
Stock Companies”
List of transactions
recognized to be
interested-party
transactions in line
with Federal Law "On
Joint Stock
Companies"
Composition of the
Company’s Board of
Directors, changes in
the composition of
the Board of
Directors, data on the
members of the
Board of Directors,
transactions of the
members of the
Board of Directors on
acquisition or
disposal of the
Company’s shares
11 Data on the person
70.3.
In compliance
being (functioning as)
a sole executive body
of the Company and
members of a
collegial executive
body, transactions
concluded by a
person being
(functioning as) a
sole executive body
of the Company and
(or) members of a
collegial executive
body on the
acquisition or
disposal of shares of
6 ............................................................................................................................................ 2017 Annual Report
Financial statements and appendix
a joint-stock
company
70.3.
In compliance
70.3.
In compliance
70.3.
In compliance
70.4.
In compliance
The information is
presented in
Corporate
Governance booklet,
Report on
Remuneration to
Governing Bodies
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in the
Appendix to the
Annual Report
12
Fundamental
principles of a joint-
stock company’s
policy on
remuneration and
(or) reimbursement
of expenses
13 Data (report) on the
observance of
principles and
recommendations of
the Corporate
Governance Code
14 Data on approval of
the annual report by
the General
Shareholders’
Meeting or the Board
of Directors of a
joint-stock company
15
Corporate
Governance Code:
Statement of the
Board of Directors
(Supervisory Board)
of a joint-stock
company on the
observance of
corporate
governance
principles
documented in the
Corporate
Governance Code,
and if such principles
are not observed
fully or in part by the
joint-stock company -
specifying those
principles and a
summary of
violation;
2017 Annual Report ........................................................................................................................................... 7
Financial statements and appendix
70.4.
In compliance
70.4.
In compliance
The information is
presented in the
Appendix to the
Annual Report
The information is
presented in the
Appendix to the
Annual Report
70.4.
In compliance
The information is
presented in the
Appendix to the
Annual Report
70.4.
In compliance
The information is
presented in the
Appendix to the
Annual Report
16
17
18
19
Corporate
Governance Code: A
summary of the most
significant aspects of
the corporate
governance model
and practice in a
joint-stock company;
Corporate
Governance Code:
Description of the
methodology used by
the joint-stock
company in its
assessment of
observance of
corporate
governance
principles
documented in the
Corporate
Governance Code;
Corporate
Governance Code:
Description of root
causes, factors and
(or) specific
circumstances of a
full or partial non-
observance by a
joint-stock company
of corporate
governance
principles
documented in the
Corporate
Governance Code;
Corporate
Governance Code:
Description of
corporate
governance
mechanisms and
instruments used by
a joint-stock
company instead (in
substitution) of those
recommended by the
Corporate
Governance Code;
8 ............................................................................................................................................ 2017 Annual Report
Financial statements and appendix
70.4.
In compliance
The information is
presented in the
Appendix to the
Annual Report
70.5.
Not applicable
-
20
21
Corporate
Governance Code:
Planned (proposed)
actions and activities
of a joint-stock
company aimed at
the improvement of
a corporate
governance model
and practice
specifying the
deadlines for such
actions and activities.
A section on the
status of net assets, if
after the end of the
second reporting
year or each
subsequent reporting
year the value of a
joint-stock
company’s net assets
is less than its
authorized capital
2017 Annual Report ........................................................................................................................................... 9
Financial statements and appendix
NLMK subsidiaries and affiliates as of 31.12.2017.
No
Company name
Adress
Activity
Annex 1
Novolipetsk in
Charter Capital
(%)
2
1
Subsidiary companies
1.
2.
3.
4.
5.
6.
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
NLMK Information Technologies, Limited Liability
Company
7.
NLMK Kaluga, Limited Liability Company
3
4
28 Kirova St., GSP-714, Ekaterinburg,
620219, Russia
3 Novinskaya St., Yekaterinburg,
620024, Russia,
offices 503-506, bld 11А, str.
Pavlovskogo, Novokuznetsk, Kemerovo
Region, 654007,Russia
30 Kommunisticheskaya St., Syktyvkar,
Komi Republic, Russia
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
36 Lenina St., Lipetsk,
398020, Russia
Lipetsk, Russia
Hotel services
IT, computing and telecom services.
6 estate, bld. 1, 20, Lyskina Str., village
Vorsino, Borovsk district, Kaluga region,
249020, Russia
Production of steel, re-rolling stock (billets), hot-rolled and
forged flats, unpainted and pre-painted cold-rolled flat steel
8.
NLMK-Metiz, Limited Liability Company
5, Koltsevaya Str, Beryozovsky 623704,
Sverdlovsk Region, Russia
Production of pig iron, ferrous alloys, steel, hot and cold-
rolled flat steel
9.
NLMK-Svyaz, Limited Liability Company
Lipetsk, Russia
Telecom services
5
100
100
100
100
100
100
100
100
100
10 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
10.
11.
12.
13.
14.
15.
16.
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
3 Novinskaya Str., Ekaterinburg,
620024, Russia
Lipetsk, Russia
Lipetsk, Russia
8 Almaznaya St.,
Lipetsk, Russia
Russia, Lipetsk
25 Chekhova Lane, Morskoye Village,
Sudak, Crimea, 298033, Russia
2 Fanernaya St., Lipetsk,
398017, Russia
17.
NLMK Trade House, Limited Liability Company
Moskow, Russia
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
18.
Uralvtorchermet, Closely-held Joint-Stock Company
room 501, 3 Novinskaya Str,
Ekaterinburg, Russia, 620024, Sverdlovsk
Region
Consulting services re commercial activities, management,
investing in securities, leasing of assets.
19.
Altai-Koks, Open Joint-Stock Company
2, Pritaezhnaya st, Zarinsk, Altaisky
region 659107, Russia
Production and marketing of coke and by-products,
generation and marketing of heat and electric power
20.
Dolomit, Open Joint-Stock Company
1 Sverdlova St., Dankov, Lipetsk
Region, Russia,
Mining and processing of dolomite
21.
Stoilensky Mining and Processing Plant, Open Joint-
Stock Company
4 Fabrichny proezd, Stary Oskol,
Belgorod region, Russia, 309500
Mining and processing of iron ore and other minerals
22.
Studenovskaya Joint Stock Mining Company, Open
Joint-Stock Company
Studenovskaya industry area, Lipetsk
region, Russia, 398507
Production of fluxing limestone for steel-making, process
limestone for the sugar industry, lime-containing materials
and crushed stone for construction and roadwork
100
100
100
100
100
100
100
100
100
100
100
100
100
2017 Annual Report .............................................................................................................................................................................................................................................. 11
Financial statements and appendix
23.
«NLMK-Urals» Joint-Stock Company
3, Karl Libknekht st., Revda, Sverdlovsk
Region, Russia
Production of long steel stock, hot-rolled and forged flat steel
24.
«NLMK-Engineering» Joint-Stock Company
1 Kalinina str. , Lipetsk, Russia
Design and survey operations
25. Maxi-Group, Joint-Stock Company
18 3-rd Yamskova polya st., Moscow ,
Russia, 125040,
Consulting services, corporate financial management
Affiliated companies
26.
Neptune, Limited Liability Company
Office 35, 1C Adm. Makarova St.,
Lipetsk, 398005 Russia
Wellness services
92,59
57,57
50,00005
25,00
12 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
Electro energy
Natural gas
Heating energy
Gas oil
Benzine
Heating oil
Coking coal
Usage of energy resources of NLMK (Novolipetsk) in 2016-2017.
Annex 2
Item
mln kWth
mln of RUB with VAT
mln m3.
mln of RUB with VAT
GCal
mln of RUB with VAT
‘000 liters
mln of RUB with VAT
t
mln of RUB with VAT
t
mln of RUB with VAT
‘000 t
mln of RUB with VAT
2017
3 184
10 447
2 143
11 185
122 725
200
23 432
755
552
26
1108
5,6
4 218
45 643
2016
3 075
9 579
2 429
12 179
147 256
233
24394
679
650
28
7304
37
3 893
28 122
Change, %
4%
9%
-12%
-8%
-17%
-14%
-3,9
11,3
-15,1
-5,4
-84,8
-84,9
8,3%
62,3%
2017 Annual Report .............................................................................................................................................................................................................................................. 13
Financial statements and appendix
List of transactions performed by NLMK in 2017,
which are recognized as major transactions in line with the Federal Law "On Joint Stock Companies", as well as of other transactions falling under the
extended the procedure for approving major transactions in line with the Company’s Charter
In 2017, NLMK did not perform any transactions that the Federal Law "On Joint Stock Companies" recognizes as major transactions. NLMK’s Charter does not specify any
additional cases falling under the extended procedure for approval of major transactions in line with the Federal Law "On Joint Stock Companies"..
Annex 3
List of transactions performed by NLMK in 2017,
recognized as interested-party transactions in line with the Federal Law "On Joint Stock Companies".
An interested- party transaction is a transaction involving in accordance with the Federal Law “On Joint Stock Companies” an interest of a member of the Board of Directors,
the President (Chairman of the Management Board), the Interim or Acting President (Chairman of the Management Board), a member of the Management Board of the
Company or a controlling entity of the Company, or an entity entitled to give binding instructions to the Company.
Resolution on consent to an interested-party transaction shall be passed by the Board of Directors of the Company, unless otherwise stipulated in the Federal Law “On
Joint Stock Companies”.
Resolution on consent to such a transaction shall be passed by the Company’s Board of Directors by the majority of votes of the Directors who are not interested in its
conclusion, who are not, and have not been, within 1 year prior to such a resolution:
- the President (Chairman of the Management Board), the Interim or Acting President (Chairman of the Management Board), the executive manager of the Company, a
member of the Management Board, a person holding offices in management bodies of the managing entity;
- a person whose spouse, parents, children, full-blood and half-blood brothers and sisters, adoptive parents and adoptees are persons holding offices in the said
management bodies of the Company, managing entity of the Company or holding the office of a manager of the Company;
- controlling entity of the Company or the Company’s managing organization (manager) entrusted with the functionality of the Company’s sole executive body or entitled
to give mandatory instructions to the Company.
Resolution on consent to an interested-party transaction shall be passed by the General Shareholders’ Meeting by the majority of votes of all the shareholders - owners of
the Company’s voting shares participating in the voting, who are not interested in the transaction, in the following cases:
- in case a transaction or several related transactions are made in respect of the property with the book value (quotation price of the acquired property) of 10 or more per
cent of the book value of the Company’s assets according to the data of its accounting (financial) statements as of the latest reporting date;
14 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
- if a transaction or several related transactions involve the sale of common shares keeping records of over two percent of the common shares earlier distributed by the
Company, and common shares, which earlier distributed securities convertible into shares can be converted into, unless the Charter provides for a lower number of shares.
In 2017, NLMK’s General Shareholders’ meeting did not pass any resolutions on the approval of interested-party transactions.
N
o.
Material terms of the transaction
The transaction - Agreement on a Revolving Secured Credit Facility
between Novolipetsk Steel (the Guarantor) and NLMK Indiana LLC,
NLMK Pennsylvania LLC, Sharon Coating LLC, NLMK North America
Plate LLC (the Borrowers).
Coordinator and Book Runner: Bank of America Merrill Lynch
International Limited.
Mandated Lead Arrangers: Bank of America Merrill Lynch
International Limited, JPMorgan Chase Bank, N.A. and Citibank,
N.A.
Facility Agent, Security Agent, Issuing Bank: Bank of America, N.A.,
Original Lenders: Bank of America, N.A., JPMorgan Chase Bank,
N.A. and Citibank, N.A.
The amount of the transaction: US$ 250,000,000 (RUB
14,434,700,000 at the Russian Central Bank rate as of 15.02.2017,
which is the transaction date).
The transaction maturity is 48 months from the date of the
agreement.
Party (parties) interested in the transaction
Member of NLMK’s Board of Directors
O. Bagrin
Management body
that passed the
resolution to
approve the
transaction
The transaction was not subject to approval.
According to P. 1.1, Article 81 of Federal Law dd. 26
December 1995 No. 208-FZ ‘On Joint-Stock
Companies’, the Issuer notified the authorized
persons of the related-party transaction within the
statutory period. There were no requests submitted
for the approval of the transaction, as provided for
by Article 83 of Federal Law dd. 26 December 1995
No. 208-FZ ‘On Joint-Stock Companies’.
2017 Annual Report .............................................................................................................................................................................................................................................. 15
Financial statements and appendix
R E P O R T
on compliance with the Corporate Governance Code principles and recommendations
Annex 4
This report on compliance with the Corporate Governance Code principles and recommendations was considered by NLMK’s Board of Directors at a meeting on 27 of
April, 2018 (MoM № 255).
The Board of Directors confirms that the data presented in this report contains complete and reliable information about the Company's compliance with the Corporate
Governance Code principles and recommendations in 2017.
A detailed description of the key aspects of corporate governance model and practices is presented in the "Corporate Governance" section of the Annual Report.
Information on compliance with specific principles and key recommendations of the Corporate Governance Code is presented in the table below in the format
recommended for use by the Bank of Russia.
The methodology for evaluating NLMK's compliance with the principles of corporate governance enshrined in the Corporate Governance Code is based on the
Recommendations on how to compile a compliance report regarding the Corporate Governance Code principles and recommendations (Letter of the Bank of Russia No.
IN-06-52/8 dd. 17 February 2016).
Explanations of non-compliance with the criteria of the corporate governance principles, a description of corporate governance mechanisms and tools, plans for its
improvement are given in the table below, as well as in the "Corporate Governance" section of the Annual Report.
16 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
N
Corporate governance principles
Criteria for evaluating the compliance with the
corporate governance principles
Compliance status with the corporate
governance principles
Explanations of non-compliance with the
criteria of the corporate governance
principles
1.1
The Company shall provide equal and fair treatment to all shareholders exercising their right to participate in the Company governance.
1.1.1
The Company ensures
the most
favourable conditions for shareholders
to participate in the AGM as well as
conditions
to elaborate a well-
grounded stand with regard to the
AGM agenda items, to coordinate their
actions as well as a possibility to
express their opinions in relation to
the items under consideration.
1. The Company’s internal document approved by the
AGM and regulating the AGM procedures is publicly
available.
✓
Compliance ensured
2. The Company provides an accessible way of
communication: a ‘hot line’, e-mail or a web-based
message board, which allow shareholders to express
their opinion and ask about the agenda in preparation
to the Annual General Shareholders Meeting. The
Company ensured the compliance with the above
mentioned criteria shortly before the convocation of
every General Meeting within the reporting period.
Partial compliance
Non-compliance
1.1.2
The procedure of AGM holding and
submission of materials for the AGM
shall enable shareholders
to get
properly prepared for participation
therein.
1. A notice of the General Shareholders’ Meeting is
published on the Company’s Internet website at least
30 days prior to the date of the meeting.
✓
Compliance ensured
2. The notice of the AGM specifies the venue of the
meeting and the documents needed to get access to
the venue.
3. Shareholders have an access to the information
who proposed the agenda items and who nominated
the candidates for election to the BoD and Audit
commission of the Company.
Partial compliance
Non-compliance
1.
2017 Annual Report .............................................................................................................................................................................................................................................. 17
Financial statements and appendix
1.1.3
to
the General
In preparation
Shareholders’ Meeting
its
and
convocation shareholders had an
opportunity to receive information on
the meeting and materials therefor, to
ask executive bodies and members of
the Company’s BoD questions and to
communicate with each other freely
and in a timely manner.
1.1.4
The shareholders experienced no
needless complexities
in exercising
their right to convene a General
Shareholders’ Meeting, to nominate
candidates to the governing bodies,
and to propose agenda items for a
General Shareholders’ Meeting.
1. In the reporting period shareholders were given a
chance to ask members of executive bodies and of
the Company’s BoD shortly before the convocation
and during the Annual General Shareholders’
Meeting.
2. The opinion of the BoD (including specific opinions
entered into the MoM) on each agenda item of the
General Shareholders’ Meetings held within the
reporting period was quoted in the materials to the
General Shareholders’ Meeting.
1. 3. The Company provided an access to a list of
persons having the right to participate in the General
Shareholders’ Meeting to the shareholders entitled to
it starting from the date on which the Company
received it, in all cases of General Shareholders’
Meeting convocation in the reporting period.
1. In the reporting period shareholders had an
opportunity to propose items for inclusion in the
agenda of the Annual General Shareholders’ Meeting
at least 60 days after the respective calendar year-
end.
2. In the reporting period the Company did not refuse
to accept proposals on the agenda items or
candidates to the Company’s governing bodies due to
misprints and other minor faults in a shareholder’s
proposal.
1.
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
18 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
1.1.5
Every shareholder had an opportunity
for unhindered exercise of their voting
right in the simplest and the most
convenient manner.
1. 1. The Company’s internal document (internal
policy) contains provisions according to which every
participant of the General Shareholders’ Meeting can
request a copy of the ballot filled in by them certified
by the Counting commission before the end of the
respective meeting.
✓
Compliance ensured
Partial compliance
Non-compliance
1.1.6
The
rules of AGM procedure
established by the Company provide
for an equal possibility for all persons
present at the meeting to express their
opinions and ask relative questions.
1. When General Shareholders’ Meetings were held
in the reporting period in the form of a meeting (the
joint presence of shareholders), sufficient time was
given for reports on the agenda items and time to
discuss those items.
✓
Compliance ensured
2. Candidates to management and supervision bodies
of the Company were available to answer questions
from shareholders in those meetings where their
nominations were put to vote.
Partial compliance
Non-compliance
3. While taking decisions related to preparation and
holding of General Shareholders’ Meetings the Board
of Directors
using
telecommunications to provide shareholders with a
remote access to participate in General Shareholders’
Meetings in the reporting period.
studied
issue
the
of
2017 Annual Report .............................................................................................................................................................................................................................................. 19
Financial statements and appendix
1.2
The shareholders are provided an equal and fair opportunity to participate in the Company’s profit by receiving dividends.
1.2.1
developed
and
The
Company
transparent and
implemented a
for
understandable mechanism
determining the amount of dividends
and their payment.
1. The Dividend policy was developed by the
Company, approved by the BoD and disclosed.
2. 2. If the Company’s Dividend Policy uses the
Company’s financial statements to determine the
amount dividends to be distributed, the respective
provisions of the Dividend Policy take into account the
Company’s consolidated financial statements.
✓
Compliance ensured
Partial compliance
Non-compliance
1.2.2
The Company does not make decisions
to pay dividends, if such a decision,
though not violating legal restrictions
formally, is economically groundless
and can lead to false representations
on the Company’s business.
1. The Company’s dividend policy contains clear
indications of financial/economic circumstances under
which dividends should not be paid.
✓
Compliance ensured
Partial compliance
Non-compliance
20 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
1.2.3
The Company does not allow for
impairment of dividend rights of its
shareholders.
1. In the reporting period, the Company did not take
any actions resulting in impairment of dividend rights
of its shareholders.
✓
Compliance ensured
1.2.4
The Company seeks to exclude the use
by shareholders of other methods of
the
(income) at
obtaining profit
for
except
Company's
dividends and liquidation value.
expense,
1. In order to exclude the use by shareholders of other
making methods of obtaining profit (income) at the
Company's expense, except
for dividends and
liquidation value, the Company's internal documents
timely
establish
determination
for
transactions with affiliated (related) persons with
material shareholders (persons entitled to dispose of
the votes attributed to the issuer’s voting shares) in
cases when such
legally
recognized as interested-party transactions
control mechanisms ensuring
approval
transactions are not
procedure
and
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 21
Financial statements and appendix
1.3
1.3.1
Corporate governance system and practice ensure parity for all shareholders owning shares of the same category (type), including minority shareholders and foreign shareholders,
and their equal treatment by the Company.
The Company established conditions
for fair treatment of each shareholder
supervisory
by management and
bodies of the Company
including
conditions ensuring inadmissibility of
abuse of minor shareholders by major
shareholders.
1. During the reporting period the procedures for
managing potential conflict of interest between major
shareholders have been effective; the Board of
Directors have paid due attention to conflicts between
the shareholders.
✓
Compliance ensured
Partial compliance
Non-compliance
1.3.2
The Company does not take any
actions, which result in or may result in
artificial redistribution of corporate
governance.
1. There are no quasi-treasury shares or they did not
participate in voting within the reporting period.
✓
Compliance ensured
Partial compliance
Non-compliance
22 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
1.4
1.4
2.1
2.1.1
Shareholders are provided with reliable and efficient procedure for registration of their shareholder rights and a possibility to dispose of their shares in a free and unhindered manner.
Shareholders are provided with
reliable and efficient procedure for
registration of their shareholder rights
and a possibility to dispose of their
shares
in a free and unhindered
manner.
1. Quality and reliability of the Registrar’s activities in
maintaining the Register of shares comply with the
Company's and its shareholders’ requirements.
✓
Compliance ensured
Partial compliance
Non-compliance
The Board of Directors performs strategic management of the Company, identifies the basic principles and approaches to the Company’s risk management and internal control
systems, supervises the activity of executive bodies of the Company, and also performs other key functions.
The Board of Directors is responsible
for decision-making
in relation to
appointment and dismissal from office
of executive bodies including those
caused by undue performance of their
duties. The Board of Directors ensures
that the Company's executive bodies
act in compliance with the approved
development
core
strategy
businesses of the Company.
and
1. In line with the Company’s Charter the Board of
Directors is entitled to appoint, dismiss from office
and define contractual terms and conditions with
regard to members of executive bodies.
1. 2. The Board of Directors reviews the report
(reports) of the sole executive body and members of
the collegial executive body on execution of the
Company's strategy
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 23
Financial statements and appendix
2.1.2
The Board of Directors sets the key
guidelines for the Company's long-
term activities, evaluates and
approves key business indicators and
main business objectives of the
Company, evaluates and approves
strategy and business plans related to
the core activities of the Company.
1. Within the reporting period the Board of Directors
reviewed the following issues: status and update of
the Compnay’s strategy; approval of the Company’s
business plan (budget); consideration of criteria and
indicators (including intermediate ones) of the
Company's strategy and business plans execution.
✓
Compliance ensured
Partial compliance
Non-compliance
2.1.3
The Board of Directors defines the
principles and approaches of the
Company’s
risk management and
internal control system.
1. The Board of Directors defined the principles and
approaches of the Company’s risk management and
internal control systems.
✓
Compliance ensured
1. 2. The Board of Directors evaluated the Company’s
risk management and internal control systems within
the reporting period
Partial compliance
Non-compliance
24 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.1.4
The Board of Directors defines the
Company's policy on remuneration
and (or) reimbursement of expenses
(compensations) to members of the
Board of Directors, executive bodies
and other key managers of the
Company.
1. The Company elaborated and introduced the policy
(policies) approved by the Board of Directors on
remuneration and reimbursement of expenses
(compensations) to members of the Board of
Directors, executive bodies and other key managers
of the Company.
2. During the reporting period, the Board of Directors
reviewed the issues related to the above mentioned
policy (policies).
✓
Compliance ensured
Partial compliance
Non-compliance
2.1.5
The Board of Directors plays a key role
identification and
in prevention,
settlement of
conflicts
internal
the Company's bodies,
between
shareholders and employees.
2.1.6
the
ensuring
The Board of Directors plays a key role
in
Company’s
transparency, timely and complete
disclosure of the information, easy
access of
the
Company’s documents.
shareholders
to
1. The Board of Directors plays a key role in
prevention, identification and settlement of internal
conflicts.
✓
Compliance ensured
2. The Company established a system designed to
identify transactions related to a conflict of interests
and a set of measures aimed at the settlement of such
conflicts
Partial compliance
Non-compliance
1. The Board of Directors approved the Regulations
on Information Policy.
✓
Compliance ensured
1. 2. The Company appointed persons responsible for
ensuring compliance with the Information Policy.
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 25
Financial statements and appendix
2.1.7
The Board of Directors exercises
control over the corporate governance
practices in the Company and plays a
key role in the Company’s significant
corporate events.
1. 1. During the reporting period the Board of
Directors
corporate governance
the
practices of the Company.
reviewed
✓
Compliance ensured
Partial compliance
Non-compliance
2.2
The Board of Directors is accountable to the Company’s shareholders.
2.2.1
Information on activities of the Board
of Directors is disclosed and provided
to shareholders.
1. The Annual report of the Company for the
reporting period covers information on attendance of
the Board of Directors’ and committees’ meetings by
individual directors.
✓
Compliance ensured
1. 2. Annual report contains information on the key
results of evaluation of the Board of Directors’
activities performed during the reporting period.
Partial compliance
Non-compliance
26 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.2.2
Chairman of the Board of Directors is
available for communication with the
Company's shareholders.
1. 1. The Company employs a transparent procedure
giving shareholders a possibility to ask questions and
share their opinion to the Chairman of the Board of
Directors.
✓
Compliance ensured
Partial compliance
Non-compliance
2.3
The Board of Directors is an effective and professional management body of the Company, capable of making impartial independent judgements and decisions that are in the interest
of the Company and its shareholders.
the knowledge,
2.3.1 Only persons who have impeccable
business and personal reputation, and
have
skills and
experience required to make decisions
within the Board of Directors’ area of
expertise
and necessary for the
effective performance of its functions,
are elected as members of the Board
of Directors.
1. The procedure for assessing the effectiveness of
the Board of Directors adopted in the Company
includes an evaluation of the professional
qualifications of members of the Board of Directors.
2. In the reporting period, the Board of Directors (or its
Nominating Committee) evaluated the candidates to
the Board of Directors in terms of whether they have
the necessary experience, knowledge and business
reputation, lack of conflict of interest, etc.
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 27
Financial statements and appendix
2.3.2 Members of the Board of Directors are
elected
transparent
through
procedure that allows shareholders to
receive information on the candidates,
idea of their
sufficient to get an
personal and professional qualities.
a
1. 1. In all cases when the General Shareholders’
Meeting was held in the reporting period and its
agenda included an item on election of the Board of
Directors, the Company presented to the shareholders
the curricula vitae of all the candidates to the Board of
Directors, the results of evaluation of the candidates,
performed by the Board of Directors (or its Nominating
Committee), and information on compliance of the
in
candidate with
accordance with recommendations No. 102 to 107 of
the Code and the written consent of the candidates for
election to the Board of Directors
independence criteria,
the
2.3.3
The composition of the Board of
Directors is well balanced, including In
terms of qualifications, experience,
knowledge and business qualities of its
members;
it enjoys the trust of
shareholders.
1. As part of the procedures for the Board of Directors’
evaluation held during the reporting period, the Board
of Directors reviewed its own needs in the field of
professional qualification, experience and business
skills.
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
28 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.3.4
The quantitative composition of the
Board of Directors enables to arrange
the activities of the Board of Directors
in the most efficient manner, including
the Board's
the
committees; it also provides significant
minority shareholders an opportunity
to elect a candidate for whom they
vote.
formation of
1. 1. As part of the Board of Directors evaluation
procedure carried out in the reporting period, the
Board of Directors considered the issue of compliance
of the quantitative Board composition with the
Company’s needs and the interests of shareholders.
✓
Compliance ensured
Partial compliance
Non-compliance
2.4
The Board of Directors has a sufficient number of independent directors.
1. 1. During the reporting period, all independent
Board members met all the independence criteria set
out in recommendations 102-107 of the Code, or were
recognized as independent by the decision of the
Board of Directors.
✓
Compliance ensured
Partial compliance
Non-compliance
2.4.1
An independent director is a person
competence,
sufficient
who has
experience and independence to form
their own position, is able to make
objective and fair judgments that are
independent of the influence of the
Company’s executive bodies, certain
groups of shareholders or other
interested parties. It should be borne
in mind, however, that in ordinary
circumstances a candidate (elected
member of the Board of Directors),
who is associated with the Company,
its significant shareholder, significant
counterparty or a competitor, or is
associated with the State, can not be
regarded
independent
an
candidate.
as
2017 Annual Report .............................................................................................................................................................................................................................................. 29
Financial statements and appendix
2.4.2
The candidates to members of the
Board of Directors are evaluated for
compliance with the independence
criteria; independent directors are also
regularly evaluated for compliance
with the independence criteria. During
this evaluation, the content should
prevail over the form.
1. In the reporting period, the Board of Directors (or
the Board’s Nominating Committee ) formed an
opinion of each candidate’s independence and
submitted an appropriate conclusion to shareholders.
2. During the reporting period, the Board of Directors
(or the Board’s Nominating Committee) at least one
time evaluated the independence of the current
Board members; they are indicated in the annual
report as independent directors.
1. 3. The Company has procedures in place which
define the necessary actions for a Board member to
take
independent status,
lose the
including the obligation to inform the Board of this fact
in due time.
in case they
✓
Compliance ensured
Partial compliance
Non-compliance
2.4.3
At least one third of the elected
members of the Board are
independent directors.
1. 1. At least one third of members of the Board are
independent directors.
✓
Compliance ensured
Partial compliance
Non-compliance
30 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.4.4
Independent directors play a key role
in preventing internal conflicts in the
the Company’s
Company and
in
execution of material
corporate
actions.
1. 1. Independent directors (with no conflict of
interest) give a preliminary evaluation of material
corporate actions related to a possible conflict of
interest, this evaluation is submitted to the Board of
Directors.
✓
Compliance ensured
Partial compliance
Non-compliance
2.5
The Chairman of the Board of Directors promotes the most efficient implementation of the functions assigned to the Board of Directors.
2.5.1
from among
Independent Director
An independent director is elected
Chairman of the Board of Directors, or
a Senior
is
the elected
chosen
Independent
who
of
coordinates
independent directors and carries out
interaction with the Chairman of the
Board of Directors.
Directors,
activities
the
1. The Chairman of the Board of Directors is an
independent director, or a Senior Independent
Director chosen from among independent directors.
Compliance ensured
2. The role, rights and duties of the Board Chairman
(and Senior Independent Director, if any) are duly
defined in the internal corporate documents.
✓
Partial compliance
Non-compliance
1. Non-compliance
to
the
authority
Board members
expertise,
and
A Board member who made a significant
contribution
Company's
development and who has the most
professional
extensive
competence
among
shareholders, members of the governing
bodies and employees of the Company was
elected Chairman of the Board. At the same
time, most
are
independent directors, who thus play a key
role in the work of the Board of Directors.
Each of them has an option of face-to-face
interaction with the Chairman of the Board.
This way, the Company believes, the optimal
structure of the Board of Directors
is
achieved, which contributes to the effective
operation of the body. The Company
monitors the situation and, if necessary, will
take appropriate steps to review this
structure.
2017 Annual Report .............................................................................................................................................................................................................................................. 31
2. Compliance ensured
Financial statements and appendix
2.5.2
2.5.3
the Board
instates
Chairman of
constructive atmosphere at meetings,
ensures open discussions on the
agenda
the
implementation of resolutions passed
by the Board of Directors.
items and monitors
the Board
Chairman of
takes
reasonable measures to ensure timely
submittal of information required by
taking
the Board members
decisions on the agenda items.
for
1. The efficiency of Chairman of the Board’s
performance was evaluated during the evaluation of
the Board’s performance in the reporting period.
✓
Compliance ensured
Partial compliance
Non-compliance
1. 1. The obligation of Chairman of the Board to take
measures to ensure timely submittal of materials to
the Board members, which are required for taking
decisions on the agenda items, is set out in the
Company’s internal documents.
✓
Compliance ensured
Partial compliance
Non-compliance
32 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.6
Members of the Board act reasonably and in good faith in the interests of the Company and its shareholders, based on sufficient information, with due diligence and care.
2.6.1 Members of the Board take decisions
taking
into account all available
information, with no conflict of
interest, on the condition of equal
treatment
Company’s
the
shareholders, within
the normal
business risk.
of
1. The Company’s internal documents state that a
Board member must duly notify the Board of Directors
if a conflict of interest arises pertaining to any agenda
item of the Board meeting or a Board committee
meeting, before the start of discussions on the
respective agenda item.
✓
Compliance ensured
Partial compliance
2. Internal documents of the Company state that a
Board member must refrain from voting on any item
they have a conflict of interest.
Non-compliance
3. There is a procedure in place in the Company, which
entitles the Board of Directors to receive professional
consultations on items within their area of expertise at
the Company’s expense.
1. 1. There is a published document in effect in the
Company, which clearly defines the Board members’
rights and obligations.
2.6.2
The rights and obligations of the Board
members are clearly worded and
stated
internal
in the Company’s
documents.
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 33
Financial statements and appendix
2.6.3
The Board members have enough time
to perform their duties.
2.6.4
to
the documents
All members of the Board have equal
access
and
information of the Company. Newly
the Board
elected members of
promptly
sufficient
receive
information on the Company and the
Board of Directors’ activities.
1. Individual presence at the meetings of the Board
and committee meeting, as well as the time dedicated
to preparations for such meetings, were taken into
consideration during the Board evaluation in the
reporting period.
2. According to the Company's internal documents,
members of the Board must notify the Board of
Directors of their intention to enter management
bodies of other organizations (except the controlled
and affiliated companies) and of the fact of such an
appointment.
1. All members of the Board have equal access to the
documents and information of the Company. Newly
elected members of the Board promptly receive
sufficient information on the Company and the Board
of Directors’ activities.
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
2. The Company has a formal induction procedure for
newly elected members of the Board
Partial compliance
Non-compliance
34 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.7
Meetings of the Board of Directors, preparation for them and attendance by the Board members ensure efficient performance of the Board of Directors.
2.7.1 Meetings of the Board of Directors are
conducted on an ad hoc basis, taking
into account the scope of activities and
tasks which the Company is facing at a
certain period of time.
1. The Board of Directors had at least six meetings
during the reporting year.
✓
Compliance ensured
Partial compliance
Non-compliance
2.7.2
Internal documents of the Company
set the procedure for preparation and
holding of the Board meetings allowing
the Board members the opportunity to
be properly prepared.
1. The Company has an approved internal document in
place which sets the procedure for preparations and
holding of the Board meetings and, among others,
states that the notice of the meeting should be made,
as a rule, at least 5 days in advance.
✓
Compliance ensured
Partial compliance
Non-compliance
2.7.3
The form of holding the Board meeting
is determined by the degree of
importance of the agenda items. The
most important issues are resolved at
meetings held in presence.
1. 1. The Charter or an internal document of the
Company requires that the most significant issues
(according to the list specifies in recommendation 168
of the Code) should be considered at Board meetings
held in presence.
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 35
Financial statements and appendix
2.7.4
Resolutions on the most important
issues of Company’s business are
passed at the Board meetings by
qualified majority or by a majority of
votes of all the elected members of the
Board of Directors.
1. 1. The Company’s Charter stipulates that the
resolutions on the most important issues listed in
recommendation 170 of the Code are to be passed at
the Board meetings by qualified majority, at least 75%
of votes, or by a simple majority of votes of all the
elected members of the Board of Directors.
Compliance ensured
✓
Partial compliance
Non-compliance
In accordance with the Charter, decisions on
most of the issues that are in competence of
the Board of Directors are made by open
voting of the members of the Board of
Directors participating in the meeting with a
simple majority. Exceptions are made for
the decisions which have to be made
unanimously by all members of the Board of
retired
Directors without
members of the Board of Directors, in
accordance with the legislation
regard
to
the Company and
Considering
the high attendance of
meetings by the members of the Board of
Directors of
the
preliminary study of the most important
issues by
in the
framework of the Committees under the
Board
the maximum
the opinions of all
consideration of
members of the Board of Directors
is
ensured.
independent directors
of Directors,
36 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.8
The Board of Directors sets up committees for pre-review of the most important issues of the Company’s activity.
2.8.1
The Audit Committee consisting of
independent directors is set up for the
issues related to the
pre-view of
control over the Company’s financial
and economic activities.
1. The Board of Directors has set up the Audit
Committee consisting only of independent directors.
2. The Company’s internal documents define the tasks
for the Audit Committee, including, among others,
the tasks listed in recommendation 172 of the Code.
3. At least one member of the Audit Committee who
is an independent director has experience and
knowledge about the compilation, analysis,
evaluation and audit of accounting (financial)
statements.
4. Meetings of the Audit Committee were held at least
once per quarter during the reporting period.
Compliance ensured
✓
Partial compliance
Non-compliance
1. Partialy compliance
When composing the Audit Committee, the
Board of Directors was guided by the Board
member’s professional background, special
knowledge and skills in the preparation,
analysis, evaluation and audit of accounting
(financial) statements, which would enable
them to make a significant contribution to
the work of the Committee and to improve
the Committee decision-making, in addition
to being an independent Director. In this
way, the necessary expertise of the Audit
Committee was achieved. A key role in the
work of the Audit Committee is assigned to
the independent directors, who constitute
the majority of the members of the
Committee, including the Chairman of the
Committee. This structure of the Committee
in the opinion of the Company is optimal.
The Company monitors the situation and
will take reasonable steps to correct the
specified structure if necessary.
2. Complaience ensured
3. Complaience ensured
4. Complaience ensured
2017 Annual Report .............................................................................................................................................................................................................................................. 37
Financial statements and appendix
2.8.2
For the pre-review of issues related to
the development of an efficient and
transparent remuneration practice, a
Remuneration Committee has been
set up which consists of independent
directors and
is chaired by an
independent director who is not the
Board Chairman.
1. The Board of Directors has set up a Remuneration
Committee that consists of independent directors
only.
Compliance ensured
2. The Chairman of the Remuneration Committee is
an independent director who is not Chairman of the
Board.
✓
Partial compliance
1. 3. The Company’s internal documents define the
tasks of the Remuneration Committee, including,
among others, the tasks listed in recommendation 180
of the Code.
Non-compliance
1. Partial compliance
When the Board of Directors formed The
Human Resources, Remuneration and Social
Policies Committee, it was guided by the
existence of professional experience,
special knowledge and skills among the
members of the Board of Directors that
would enable them to make a significant
contribution to the work of the Committee
as well as by the status of an independent
director. In this way, the necessary expertise
of the Committee was achieved, with most
the Committee being
members of
independent
its
Chaiman.
This structure of the committee in the
opinion of the Company is optimal. The
company monitors the situation and, in the
event of prerequisites, takes available
measures to correct this structure.
directors,
including
2.8.3
For the pre-review of issues related to
human resources planning (succession
planning), occupational structure and
efficient performance of the Board of
Directors,
Nomination
a
(appointments, staffing) Committee
has been set up which mostly consists
of independent directors
1. 1. The Board of Directors has set up a Nomination
committee
Committee
performs its tasks listed in recommendation 186 of the
Code) which mostly consists of independent directors.
(alternatively,
another
2. Compliance ensured
3. Compliance ensured
✓
Compliance ensured
Partial compliance
Non-compliance
38 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.8.4
Considering the scope of activities and
risk level, the Board of Directors has
made sure that the composition of its
committees is fully in line with the
objectives.
business
Company’s
Additional committees have either
been formed or deemed unnecessary
Corporate
(Strategy
Committee,
Ethics
Governance
Committee,
Risk Management
Committee,
Committee,
Committee,
Budget
Health, Safety and Environment
Committee, and others).
2.8.5
The committees are composed in such
a way as to enable comprehensive
under
examination
issues
various
consideration based on
opinions.
of
1. 1. During the reporting period, the Board of
Directors has considered the compliance of
its
committees’ composition with the goals of the Board
and objectives of
the Company’s. Additional
committees have either been formed or deemed
unnecessary.
1. Committees of
independent directors
the Board are chaired by
2. The Company’s internal documents (polices) contain
provisions stating that non-members of the Audit
Committee,
and
Remuneration Committee may only attend their
meetings when invited by the respective committee’s
chair.
Nomination
Committee
✓
Compliance ensured
Partial compliance
Non-compliance
Compliance ensured
✓
Partial compliance
Non-compliance
1. Partial compliance
Pursuant to the recommendations of the
Corporate Governance Code, the Audit
Committee and the HR, Remuneration and
Social Policies Committee of the Company
are chaired by independent directors.
Besides these Committees, the Board of
Directors has established a Strategic
Planning Committee
the
Chairman of the Board, which the Company
believes to ensure maximum efficiency of
this Committee.
chaired by
2. Compliance ensured
2017 Annual Report .............................................................................................................................................................................................................................................. 39
Financial statements and appendix
2.8.6
Committee chairmen regularly inform
its
the Board of Directors and
Chairman
respective
of
Committees’ performance.
their
1. Within the reporting period the committee
chairmen regularly reported on the performance of
the committees to the Board of Directors
✓
Compliance ensured
Partial compliance
Non-compliance
2.9
The Board of Directors ensures that the performance of the Board, its committees and members is evaluated.
2.9.1
of
Board’s,
The evaluation of
the Board of
Directors is designed to determine the
its
the
efficiency
committees’
members’
and
performance, correspondence of their
performance
the development
needs of the Company, step up the
Board’s activities and
identify the
areas for potential improvement.
to
1. Self-evaluation or external evaluation of the Board’s
performance was held within the reporting period; it
included evaluation of the committees’ performance,
individual members of the Board and the Board of
Directors as a whole.
2. The results of self-evaluation or external evaluation
of the Board of Directors were reviewed at the Board
of Directors’ meeting held in-person.
✓
Compliance ensured
Partial compliance
Non-compliance
40 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
2.9.2
Performance evaluation of the Board
of Directors, its committees and Board
members is carried out on a regular
basis at least once a year. Independent
performance evaluation of the Board
of Directors is carried out at least once
every three years by an independent
auditor (consultant).
1. 1. Independent performance evaluation of the
Board of Directors was carried out at least once within
the last three reporting periods by an independent
auditor (consultant).
Compliance ensured
Partial compliance
✓ Non-compliance
Within the framework of the formalized
procedure, in January 2017 an evaluation
(self-assessment) of the performance of
the Board of Directors of the Company was
conducted.
The results of the self-assessment of the
Board of Directors were considered at the
internal meeting of the Board of Directors
in March 2017.
In March 2017, the Board of Directors of
the Company decided to conduct another
evaluation of the work of the Board of
Directors in February 2018 and conduct an
appraisal with the involvement of an
independent organization (consultant) in
February 2019.
3.1
3.1.1
The Corporate Secretary of the company ensures efficient day-to-day interaction with shareholders, coordinates the Company’s activities aimed at the protection of shareholders’
rights and interests, and supports efficient operation of the Board of Directors.
The Corporate Secretary has sufficient
and
knowledge,
imposed
qualification
obligations,
reputation
and credibility with shareholders.
experience
to perform
impeccable
1. The Company has adopted and disclosed an internal
document: Regulations on the Corporate Secretary.
2. The CV of a Corporate Secretary with the same level
of detail as for a Board member and the Company’s
executive management is available at the Company's
website and in the Annual Report.
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 41
Financial statements and appendix
3.1.2
The Corporate Secretary has sufficient
independence from the Company’s
executive bodies and has the required
authority and resources to execute the
tasks assigned to him.
1. The Board of Directors approves the appointment,
dismissal from office and additional remuneration of
the Corporate Secretary.
✓
Compliance ensured
Partial compliance
Non-compliance
4.1
Level of remuneration paid by the Company is sufficient to attract, motivate and retain the persons with required expertise and qualification. Remuneration to the Board members,
executive bodies and other key managers of the company shall be paid according to the remuneration policy adopted in the Company.
4.1.1
Level of remuneration paid by the
Company to the Board members,
executive bodies and other key
managers is enough to motivate them
for efficient performance; it enables
the Company to attract and retain
competent
qualified
and
professionals. At the same time the
Company avoids to pay a higher than
necessary remuneration as well as to
large gap
have an unreasonably
the
between
remuneration
executives
Company’s
employees.
and
the
of
1. The Company has adopted an internal document
(internal documents) – a policy
(policies) on
remuneration of the Board members, members of
executive bodies and other key managers, which
expressly establishes approaches to remuneration
paid to these persons.
✓
Compliance ensured
Partial compliance
Non-compliance
42 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
4.1.2
4.1.3
4.1.4
The Company’s remuneration policy is
developed by
the Remuneration
Committee and is approved by the
Board of Directors. The Board of
Directors with the assistance of the
Remunerations Committee supervises
incorporation and implementation of
the
the
Company, and if required - revises and
amends it.
remuneration policy
in
The Company’s remuneration policy
contains transparent mechanisms for
determining the remuneration of the
Board members, members
of
executive bodies and other key
managers of
the Company, and
types of payments,
regulates all
benefits and privileges granted to the
these persons.
of
The Company establishes the policy of
expenses
reimbursement
(compensation), specifying the list of
reimbursable expenses and the level of
service to which Board members,
executive bodies and other key
managers of the company are entitled.
This policy can be a part of the
Company’s remuneration policy.
1. Within the reporting period the Remunerations
Committee has reviewed the remuneration policy
(policies) and practices and, if it was required, gave
correspondent recommendations to the Board of
Directors.
(contain)
transparent mechanisms
1. 1. The Company’s remuneration policy (policies)
for
contains
determining the remuneration of the Board members,
members of executive bodies and other key managers
of the Company; and regulates (regulate) all types of
payments, benefits and privileges granted to the these
persons.
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
1. Remuneration policy (policies) or other internal
documents of the Company establish the rules of
reimbursement of the Board members’ expenses,
members of executive bodies and other key managers
of the Company.
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 43
Financial statements and appendix
4.2
System of remuneration of the members of the Board of Directors aligns the financial interests of directors with long-term financial interests of shareholders.
4.2.1
4.2.2
4.2.3
not
does
Company
for participation
The Company pays
fixed annual
remuneration to the Board members.
pay
The
remuneration
in
individual meetings of the Board of
Directors or Committees of the Board.
The Company does not use any forms
of short-term incentive and additional
material incentives for the members of
the Board of Directors.
of
long-term
Long-term
the
ownership
Company's shares is most conducive to
bringing the financial interests of the
Board members closer together with
the
of
shareholders. At the same time, the
Company does not stipulate the rights
to sell shares by achieving certain
performance
the
members of the Board of Directors do
not participate in option programmes.
indicators, and
interests
The Company does not provide for
additional payments or compensations
in the event of early termination of the
Board members’ appointment
in
connection with the transfer of control
over
other
Company
circumstances.
the
or
1. 1. Fixed annual remuneration was a sole form of
monetary remuneration to the Board members for
their work on the Board of Directors during the
reporting period.
✓
Compliance ensured
1. 1. If the Company’s internal document (documents)
– policy (policies) on remuneration providers for the
ownership of the Company’s shares by the Board
members, clear explicit rules aimed at encouraging
long-term ownership of the Company’s shares by the
Board members should be introduced and disclosed.
1. 1. Additional payments or compensations in case of
early termination of the Board members’ appointment
in connection with the transfer of control over the
Company or other circumstances are not foreseen in
the Company.
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
44 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
4.3
4.3.1
4.3.2
The Company’s Remuneration system regarding members of executive bodies and other key managers provides for a correspondence between the amount of remuneration and the
Company’s performance and personal contribution to achieving this performance.
reasonable
of members
the Company
Remuneration
of
executive bodies and other key
managers of
is
determined in such a way as to ensure
a
justified
correspondence between the fixed
part of remuneration and the variable
part of remuneration depending on
the Company’s performance and
personal (individual) contribution of
the employee to the final result.
and
The Company has implemented a long-
term incentive programme for the
members of executive bodies and
other key managers of the Company
using the Company’s shares (options
or
financial
instruments based on the Company’s
shares ).
derivative
other
1. Within the reporting period annual performance
indicators approved by the Board of Directors were
used
the amount of variable
remuneration of the members of executive bodies and
other key managers of the Company.
to determine
2. During the
last evaluation of the Company’s
remuneration system regarding members of executive
bodies and other key managers, the Board of Directors
(Remuneration Committee) has made sure that
efficient ratio of the fixed part and the variable part of
remuneration is applied in the Company.
3. The Company provides for a procedure that ensures
that the Company’s bonuses that have been illegally
received by the members of executive bodies and
other key managers of the Company are returned to
the Company.
The Company has implemented a long-term incentive
programme for the members of executive bodies and
other key managers of the Company using the
Company’s shares (financial instruments based on the
Company’s shares).
long-term
incentive programme for the
2. The
members of executive bodies and other key managers
of the Company provides for the right to sell the shares
and other financial instruments not earlier than three
years from the moment of their granting. In this case
the right to sell them depends on the achievement of
certain performance indicators of the Company
Compliance ensured
✓
Partial compliance
Non-compliance
Compliance ensured
✓ Partial compliance
Non-compliance
1. Compliance ensured
2. Compliance ensured
3. Non-compliance
The Company uses a clear mechanism for
paying bonuses to members of executive
bodies and other senior officials. The
participation of the Board of Directors and
the The Human Resources, Remuneration
in the
and Social Policies Committee
approval process of the annual bonus to
members of the executive bodies makes it
impossible to
illeagle payments arise.
is ensured that this system
Company
eliminates the need for an additional
procedure for the return of bonuses. The
Company monitoring the mechanism of
payment of bonuses and, will take measures
to correct the system if necessary.
The long-term motivation program with the
use of shares price has been recognized as
ineffective and does not apply, because of
high volatility of shares prices due to market
speculations.
The company
long-term
for members of
motivation program
executive bodies and other key executives
without using shares prices (or other stock-
based financial instruments).
introduced a
2017 Annual Report .............................................................................................................................................................................................................................................. 45
Financial statements and appendix
4.3.3
The amount of compensation (golden
parachute) paid by the Company to the
members of executive bodies or other
key managers in case of their early
termination initiated by the Company
and with no fraudulent actions on their
part, does not exceed the two-fold
amount of the fixed part of the annual
remuneration.
1. 1. The amount of compensation (golden parachute)
paid by the Company to the members of executive
bodies or other key managers in case of their early
termination initiated by the Company and with no
fraudulent actions on their part, did not exceed the
two-fold amount of the fixed part of the annual
remuneration in the reporting period.
✓
Compliance ensured
Partial compliance
Non-compliance
5.1
There is an efficiently functioning system of risk management and internal control established in the Company, aimed at providing reasonable assurance that the Company will
achieve its set targets.
5.1.1
The Board of Directors defines the
principles and approaches to the
Company’s
risk management and
internal control system.
The
Company’s
1. 1.
internal
documents/correspondent policy approved by the
Board of Directors explicitly defines the functions of
the Company’s various management bodies and
subdivisions in the system of risk management and
internal control.
✓
Compliance ensured
Partial compliance
Non-compliance
46 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
5.1.2
5.1.3
5.1.4
the
establishment
The Company's executive bodies
ensure
and
maintenance of a functioning and
efficient risk management and internal
control system in the Company.
Risk management and internal control
system in the Company provides for
objective, fair and clear understanding
of the Company’s current condition
and prospects,
and
the Company's
transparency of
and
statements,
acceptability of risks assumed by it.
reasonability
integrity
The Company’s Board of Directors
takes the necessary measures to
ensure that the risk management and
internal
the
Company functions efficiently and
corresponds to the principles and
approaches determined by the Board
of Directors.
system of
control
1. 1. The Company’s executive bodies ensured the
distribution of functions and authority regarding risk
management and
internal control between the
managers (heads) of subdivisions and departments
reporting to them.
1. Anti-corruption policy has been approved in the
Company.
2. There is a procedure in place in the Company aimed
at informing the Board of Directors or the Board’s
Audit Committee on the facts of violation of legislation,
the Company’s internal procedures, and ethics code.
1. 1. During the reporting period the Board of
Directors or the Board’s Audit Committee has
evaluated
risk
management and internal control system. Outcomes
of this evaluation are included into the Company’s
annual report.
efficiency of Company’s
the
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 47
Financial statements and appendix
5.2
5.2.1
For a systematic independent evaluation of reliability and efficiency of the risk management and internal control system and corporate governance practices the Company arranges
internal audits.
A separate structural subdivision has
been set up in the Company for
internal audit or an independent
external auditor has been engaged.
administrative
Functional
and
Internal Audit
jurisdictions of the
Division are separated. The Internal
Audit Division is functionally reports to
the Board of Directors.
1. A separate structural subdivision has been set up in
the Company for internal audit which functionally
reports to the Audit Committee and the Company’s
Board of Directors; or an independent auditor has
been engaged under the same accountability principle.
✓
Compliance ensured
Partial compliance
Non-compliance
5.2.2
The Internal Audit Division evaluates
the efficiency of the internal control,
risk management and also corporate
governance systems.
The Company is guided by generally
accepted internal audit standards.
1. During the reporting period the internal audit
evaluated the efficiency of the internal control and
risk management systems.
✓
Compliance ensured
1. 2. The Company is guided by generally accepted
approach to internal control and risk management.
Partial compliance
Non-compliance
48 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
6.1
The Company and its activity are transparent for its shareholders, investors and other stakeholders.
6.1.1
The
information policy has been
developed and implemented in the
Company, which ensures efficient
information
the
Company, shareholders, investors and
other stakeholders.
interaction
of
1. The Company’s Board of Directors has approved
the Company’s Information Policy developed with
regard to recommendations of the Code.
✓
Compliance ensured
2. The Board of Directors (or one of its Committees)
has reviewed the issues related to information policy
observance at least one time within the reporting
period.
6.1.2
The Company discloses information on
the system and practice of corporate
governance
detailed
information on observance of the
principles and recommendations of
the Code.
including
1. The Company discloses information on the
corporate governance system in the Company and on
the general principles of corporate governance used
in the Company including on the Company’s web-site
in the Interne.
2. The Company discloses information on the
executive bodies and the Board of Directors,
independence of the Board members and their
membership in the Committees of the Board of
Directors (in accordance with the definition of the
Code).
3. . If there is a person controlling the company the
company publishes a memorandum of the controlling
person regarding the plans of this person concerning
corporate governance in the company.
Partial compliance
Non-compliance
Compliance ensured
✓
Partial compliance
Non-compliance
1. Compliance
2. Compliance ensured
3. Non-compliance
NLMK does not have
information on
availability of a memorandum which
contains plans in regard to the company of
the person controlling it.
In case of receipt of statements from the
controlling person regarding their plans for
corporate
the Company
undertakes to publish such statements on
the website.
governance,
2017 Annual Report .............................................................................................................................................................................................................................................. 49
Financial statements and appendix
6.2
The Company timely discloses complete, relevant and reliable information on its activities to enable shareholders and investors to make informed decisions.
6.2.1
timely
relevant
Company
discloses
The
complete,
reliable
information on its activities enabling
its shareholders and investors to make
informed decisions.
and
1. The Information Policy of the Company defines the
approaches and criteria for determining information
that can significantly impact the Company’s valuation
and the value of its securities; it also defines
procedures ensuring timely disclosure of such
information.
2. If the securities of the Company circulate on
foreign regulated markets the disclosure of significant
information in the Russian Federation and in these
markets is done simultaneously and similarly during
the reporting year.
3. If foreign shareholders own a significant quantity of
the Company’s shares the information was disclosed
not only in Russian but also in one of the most common
foreign languages.
✓
Compliance ensured
Partial compliance
Non-compliance
6.2.2
The Company avoids a box-ticking
approach while disclosing information;
it discloses significant information on
its activities even if such disclosure is
not required by law.
1. During the reporting year, the Company disclosed
its annual and semi-annual IFRS financial statements.
The annual report of the Company for the reporting
year includes annual IFRS financial statements and an
auditor’s opinion.
✓
Compliance ensured
2. 2. The Company discloses information on the
structure of the Company’s equity in full in line with
Recommendation 290 of the Code in its annual
statement and on the Company’s Internet website.
Partial compliance
Non-compliance
50 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
6.2.3
The annual report as one of the most
important tools of interaction with
shareholders and other stakeholders
contains information, which enables
Company’s
evaluation
performance over a year.
the
of
1. The Company’s Annual Report contains
information on the key aspects of the Company’s
operations and its financial performance.
✓
Compliance ensured
2. The Company’s Annual Report contains information
on environmental and social aspects of the Company’s
activities.
Partial compliance
Non-compliance
6.3
The Company presents information and documents requested by shareholders in line with the principle of equal and easy access.
6.3.1
Information and documents requested
by shareholders are disclosed in line
with the principle of equal and easy
access.
1. The Company’s Information Policy determines an
easy procedure of giving access to information for
shareholders
legal
entities controlled by the Company on shareholder’s
request.
information on
including the
✓
Compliance ensured
Partial compliance
Non-compliance
2017 Annual Report .............................................................................................................................................................................................................................................. 51
Financial statements and appendix
6.3.2 When providing
information
to
shareholders the Company ensures a
reasonable balance between
the
interests of certain shareholders and
the interests of the Company itself,
in preserving
which
important confidential
information
confidentiality which may have
on
significant
competitiveness of the Company.
interested
influence
is
1. In the reporting year the Company didn’t refuse to
satisfy the shareholders’ requests to provide
information or such refusals were justified.
✓
Compliance ensured
1. 2. In cases defined by the Information Policy of the
Company shareholders are warned about
the
confidential nature of the information and undertake
to keep it confidential.
Partial compliance
Non-compliance
7.1
Actions that significantly affect or can significantly affect the structure of the share capital and the financial status of the Company and, accordingly, the shareholders' standing (i.e.
material corporate events) are carried out on fair terms ensuring observance of the rights and interests of shareholders and other interested parties.
7.1.1
of
of
the
the
voting
Company‘s
The material corporate events include
restructuring
Company;
acquisition of 30 and over percent of
shares
the
(takeover);
transactions
material
effected by the Company; increase or
reduction
Company’s
authorized capital; listing and delisting
of the Company’s shares; other actions
which may cause a significant change
of the shareholders’ rights or violation
of their
interests. The Company’s
Charter lists (specifies the criteria of)
transactions and other actions that are
recognized as material corporate
events and attributed to the area of
expertise of the Company’s Board of
Directors.
1. The Company’s Charter lists transactions and other
actions that are recognized as material corporate
events and the criteria to determine them. Decision-
making regarding material corporate events lies in the
area of expertise of the Company’s Board of
Directors. In cases when the decision on performing
such corporate actions is statutorily attributed to the
General Shareholders’ Meeting, the Board of
Directors provides respective recommendations to
the shareholders.
1. 2. The Company’s Charter lists the following actions
among others as material
corporate events:
restructuring of the Company; acquisition of 30 and
over percent of the Company’s voting shares
(takeover); increase or reduction of the Company’s
authorized capital;
listing and delisting of the
Company’s shares.
Compliance ensured
✓
Partial compliance
Non-compliance
The actions acknowledged by the Corporate
Governance Code as material corporate
events lie in the area of expertise of the
Company’s Board of Directors.
In cases when such corporate actions are
statutorily attributed to the General
Shareholders’ Meeting, the Board of
Directors provides respective
recommendations to the shareholders.
The Company evaluates the advisability of
including the term “material corporate
events” in internal documents.
52 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
7.1.2
7.1.3
making
The Board of Directors plays a key role
or
in
recommendations
the
material corporate events; the Board
of Directors relies on the opinion of the
Company’s Independent Directors.
decisions
regarding
if
protect
designed
shareholders;
In case of material corporate events
that affect the rights and legitimate
interests of
shareholders, equal
conditions are provided to all the
Company’s
the
procedures set out in the legislation
and
the
to
shareholders’ rights are not sufficient,
additional measures are taken to
legitimate
protect the rights and
Company’s
interests
of
shareholders.
the
case,
is guided not only by
Company
compliance with
formal statutory
requirements but also by principles of
the corporate governance outlined in
the Code.
this
the
In
1. 1. The Company has a procedure ensuring that the
independent directors declare their opinion on
material corporate events before they are approved.
✓
Compliance ensured
Partial compliance
Non-compliance
1. The Company’s Charter, taking into account the
specifics of the Company’s activities, establishes the
minimal criteria for the attribution of the Company’s
transactions to material corporate events, which are
lower than those statutorily required.
1. 2. During the reporting period all the material
corporate actions underwent an approval procedure
prior to their implementation.
Compliance ensured
✓
Partial compliance
Non-compliance
1. Partial compliance
transactions, which
the
Decisions on
Corporate Governance Code recognizes as
material corporate events, fall within the
remit of the Company's Board of Directors.
legislation,
In cases where, under the
decisions on such corporate transactions
are directly attributed to the competence of
the General Meeting of Shareholders, the
Board of Directors provides shareholders
with appropriate recommendations using
the
for
determining the materiality of transactions.
statutorily
required
criteria
legitimate
In the opinion of the Company, no further
measures are required at present to protect
the rights and
interests of
shareholders.
The Company monitors the system for
protecting the rights and legitimate
interests of shareholders and, if necessary,
will take appropriate steps to review it.
2. Compliance ensured
7.2
The Company provides for such a procedure for material corporate events that enables shareholders to receive full information thereof in due time; to influence such events and
2017 Annual Report .............................................................................................................................................................................................................................................. 53
Financial statements and appendix
guarantees observance and proper level of protection of their rights when such events take place.
7.2.1
Information on material corporate
events is disclosed with an explanation
the grounds, conditions and
of
consequences of such events.
1. 1. During the reporting period the Company
disclosed information on its material corporate events
in a timely and detailed manner including the grounds
and timing of such events.
✓
Compliance ensured
7.2.2
Rules and procedures related to the
Company's performance of material
corporate actions are specified in the
Company’s internal documents.
1. The Company’s internal documents provide for a
procedure for engaging an independent appraiser to
estimate the value of property to be disposed of or
acquired as a material transaction or as an interested
party transaction.
2. The Company’s internal documents provide for a
procedure for engaging an independent appraiser to
estimate the value of acquisition and repurchase of its
shares.
1. 3. The Company’s internal documents provide for an
expanded list of grounds on which the Board members
and other parties are recognized as an interested party
in the Company’s transactions under the Russian
legislation.
Partial compliance
Non-compliance
Compliance ensured
✓
Partial compliance
Non-compliance
all
evaluates
1. Partial compliance
The Company engages an independent
appraiser in cases set out in the legislation
of the Russian Federation.
2. Compliance ensured
3. Partial compliance
Before the conclusion of any transaction in
interest, the
which there can be an
possible
Company
circumstances that could
lead to the
existence of an interest, including those not
provided for by law. This approach has
proved to be effective in practice, and the
Company does not deem it appropriate to
provide an expanded list of grounds on
which the Board members and other parties
are recognized as an interested party in the
Company's internal documents.
The Company monitors the system and, if
necessary, will take appropriate steps to
review it.
54 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
Year
Period
Dividend per
share, RUB.
Declaration
date
Amount, RUB.
As a % of Net
Income*
Date of payment
Report on dividends declared
2017
9 month
5,13
22.12.2017
30 745 255 741,20
147
2017
6 month
3,20
29.09.2017
19 178 327 168
2017
3 month
2,35
02.06.2017
14 084 084 014
2016
year
9,22
02.06.2017
(Taking into
account payed
interim dividends
RUB3,38 per share
to be paid)
55 257 555 152,80
(Taking into
account payed
interim dividends
RUB 20 257 108
071,20 to be
payed.)
2016
9 month
3,63
23.12.2016
21 755 414 881,20
2016
6 month
1,08
30.09.2016
6 472 685 419,20
96
77
98
93
55
2016
3 month
1,13
03.06.2016
6 772 346 781,20
178
2015
year
6,95
03.06.2016
41 652 929 318
67
(Taking into
account payed
(Taking into
account payed
Annex 5
Paid** as at 31.12.2017
RUB.
As a % from
declared
30 738 796 343,55***
99,98***
19 155 126 252,66
99,88
14 065 738 755,13
99,87
55 190 158 974,49
99,88
from 10.01.2018 to 13.02.2018
(including)
from 13.10.2017 to 17.11.2017
(including)
from 15.06.2017 to 19.07.2017
(included)
from 15.06.2017 to 19.07.2017
(including)
from 10.01.2017 to 13.02.2017
(including)
from 13.10.2016 to 17.11.2016
(including)
from 15.06.2016 to 19.07.2016
(included)
from 15.06.2016 to 19.07.2016
(including)
21 728 690 673,11
99,88
6 464 783 456,93
99,88
6 764 096 019,91
99,88
41 602 467 921,97
99,88
2017 Annual Report .............................................................................................................................................................................................................................................. 55
Financial statements and appendix
Year
Period
Dividend per
share, RUB.
Declaration
date
Amount, RUB.
As a % of Net
Income*
Date of payment
Paid** as at 31.12.2017
RUB.
As a % from
declared
interim dividends
RUB 2,43 руб per
share to be paid)
interim dividends
RUB 14 563 542
193,20 to be payed)
2015
9 month
1,95
21.12.2015
11 686 793 118
2015
6 month
0,93
30.09.2015
5 573 701 333,20
2015
3 month
1,64
05.06.2015
9 828 892 673,60
2014
year
2,44
05.06.2015
( Taking into
account payed
interim dividends
RUB 1,56 per
share to be paid)
14 623 474 465,60
(Taking into
account payed
interim dividends
RUB 9 349 434
494,40 to be payed)
2014
6 month
0,88
30.09.2014
5 274 039 971,20
2013
year
0,67
06.06.2014
4 015 462 250,8
2012
year
0,62
07.06.2013
3 715 800 888,80
40
50
56
36
40
61
20
from 09.01.2016 to 12.02.2016
(including)
from 13.10.2015 to 17.11.2015
(including)
from 17.06.2015 to 21.07.2015
(including)
from 17.06.2015 to 21.07.2015
(including)
11 672 564 059,65
99,88
5 566 945 471,50
99,88
9 816 972 011,98
99,88
14 605 946 646,81
99,88
from 12.10.2014 to 18.11.2014
(including)
from 18.06.2014 to 22.07.2014
(including)
5 267 750 818,07
99,88
4 010 751 180,49
99,88
from 08.06.2013 to 07.08.2013
3 709 866 217,43
99,84
* - the ratio "Dividends to net profit,%" is calculated as Dividends per share in rubles multiplied by the number of shares (5,993,227,240) divided by the dollar rate on the day of the
announcement divided by the net profit attributable to NLMK shareholders under IFRS multiplied by 100%;
** - the obligation to pay dividends on shares was fulfilled by PJSC "NLMK" in the terms established by the legislation of the Russian Federation. The reason for paying dividends is not in
full amount due to incorrect payment details of shareholders;
*** - as at December 31, 2017 dividends payment deadline has not expired. The data is related to the expiry date of the dividend payout period the 9 months of 2017 - deadline expiring
– February 13, 2018.
56 ...............................................................................................................................................................................................................................................2017 Annual Report
Financial statements and appendix
FINANCIAL STATEMENTS
Part 1 – CONSOLIDATED FINANCIAL STATEMENTS (IFRS)
Part 2 – FINANCIAL STATEMENTS OF PAO “NLMK” (RAS)
2017 Annual Report .............................................................................................................................................................................................................................................. 57
NOVOLIPETSK STEEL
CONSOLIDATED FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
AS AT AND FOR THE YEAR ENDED
31 DECEMBER 2017
(WITH INDEPENDENT AUDITOR’S REPORT THEREON)
Novolipetsk Steel
Consolidated financial statements as at and for the year ended 31 December 2017
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
11
12
13
14
15
17
2
Independent auditor’s report
To the Shareholders and the Board of Directors of Novolipetsk Steel:
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of Novolipetsk Steel and its subsidiaries (together – the “Group”) as at
31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year
then ended in accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Group’s consolidated financial statements comprise:
•
the consolidated statements of:
–
financial position as at 31 December 2017;
– profit or loss for the year ended 31 December 2017;
–
–
–
comprehensive income for the year ended 31 December 2017;
changes in equity for the year ended 31 December 2017;
cash flows for the year ended 31 December 2017; and
•
the notes to the consolidated financial statements, which include significant accounting policies
and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical
requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are
relevant to our audit of the consolidated financial statements in the Russian Federation. We have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
AO PricewaterhouseCoopers Audit
White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
Our audit approach
Overview
• Overall Group materiality: 100 million US Dollars (USD),
which represents 1% of the Group’s consolidated revenue
• We conducted audit work at 12 components (entities or business
activities, which prepare financial information that is included
in the consolidated financial statements) in six countries
• The Group engagement team visited the Group companies in
the Russian Federation and United States of America and also
the joint venture located in Belgium
• Our audit scope covered 91% of the Group’s consolidated
revenues and 90% of the Group’s consolidated total assets
• Key Audit Matter 1 - Management assessment of the carrying
value of goodwill, intangible assets and property, plant and
equipment
• Key Audit Matter 2 – Accounting for the investment in
NLMK Belgium Holdings S.A. (hereinafter – NBH)
• Key Audit Matter 3 – Determination of the carrying value of
the investment in NBH
We designed our audit by determining materiality and assessing the risks of material misstatement in
the consolidated financial statements. In particular, we considered where management made
judgements; for example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. We also addressed the risk of
management override of internal controls, including among other matters consideration of whether
there was evidence of management bias that represented a risk of material misstatement due to fraud.
Materiality
The scope of our audit was influenced by our application of the concept of materiality. An audit is
designed to obtain reasonable assurance whether the financial statements are free from material
misstatements. Misstatements may arise due to fraud or error. They are considered material if,
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out
in the table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, both individually and in aggregate on the consolidated financial statements as a whole.
4
Overall Group materiality
USD 100 million (2016: USD 71 million)
How we determined it
1% of the Group’s consolidated revenue
Rationale for the materiality
benchmark applied
We chose revenue as the benchmark because, in our view,
it is the benchmark which objectively best represents the
performance of the Group over a period of time while
financial results are volatile. We determined overall
materiality as 1%, which in our experience is within the
range of acceptable quantitative materiality thresholds
applied for public companies in the relevant industry.
We also take misstatements and/or possible misstatements into account that, in our judgement,
are material for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the accompanying consolidated financial statements. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion on
these consolidated financial statements and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the Key audit
matter
1. Management’s assessment of the
carrying value of goodwill, intangible
assets and property, plant and equipment
Refer to Notes 8 and 9 to the consolidated
financial statements
The Group management performed an analysis
of existence of indicators of impairment of the
Group’s property, plant and equipment (PP&E),
intangible assets and goodwill as at
30 September 2017, that revealed:
We obtained, understood and evaluated
management’s impairment models. We involved
our valuation experts to assist in the evaluation
of the methodology, mathematical accuracy and
assumptions used in the models.
• high volatility on the market of finished
products and raw materials (coal and ore); and
Specific work performed over the impairment
test included:
•
continuing recovery of the US economy
followed by strong prices on steel products.
The analysis triggered testing a number of the
Group’s cash-generating units (CGUs) for
impairment or potential reversal of previously
recognised impairment.
The recoverable amount of PP&E, intangible
assets and goodwill for each CGU subject to
testing was calculated by management as of
30 September 2017 and updated based on the
•
comparing the key assumptions used within
the impairment models to the historic
performance of the respective CGUs and
approved estimates;
• benchmarking the key assumptions used
within the impairment models, including
price forecasts, inflation and discount rates,
against external expert valuations,
macroeconomic and industry forecasts,
which corroborated their validity;
5
Key audit matter
actual performance of the CGUs as of
31 December 2017.
IFRS require management to assess the
recoverable amount of each CGU subject to
testing, as the higher of its value in use and its
fair value less cost to sell. Management assessed
the value in use for each such CGU using
discounted cash flow models, and concluded that
it is higher than fair value less cost to sell, as the
assumptions of an average market participant
for a similar company would generally be the
same or, in some cases, even more conservative.
Therefore the recoverable amount was
determined as value in use.
As a result of the testing performed,
management concluded that no impairment or
reversal of previously recognised impairment
were required as of 31 December 2017.
We focused on this area because of the
significant judgmental factors involved in the
calculation of recoverable amount of each CGU,
and the significant carrying value of the assets in
scope of the test.
2. Accounting for the investment in NBH
Refer to Notes 4 and 26(d) to the consolidated
financial statements
NBH is a joint venture between the Group and
Societe Wallonne de Gestion et de Participations
S.A. (hereinafter – SOGEPA), which is accounted
for using the equity method. Its carrying value as of
31 December 2017 was USD 194 million. In
selecting the method of accounting for this
investment, management made a judgement as to
the assessment of joint control over NBH.
We focused on this area because of its
significance and the degree of judgement
involved in classification of the investment in
NBH. We also considered whether there were
facts and circumstances which would trigger
reassessment of the accounting treatment as
required by IFRS.
How our audit addressed the Key audit
matter
• performing a sensitivity analysis over the
key assumptions in order to assess their
potential impact on impairment results and
ranges of possible outcomes of the
recoverable amounts;
•
•
•
examining management’s assessment of
the degree to which steel prices and sales
volumes would need to reduce and the
discount rates would need to increase, in
isolation from other changes in assumptions,
before an impairment arises on these CGUs;
validating the key assumptions used in the
impairment models also as of 31 December
2017;
assessing compliance with the requirements
of IFRS of the related disclosures in the
consolidated financial statements.
As a result of performing the above procedures, we
have not identified any circumstances that would
lead to material adjustments to the carrying value
of goodwill, intangible assets and PP&E, recorded
in the accompanying consolidated financial
statements, or to the related disclosures.
Our audit work in respect of the management
judgement as to existence of control / joint
control / significant influence that impacts
classification of the investment in NBH and the
accounting method (consolidation or equity
method), included:
•
•
•
inquiries of management of different levels
both in Russia and in Belgium;
review of the shareholders’ agreement and
charter documents;
review of minutes of meetings of NBH Board
of directors and shareholders’ meetings to
corroborate the assertion on joint decision
making.
As a result, we concurred with the management’s
assessment of existence of joint control and with
the classification and the accounting treatment of
the investment in NBH as of 31 December 2017 in
the consolidated financial statements.
6
Key audit matter
How our audit addressed the Key audit
matter
3. Determination of the carrying value
of the investment in NBH
Refer to Note 4 and Note 26(d) to the
Consolidated Financial Statements
In December 2017, the Group contributed an
additional USD 84 million into the share capital
of NBH. This contribution was made to increase
the net assets of NBH to the minimum level
prescribed by the Belgium law and was in the
form of conversion of а loan previously issued to
NBH.
The Group management considered that
SOGEPA’s share in this contribution should not
be expensed immediately, but the investment in
NBH as a whole should be tested for impairment
as of the date of this additional contribution using
a discounted cash flow model.
•
Management performed an analysis of the
business performance, industry outlook and
operational plans and then assessed the
recoverable value of the CGUs within NBH for the
purpose of impairment testing of the investment
in the share capital of NBH. As a result of this
impairment testing performed by management,
no additional impairment/reversal of previously
recognized impairment was identified as of 31
December 2017.
We focused on this area as the amount of
contribution made and the judgement over
impairment of the investment in NBH are
significant for the consolidated financial
statements taken as a whole.
Our audit procedures included:
•
agreeing the amount of the Group’s
additional contribution into the share capital
to supporting documentation;
• obtaining evidence over SOGEPA’s
participation in NBH activities, including
review of minutes of meetings of NBH Board
of directors and Shareholders’ meetings to
confirm joint decision making;
testing management’s impairment
assessment of the investment in NBH.
We performed audit procedures over the
impairment models, including:
o comparing the key assumptions used
within the impairment models to historic
performance and approved forecasts of the
three CGUs within NBH;
o performing sensitivity analysis over key
assumptions (for example, weighted average
cost of capital, sales prices and volumes
forecasts);
o involving our valuation experts to assess
the appropriateness of management’s
impairment models;
o verifying accuracy of the carrying value of
the investment in NBH.
For more details in respect of work performed
over key assumptions refer to the Key audit
matter 1 above.
We compared the carrying value of the
investment in the share capital of NBH as of
31 December 2017 to its recoverable amount and
did not identify any material adjustments to the
carrying value of investment in NBH in the
accompanying consolidated financial statements.
7
How we tailored our group audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the consolidated financial statements as a whole, taking into account the geographic and management
structure of the Group, the Group’s accounting processes and controls, and the industry in which the
Group operates.
The Group’s major production facilities are located in the Russian Federation, the USA and Western
Europe and the trading companies are based out of Switzerland and Cyprus. Based on our continuing
assessment, we included in our group audit scope the 12 components located in these regions.
The audits of the components were conducted by PwC network firms in the Russian Federation, USA,
Denmark, Belgium, Switzerland and Cyprus in accordance with International Standard on Auditing
(ISA) 600 «Special considerations – audits of group financial statements (including the work of
component auditors)». The Group engagement team’s instructions to component auditors included
results of our risk assessment, materiality levels and the approach to the audit of centralised processes
and systems. The Group engagement team is in regular contact with the component auditors and its
representatives visited several component teams to review their work. Our selection is based on the
relative significance of the entities within the Group or specific risks identified.
By performing the procedures above at the components in combination with additional procedures
performed at Group level, we have obtained sufficient and appropriate audit evidence regarding the
consolidated financial statements as a whole that provides a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises information
included in the Group Annual Report for 2017 and the Issuer’s Report for the first quarter of 2018, but
does not include the consolidated financial statements and our auditor’s report thereon. Both of these
reports are expected to be made available to us after the date of this auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we
will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information referred to above when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting
process.
8
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
9
pwc
with those charged
communicated
From the matters
that were of most significance
the key audit matters.
We describe
precludes
disclosure
public
that a matter should not be communicated
be expected
would reasonably
to outweigh
financial
in the audit of the consolidated
report
in our auditor's
about the matter or when, in extremely
these matters
in our report because
interest
the public
benefits
the adverse
with governance,
we determine
statements
unless law
those matters
and are therefore
or regulation
rare circumstances,
consequences
of doing so
of such communication.
we determine
The certified
A.S. Ivanov.
auditor
responsible
for the audit resulting
in this independent
is
auditor's
report
Audited
entity:
Novolipetsk
Steel
Independent
auditor
: AO PricewaterhouseCoopers
Audit
State registration certificate No. 5-G, issued
Lipetsk
Levoberezhny
of the city of
by the Administration
on 28 January 1993
district
State registration
Registration
certificate
1992
Chamber on 28 February
of
No. 008.890, issued by the Moscow
Certificate
issued
of inclusion
in the Unified State Register
of Legal Entities
on 9 July 2002 under registrati
on No. 1024800823123
Register
Certifica
issued on 22 August 2002 under registration
te of inclusion in the Unified State
of Legal Entities
No. 1027700148431
2, Metallurgov
sq., Lipetsk,
398040, Russian
Federation
Member of Self-regulated
on)
auditors»
(Associati
organization
of auditors
« Russian
Union of
ORNZ 11603050547
in the register
of auditors
and audit organiza
tions
10
Novolipetsk Steel
Consolidated statement of financial position
(millions of US dollars)
Note
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
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 joint ventures
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
Dividends payable
Short-term borrowings
Current income tax liability
Non-current liabilities
Long-term borrowings
Deferred income tax liability
Other long-term liabilities
Total liabilities
3
5
6
7
5
4
8
9
9
17
10
11
11
17
Equity attributable to Novolipetsk Steel shareholders
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
12(a)
23(e)
Non-controlling interests
Total equity
Total liabilities and equity
301
1,284
1,228
1,879
19
4,711
2
205
5,549
265
135
84
45
6,285
10,996
1,029
537
380
53
1,999
1,901
417
33
2,351
4,350
221
10
(5,631)
12,029
6,629
17
6,646
10,996
610
970
955
1,549
19
4,103
164
181
5,328
253
126
62
22
6,136
10,239
888
361
468
12
1,729
1,801
386
13
2,200
3,929
221
10
(5,978)
12,039
6,292
18
6,310
10,239
343
1,243
921
1,205
9
3,721
220
118
4,452
215
112
68
12
5,197
8,918
565
161
560
28
1,314
2,116
339
12
2,467
3,781
221
10
(6,989)
11,883
5,125
12
5,137
8,918
The consolidated financial statements as set out on pages 11 to 69 were approved by the Group’s management
and authorised for issue on 19 February 2018.
The accompanying notes constitute an integral part of these consolidated financial statements.
11
Novolipetsk Steel
Consolidated statement of profit or loss
(millions of US dollars, unless otherwise stated)
Revenue
Cost of sales
Gross profit
General and administrative expenses
Selling expenses
Other operating income
Taxes, other than income tax
Operating profit before share of results of joint ventures,
impairment of non-current assets and loss on disposals of
property, plant and equipment
Loss on disposals of property, plant and equipment
Impairment of non-current assets
Share of results of joint ventures
(Losses)/gains on investments, net
Finance income
Finance costs
Foreign currency exchange gain/(loss), net
Other expenses, net
Profit before income tax
Income tax expense
Profit for the year
Profit is attributable to:
Novolipetsk Steel shareholders
Non-controlling interests
Earnings per share:
Note
14
16
4, 8, 9
4
18
18
19
17
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
10,065
(6,798)
7,636
(5,074)
8,008
(5,496)
3,267
(364)
(795)
3
(80)
2,031
(1)
(17)
(90)
(5)
29
(87)
17
(54)
1,823
(371)
1,452
1,450
2
2,562
(316)
(705)
16
(70)
1,487
(3)
(14)
(61)
(4)
39,
(105)
(129)
(38)
1,172
(233)
939
935
4
2,512
(261)
(802)
14
(76)
1,387
(8)
(85)
(103)
80
52
(95)
110
(17)
1,321
(353)
968
967
1
Earnings per share attributable to
Novolipetsk Steel shareholders (US dollars)
Weighted-average number of shares outstanding:
basic and diluted (in thousands)
13
0.2419
0.1560
0.1613
12(a)
5,993,227
5,993,227
5,993,227
The accompanying notes constitute an integral part of these consolidated financial statements.
12
Novolipetsk Steel
Consolidated statement of comprehensive income
(millions of US dollars)
Profit for the year
Other comprehensive income/(loss):
Note
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
1,452
939
968
Items that may be reclassified subsequently to profit or loss:
Cumulative translation adjustment
2(b)
Total comprehensive income/(loss) for the year
attributable to:
Novolipetsk Steel shareholders
Non-controlling interests
348
1,800
1,797
3
1,013
1,952
1,946
6
(1,501)
(533)
(530)
(3)
The accompanying notes constitute an integral part of these consolidated financial statements.
13
Accumulated
other
comprehensive
loss
(5,492)
Retained
earnings
11,513
Non-controlling
interest
15
Novolipetsk Steel
Consolidated statement of changes in equity
(millions of US dollars)
Attributable to Novolipetsk Steel shareholders
Note
Common stock
Additional
paid-in capital
Balance at 1 January 2015
221
Profit for the year
Cumulative translation
adjustment
2(b)
Total comprehensive loss
Disposal of assets to an entity
under common control
Dividends to shareholders
23(e)
12(b)
-
-
-
-
-
Balance at 31 December 2015
221
Profit for the year
Cumulative translation
adjustment
2(b)
Total comprehensive income
Dividends to shareholders
12(b)
-
-
-
-
-
-
-
-
10
-
10
-
-
-
-
-
(1,497)
(1,497)
-
-
967
-
967
-
(597)
(6,989)
11,883
-
1,011
1,011
935
-
935
-
(779)
Balance at 31 December 2016
221
10
(5,978)
12,039
Profit for the year
Cumulative translation
adjustment
2(b)
Total comprehensive income
Acquisition of non-controlling
interest
Dividends to shareholders
12(b)
Balance at
31 December 2017
-
-
-
-
-
-
-
-
-
-
-
347
347
-
-
1,450
-
1,450
-
(1,460)
221
10
(5,631)
12,029
Total equity
6,257
968
(1,501)
(533)
10
(597)
5,137
939
1,013
1,952
(779)
6,310
1,452
348
1,800
(1)
(1,463)
6,646
1
(4)
(3)
-
-
12
4
2
6
-
18
2
1
3
(1)
(3)
17
The accompanying notes constitute an integral part of these consolidated financial statements.
14
Novolipetsk Steel
Consolidated statement of cash flows
(millions of US dollars)
Note
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
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 amortisation
Loss on disposals of property, plant and equipment
Losses/(gains) on investments
Finance income
Finance costs
Share of results of joint ventures
Income tax expense
Impairment of non-current assets
Foreign currency exchange (gain)/loss, net
Change in impairment allowance for inventories and
accounts receivable
Changes in operating assets and liabilities
(Increase)/decrease in trade and other accounts
receivable
(Increase)/decrease in inventories
Increase in other operating assets
Increase/(decrease) in trade and other accounts payable
4
17
Сash provided by operations
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Purchases and construction of property, plant and
equipment
Proceeds from sale of property, plant and equipment
Purchases of investments and loans given, net
Placement of bank deposits
Withdrawal of bank deposits
Interest received
Contribution to share capital of joint venture
Acquisition of non-controlling interest
Disposal of assets to an entity under common control
Cash received in the course of bankruptcy proceedings
4
23(e)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Interest paid
Dividends paid to Novolipetsk Steel shareholders
Dividends paid to non-controlling interests
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
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Conversion of debt to equity
3
3
4
1,452
624
1
5
(29)
87
90
371
17
(17)
13
(223)
(262)
-
105
2,234
(335)
1,899
(592)
10
(44)
(1,264)
1,105
28
-
(1)
-
-
(758)
988
(1,093)
(69)
(1,283)
(2)
(1,459)
(318)
9
610
301
939
456
3
4
(39)
105
61
233
14
129
14
3
(201)
(9)
244
1,956
(257)
1,699
(559)
9
(79)
(989)
1,261
36
-
-
-
11
(310)
803
(1,256)
(84)
(583)
-
(1,120)
269
(2)
343
610
968
556
8
(80)
(52)
95
103
353
85
(110)
14
(1)
75
(6)
(79)
1,929
(307)
1,622
(595)
11
(199)
(1,595)
954
44
(22)
-
10
17
(1,375)
676
(579)
(79)
(395)
-
(377)
(130)
(76)
549
343
84
139
110
The accompanying notes constitute an integral part of these consolidated financial statements.
15
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
1
Background
Novolipetsk Steel (the “Parent Company” or “NLMK”) 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 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 privatised in the form of an open
joint stock company on 28 January 1993. On 29 December 2015, the legal form of the Parent Company was changed
to public joint stock company due to changes in legislation of the Russian Federation.
The Group is a 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 respective state and regional authorities. The Parent Company’s registered
office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation.
As at 31 December 2017, the Parent Company’s major shareholder with 84.035% ownership interest is
Fletcher Group Holdings Ltd., which is beneficially owned by Mr. Vladimir Lisin.
The major companies of the Group by reportable segment (see Note 21) are:
Russian flat products
LLC VIZ-Steel
JSC Altai-Koks
Novex Trading (Swiss) S.A.
Novexco (Cyprus) Ltd.
NLMK DanSteel and Plates
Distribution Network
NLMK DanSteel A/S
NLMK USA
NLMK Indiana LLC
NLMK Pennsylvania LLC
Russian long products
JSC NLMK-Ural
LLC NLMK-Metalware
LLC NLMK-Kaluga
LLC Vtorchermet NLMK
Mining
JSC Stoilensky GOK
Activity
Country of
incorporation
Share at
31 December
2017
Share at
31 December
2016
Share at
31 December
2015
Production of steel
Production of blast
furnace coke
Trading
Trading
Russia
Russia
Switzerland
Cyprus
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
Denmark
100.00%
100.00%
100.00%
Production of steel
Production of steel
Production of steel and
long products
Production of metalware
Production of long
products
Processing of metal scrap
Mining, processing and
pelletising of iron-ore
USA
USA
Russia
Russia
Russia
Russia
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
92.59%
92.59%
92.59%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Russia
100.00%
100.00%
100.00%
16
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
1
Background (continued)
Among joint ventures the major is:
Activity
Country of
incorporation
Share at
31 December
2017
Share at
31 December
2016
Share at
31 December
2015
NLMK Belgium Holdings S.A. Holding company*
Belgium
51.00%
51.00%
51.00%
*NLMK Belgium Holdings S.A. is owned jointly by the Group and SOGEPA, a Belgian state company (Note 4). It comprises strip
and plate manufacturers located in Belgium, France and Italy.
2
Basis of preparation of the consolidated financial statements
(a)
Basis of preparation
These consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”) under the historical cost convention except as 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
reporting periods are presented for users’ convenience.
(b)
Functional and reporting currency
The functional currency of all of the 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 the
presentation currency of these consolidated financial statements. All amounts in the consolidated financial
statements are rounded to the nearest million for users’ convenience unless otherwise stated (in prior years’
consolidated financial statements, all amounts were rounded to the nearest million decimal). This adjustment did
not result in significant changes in comparative data.
The results of operations and financial position of each Group entity are translated into the presentation currency
as follows:
assets and liabilities in the 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 month (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 recognised in other comprehensive income.
Items of consolidated statement of cash flows are translated at average exchange rates for each month (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 recognised 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.
17
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
2
Basis of preparation of the consolidated financial statements (continued)
The Central Bank of the Russian Federation’s Russian ruble to the main foreign currencies closing rates of exchange
as of the reporting dates and the period weighted average exchange rates for corresponding reporting periods are
indicated below.
Russian ruble to US dollar
For the year ended 31 December
As at 31 December
Russian ruble to Euro
For the year ended 31 December
As at 31 December
3
Cash and cash equivalents
Cash
Russian rubles
US dollars
Euros
Other currencies
Deposits
Russian rubles
US dollars
Euros
Other currencies
Other cash equivalents
2017
2016
2015
58,3529
57,6002
65,9014
68,8668
67,0349
60,6569
74,2310
63,8111
60,9579
72,8827
67,7767
79,6972
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
11
63
70
4
98
19
24
-
12
301
11
89
52
2
49
394
1
1
11
610
20
99
41
2
30
140
-
11
-
343
The cash and cash equivalents as at 31 December 2017 and 2016 include $12 and $10, respectively, which are
subject to regulatory restrictions and are therefore not available for general use by the entities within the Group.
4
Investments in joint ventures
NLMK Belgium Holdings S.A. (“NBH”)
TBEA & NLMK (Shenyang) Metal Product Co., Ltd.
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
194
11
205
171
10
181
109
9
118
18
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
4
Investments in joint ventures (continued)
The table below summarises the movements in the carrying amount of the Group’s investments in joint ventures.
As at 1 January
Share of net loss
Conversion of debt to equity
The Group’s contribution to the share capital
Disposal of 28.5% stake in NBH
Share of change in unrealised profit in inventory
Share of change in other comprehensive income
Translation adjustment
As at 31 December
2017
2016
2015
181
(61)
84
-
-
(29)
-
30
205
118
(61)
139
-
-
(5)
1
(11)
181
106
(103)
110
22
(36)
30
1
(12)
118
Summarised consolidated 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
Revenue
Net loss
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
940
686
1,626
(864)
(548)
736
670
1,406
(560)
(634)
734
751
1,485
(658)
(623)
(1,412)
(1,194)
(1,281)
214
212
204
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
1,539
(122)
1,221
(120)
1,278
(191)
NBH cash and cash equivalents as at 31 December 2017, 2016 and 2015 amounted to $26, $52 and $60,
respectively.
NBH financial liabilities excluding trade and other accounts payable as at 31 December 2017, 2016 and 2015
amounted to $794, $671 and $715, respectively, and are included in current and non-current liabilities.
19
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
4
Investments in joint ventures (continued)
Reconciliation of net assets of NBH, calculated in accordance with its consolidated financial statements, to the
carrying amount of the investment is below.
2017
2016
2015
Net assets as at 1 January
Net loss for the year
Proportional contributions into share capital
Conversion of debt to equity
Other comprehensive income
Translation adjustment
Net assets as at 31 December
PP&E valuation difference
Adjusted net assets as at 31 December
As at 31 December:
Share in net assets
Excess of fair value of investment in NBH as at the
deconsolidation date
Accumulated share of the other investor in conversion of debt
to equity
Accumulated impairment of investments
Share of unrealised profit in inventory
Cumulative translation adjustment
Investments in NBH
29
(97)
-
84
-
3
19
195
214
109
104
218
(240)
(34)
37
194
4
(111)
-
139
1
(4)
29
183
212
108
104
177
(240)
(5)
27
171
28
(178)
43
110
1
-
4
200
204
104
104
109
(240)
-
32
109
The other investor in NBH is SOGEPA, a Belgian state-owned company. In March 2015, the Group and SOGEPA
signed an agreement providing for the increase of SOGEPA’s stake in NBH from 20.5% to 49% and on further joint
management of NBH’s businesses. The Group reflected the disposal of its 28.5% stake in NBH (loss on the disposal
amounting to $21) and derecognition of certain financial instruments previously included in other long-term
liabilities (gain amounting to $76) in “(Losses)/gains on investments, net” line of the consolidated statement of
profit or loss for the year ended 31 December 2015 in the net amount of $55. In March 2015, in accordance with
the agreement, the Group and SOGEPA made additional pro-rata contributions to the share capital of NBH of $22
and $21, respectively. The Group and SOGEPA also agreed to support NBH in obtaining financing of its working
capital. In December 2017, the Group converted existing loans to NBH into share capital in the amount of $84
(in June 2016: $139; in December 2015: $110). These contributions were also a part of the agreement signed in
March 2015 and did not further change the Group’s share in NBH.
Information about the Group’s operations with NBH and investment impairment testing is disclosed in Notes 23
and 8, respectively.
20
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
5
Financial investments
Short-term financial investments
Bank deposits (Note 22 (c))
- Russian rubles
- US dollars
- Euros
Total bank deposits
Loans to related parties (Note 23)
Other short-term financial investments
Long-term financial investments
Loans to related parties (Note 23)
Bank deposits
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
6
1,051
-
1,057
222
5
1,284
-
2
2
1
855
42
898
66
6
970
164
-
164
15
1,091
66
1,172
65
6
1,243
220
-
220
1,286
1,134
1,463
The fair value of short-term financial investments equals their carrying amount. The fair values of long-term financial
investments approximate their carrying amount.
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
31 December 2017
As at
31 December 2016
As at
31 December 2015
996
(23)
29
(20)
982
58
(3)
190
1
246
1,228
693
(24)
25
(18)
676
54
(2)
225
2
279
955
613
(16)
40
(15)
622
54
(4)
247
2
299
921
Due to the short-term nature of trade and other accounts receivable, their carrying amount is considered to be the
same as their fair value.
As at 31 December 2017, 2016 and 2015, accounts receivable of $160, $122 and $74, respectively, served as
collateral for certain borrowings (Note 11).
21
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
6
Trade and other accounts receivable (continued)
Movements in the allowance for impairment of financial receivables are as follows:
As at 1 January
Allowance for impairment recognised
Accounts receivable written-off
Allowance for impairment reversed
Disposal of subsidiary
Translation adjustment
As at 31 December
7
Inventories
Raw materials
Work in process
Finished goods
Impairment allowance
2017
2016
2015
(42)
(11)
4
6
3
(3)
(43)
(31)
(16)
2
8
-
(5)
(42)
(49)
(28)
21
14
-
11
(31)
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
830
603
514
1,947
(68)
1,879
705
460
443
1,608
(59)
1,549
522
400
341
1,263
(58)
1,205
As at 31 December 2017, 2016 and 2015 inventories of $423, $296 and $304, respectively, served as collateral for
certain borrowings (Note 11).
Cost of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2017,
2016 and 2015 amounted to $4,676, $3,443 and $3,488, respectively. Cost of fuel and energy resources in cost of
sales for the years ended 31 December 2017, 2016 and 2015 amounted to $651, $552 and $601, respectively.
22
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
8
Property, plant and equipment
Land
Buildings
Land and buildings
improvements
Machinery and
equipment
Vehicles
Construction in
progress
Cost at 1 January 2015
Accumulated depreciation and impairment
Net book value at 1 January 2015
Additions
Disposals
Impairment
Transfers
Depreciation charge
Translation adjustment
Cost at 31 December 2015
Accumulated depreciation and impairment
Net book value at 31 December 2015
Additions
Disposals
Transfers
Depreciation charge
Translation adjustment
Cost at 31 December 2016
Accumulated depreciation and impairment
Net book value at 31 December 2016
131
-
131
-
(1)
-
1
-
(30)
101
-
101
-
-
-
-
20
121
-
121
1,712
(652)
1,060
-
(1)
(14)
30
(40)
(218)
1,378
(561)
817
-
(1)
159
(34)
156
1,799
(702)
1,097
1,435
(671)
764
-
(4)
(7)
38
(46)
(119)
1,687
(1,061)
626
-
(1)
118
(46)
115
2,113
(1,301)
812
6,434
(3,789)
2,645
-
(12)
(27)
225
(396)
(543)
4,687
(2,795)
1,892
-
(4)
526
(350)
294
5,994
(3,636)
2,358
270
(161)
109
-
(2)
(11)
15
(24)
(21)
219
(153)
66
-
-
21
(19)
14
266
(184)
82
906
-
906
640
(33)
-
(309)
-
(254)
950
-
950
540
(6)
(824)
-
198
858
-
858
Total
10,888
(5,273)
5,615
640
(53)
(59)
-
(506)
(1,185)
9,022
(4,570)
4,452
540
(12)
-
(449)
797
11,151
(5,823)
5,328
23
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
8
Property, plant and equipment (continued)
Land
Buildings
Land and buildings
improvements
Machinery and
equipment
Vehicles
Construction in
progress
Additions
Disposals
Impairment
Transfers
Depreciation charge
Translation adjustment
Cost at 31 December 2017
Accumulated depreciation and impairment
Net book value at 31 December 2017
-
-
-
-
-
7
128
-
128
-
-
-
171
(52)
58
2,057
(783)
1,274
-
(4)
-
110
(76)
44
2,328
(1,442)
886
-
(1)
-
314
(471)
115
6,533
(4,218)
2,315
-
-
-
23
(18)
4
279
(188)
91
585
(6)
(8)
(618)
-
44
855
-
855
Total
585
(11)
(8)
-
(617)
272
12,180
(6,631)
5,549
The amount of borrowing costs capitalised is $37, $37 and $51 for the years ended 31 December 2017, 2016 and 2015, respectively. The capitalisation rate was 3.7%, 4.1% and 4.4% in
2017, 2016 and 2015, respectively.
24
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
8
Property, plant and equipment (continued)
The Group management made an analysis of impairment indicators of the Group’s assets as at 30 September 2017.
High volatility on the market of finished products and main raw materials (coal and ore) triggered impairment
assessment of some of the Group’s assets, while positive trends on the steel market in the second half of 2017
caused by increases in metal prices, particularly in Russia and the USA, represented triggers for potential reversal
of previously recognised impairment losses, which required the reassessment of the recoverable amounts of certain
assets using the income approach based primarily on Level 3 inputs as at 31 December 2017. Goodwill was also
tested for impairment as of the same date. Testing for impairment in the comparative periods was caused by a
deterioration in the steel market and was conducted as of 31 October 2016 and 31 December 2015.
For the purpose of the impairment test, the Group management used a forecast of cash flows for six years due to
the relatively long useful lives of steel making equipment, and normalised cash flows for a post-forecast period.
for each
The table below summarises cash generating units (further – “CGUs”) and types of assets, subject to determination
of the recoverable amount as of 31 December 2017, major assumptions and their sensitivity used in the impairment
models. Sales price in this estimate is an average annual growth rate, over the 6-year (31 October 2016: 7-year; 31
December 2015: 7-year) forecast period based on current industry trends and including long-term inflation
forecasts
the 6-year
(31 October 2016: 7-year; 31 December 2015: 7-year) forecast period; based on past performance and
management’s expectations of market development. Discount rate reflects specific risks relating to the relevant
segments and the countries in which they operate. 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 carrying values. As of 31 December 2017 testing showed neither impairment, nor
reversal of previously recognised impairment loss.
is an average annual growth
territory. Sales volume
rate over
CGU
Asset type
NLMK Belgium Holdings S.A. Investment
NLMK Pennsylvania LLC
JSC Stoilensky GOK
JSC Stoilensky GOK
JSC NLMK-Ural
LLC NLMK-Kaluga
NLMK DanSteel A/S
Property, plant
and equipment
Property, plant
and equipment
Goodwill
Property, plant
and equipment
Property, plant
and equipment
Property, plant
and equipment
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sales
Price
Sensitivity,
% of change
Sales
volume
Discount
rate
9%
11%
15%
15%
15%
14%
9%
Flat products
and plate
Flat products
Iron ore and
pellets
Iron ore and
pellets
Long products
and semi-
finished goods
Long-products
and semi-
finished goods
Plate
687
0.0%
0.3%
0.0%
737
-5%
-38%
54
-44%
-61%
54
-43%
-63%
9%
35%
33%
461
-0.1%
-0.4%
0.2%
467
-0.4%
-4%
0.3%
692
-2%
-10%
2%
* Weighted average prices based on the forecast product mix, averaged for the period from 2018 to 2023
25
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
8
Property, plant and equipment (continued)
The table below summarises CGUs and types of assets, subject to determination of the recoverable amount as of
31 October 2016, major assumptions and their sensitivity used in the impairment models. Prices for steel products
in this estimate were determined based on 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 carrying values. As of 31 October 2016 testing
showed neither impairment, nor reversal of previously recognised impairment loss.
CGU
Asset type
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sensitivity,
% of change
Price
Sales
volume
NLMK Pennsylvania LLC
NLMK Indiana LLC
NLMK Indiana LLC
Scrap collecting assets in
Russian long products
segment
JSC NLMK-Ural
LLC NLMK-Kaluga
NLMK DanSteel A/S
Property, plant and
equipment
Property, plant and
equipment
Goodwill
Property, plant and
equipment
Property, plant and
equipment
Property, plant and
equipment
Property, plant and
equipment
11%
Flat products
705
-2%
-17%
10%
Flat products
10%
Flat products
582
582
-1%
-1%
-7%
-6%
15%
Metal scrap
237
-0.05%
-0.2%
15%
14%
Long products and
semi-finished goods
Long-products and
semi-finished goods
452
-1%
-2%
429
-0.04%
-0.4%
9%
Plate
685
-0.3%
-2%
* Weighted average prices based on the forecast product mix, averaged for the period from November 2017 to 2023
26
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
8
Property, plant and equipment (continued)
The table below summarises CGUs and types of assets, 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 based on 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 carrying values. As of 31 December 2015 impairment testing showed that
recoverable amount of property, plant and equipment (value in use) of scrap collecting assets in Russian long
products segment and JSC NLMK-Ural was below its carrying amount by $24 and $35, respectively. Impairment
testing also showed impairment of goodwill in NLMK Indiana LLC by $14.
CGU
Asset type
Discount
rate, %
Product types
Average sale
price*, $ per
tonne (FCA)
Sensitivity,
% of change
Price
Sales
volume
JSC Stoilensky GOK
Property, plant and
equipment and
intangible assets
15%
Iron ore
44
-43%
-56%
JSC Stoilensky GOK
Goodwill
15%
Iron ore
44
-36%
-47%
NLMK Pennsylvania LLC
NLMK Indiana LLC
NLMK Indiana LLC
JSC Altai-Koks
JSC Altai-Koks
Scrap collecting assets in
Russian long products
segment
JSC NLMK-Ural
LLC NLMK-Kaluga
LLC NLMK-Metalware
NLMK DanSteel A/S
Property, plant and
equipment
Property, plant and
equipment
Goodwill
Property, plant and
equipment
Goodwill
Property, plant and
equipment
Property, plant and
equipment
Property, plant and
equipment
Property, plant and
equipment
Property, plant and
equipment
10%
Flat products
646
-3%
-22%
10%
Flat products
540
-0.4%
10%
Flat products
540
+0.3%
-3%
+2%
16%
16%
14%
14%
14%
Coke, chemical
products
Coke, chemical
products
Metal scrap
Long products and
semi-finished goods
Long-products and
semi-finished goods
172
-15%
-40%
172
-13%
-35%
171
+3%
-
344
+1%
+2%
353
-0.2%
-1%
15%
Metalware
9%
Plate
464
630
-7%
-1%
-31%
-5%
* Weighted average prices based on the forecast product mix, averaged for the period from 2016 to 2022
27
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
9
Intangible assets
Goodwill Mineral rights Customer base
property
Industrial
intellectual
Beneficial
lease interest
Cost at 1 January 2015
Accumulated amortisation
and impairment
Net book value at 1
January 2015
285
359
148
30
-
(217)
(110)
(25)
285
142
38
Amortisation charge
Impairment
Translation adjustment
-
(14)
(56)
(7)
-
(31)
(38)
-
-
Cost at 31 December 2015
Accumulated amortisation
and impairment
Net book value at
31 December 2015
Amortisation charge
Translation adjustment
Cost at 31 December 2016
Accumulated amortisation
and impairment
Net book value at
31 December 2016
Additions
Amortisation charge
Translation adjustment
Cost at 31 December 2017
Accumulated amortisation
and impairment
Net book value at
31 December 2017
229
(14)
215
-
38
267
(14)
253
-
-
12
279
(14)
265
277
(173)
104
(7)
21
333
(215)
118
-
(7)
6
351
(234)
117
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
(5)
-
-
-
-
-
-
-
-
-
-
10
-
-
10
-
10
Total
831
(353)
478
(50)
(14)
(87)
515
(188)
327
(7)
59
609
9
(1)
8
-
-
-
9
(1)
8
-
-
9
(1)
(230)
8
-
-
-
9
(1)
8
379
10
(7)
18
649
(249)
400
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.
Mineral rights include a license for iron ore and non-metallic minerals mining of Stoilensky iron-ore deposit in
Belgorod Region expiring in 2040, with the carrying value of $86, $86 and $76 as at 31 December 2017, 2016 and
2015, respectively.
Goodwill arising on acquisitions was allocated to the appropriate business segments in which the respective
acquisitions took place.
28
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
9
Intangible assets (continued)
Allocation of net book value of goodwill to each segment is as follows:
Russian flat products
NLMK USA
Russian long products
Mining
Goodwill impairment testing
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
176
21
3
65
265
167
21
3
62
253
139
21
3
52
215
The Group tested goodwill for impairment as at 31 December 2017, 31 October 2016 and 31 December 2015.
For the purpose of annual impairment testing of goodwill related to CGUs JSC Altai-Koks, LLC VIZ-Steel and
LLC NLMK Indiana as at 31 December 2017, management decided to use the previous detailed calculations of these
СGUs’ recoverable amounts prepared as at 31 October 2016 as there were no significant changes in the underlying
businesses. The recoverable amount has been determined as value in use of the respective assets. For the purpose
of this impairment testing, the Group used the same assumptions and estimates as for other assets, as disclosed in
Note 8. Impairment testing showed no impairment of goodwill as at 31 December 2017 and 31 October 2016 and
showed impairment of goodwill related to NLMK Indiana LLC by $14 as at 31 December 2015.
10
Trade and other accounts payable
Financial liabilities
Trade accounts payable
Other accounts payable
Non-financial liabilities
Accounts payable and accrued liabilities to employees
Advances received
Taxes payable other than income tax
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
600
30
630
156
153
90
399
1,029
522
16
538
179
130
41
350
888
342
16
358
105
63
39
207
565
Due to the short-term nature of trade and other accounts payable, their carrying amount is considered to be the
same as their fair values.
29
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
11
Borrowings
Rates
Currency
Maturity
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
Bonds
8.05% to 11.10%
4.00% to 4.95%
Loans
LIBOR +2.00%
EURIBOR +0.90% to
EURIBOR +2.00%
RUR
USD
USD
EUR
2017
2018-2024
2021
2018-2022
Less: short-term borrowings and
current maturities of long-term borrowings
Long-term borrowings
-
1,501
94
686
2,281
(380)
1,901
168
1,318
332
451
2,269
(468)
1,801
350
1,196
583
547
2,676
(560)
2,116
The carrying amounts and fair value of long-term bonds are as follows:
As at
31 December 2017
Fair
value
Carrying
amount
As at
31 December 2016
Fair
value
Carrying
amount
As at
31 December 2015
Fair
value
Carrying
amount
Bonds
1,346
1,385
1,307
1,325
1,316
1,301
The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings
approximate their carrying amount. The fair values of bonds are based on market price and are within level 1 of the
fair value hierarchy.
The Group has complied with the financial and non-financial covenants of its borrowing facilities during the years
ended 31 December 2017, 2016 and 2015.
The long-term borrowings mature as follows:
1-2 year
2-5 years
over 5 years
Collateral
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
228
473
1,200
1,901
586
501
714
1,801
360
1,719
37
2,116
As at 31 December 2017, 2016 and 2015, the loan facilities were secured by inventories and accounts receivable in
the total amount of $583, $418 and $378, respectively (Notes 6, 7).
30
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
11
Borrowings (continued)
Net debt reconciliation
Balance at 31 December 2016
Cash flows
Interest accrued
Foreign exchange difference
Translation adjustment
Short-term
borrowings
Long-term
borrowings
Cash and cash
equivalents
Short-term
bank deposits
Net debt
(468)
207
(88)
(6)
(25)
(1,801)
(32)
-
32
(100)
610
(314)
-
(4)
9
898
135
23
(54)
55
(761)
(4)
(65)
(32)
(61)
Balance at 31 December 2017
(380)
(1,901)
301
1,057
(923)
12
(a)
Shareholders’ equity
Shares
As at 31 December 2017, 2016 and 2015, 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
Shareholders Meeting, subject to certain limitations as determined by the Russian legislation. Profits available for
distribution to the shareholders in respect of any reporting period are determined by reference to the statutory
financial statements of the Parent Company. As at 31 December 2017, 2016 and 2015, the retained earnings of the
Parent Company, available for distribution in accordance with the legislative requirements of the Russian
Federation, amounted to $5,728, $5,024 and $4,361, converted into US dollars using exchange rates at
31 December 2017, 2016 and 2015, respectively.
According to the Group’s dividend policy, the Group pays dividends on a quarterly basis as follows:
if Net Debt/EBITDA for the preceding 12 months is 1.0x or less: dividends are in range with the boundaries
of 50% of net profit and 50% of free cash flow calculated based on IFRS consolidated financial statements;
if Net Debt/EBITDA for the preceding 12 months 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.
Dividends, declared by the Parent Company and translated at the historical rate as of the announcement date, are
as in the table below.
Declaration
period
2017
Total
2016
Total
Per share*
amount Per share*
amount Per share*
For the 4th quarter of previous year June
For the 1st quarter of current year
June
For the 2nd quarter of current year September
For the 3rd quarter of current year December
3.38
2.35
3.20
5.13
* Dividends per share are shown in Russian rubles.
358
249
328
525
1,460
2.43
1.13
1.08
3.63
1.56
1.64
0.93
1.95
218
102
102
357
779
2015
Total
amount
170
179
84
164
597
31
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
12
(c)
Shareholders’ equity (continued)
Capital management
The Group’s objectives when managing capital are to safeguard financial stability and a target return for the
shareholders, as well as the reduction of cost of capital and optimisation of its structure. To achieve these
objectives, the Group may revise its investment program, borrow new or repay existing loans, offer equity or debt
instruments on capital markets.
When managing capital, the Group uses the following indicators:
the return on invested capital ratio, which is defined as operating profit before share of results of joint
ventures, impairment of non-current assets and loss on disposals of property, plant and equipment less
tax divided by capital employed for the last twelve months, should exceed cost of capital;
the net debt to EBITDA ratio, which is defined as total debt less cash and cash equivalents and short-term
bank deposits divided by operating profit before share of results of joint ventures, impairment of non-
current assets and loss on disposals of property, plant and equipment less depreciation and amortization
for the last twelve months;
free cash flow, which is defined as net cash provided by operating activities less net interest paid less capital
expenditures, 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 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
Profit for the year attributable to the NLMK shareholders
(millions of US dollars)
Weighted average number of shares
1,450
5,993,227,240
935
5,993,227,240
967
5,993,227,240
Basic earnings per share (US dollars)
0.2419
0.1560
0.1613
Basic net earnings per share is calculated by dividing profit for the year attributable to the NLMK shareholders by
the weighted average number of common shares outstanding during the reporting period. NLMK does not have
potentially dilutive financial instruments during the years ended 31 December 2017, 2016 and 2015.
The average shares outstanding for the purposes of basic earnings per share information was 5,993,227,240 for the
years ended 31 December 2017, 2016 and 2015.
14
(a)
Revenue
Revenue by product
Flat products
Pig iron, slabs and billets
Long products and metalware
Coke and other chemical products
Scrap
Iron ore and sintering ore
Other products
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
5,674
2,612
1,090
346
75
-
268
10,065
4,325
1,887
838
210
55
147
174
7,636
4,366
2,207
809
229
47
166
184
8,008
32
Novolipetsk Steel
Notes to the consolidated financial statements
(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 is as follows:
Russia
North America
European Union
Middle East, including Turkey
Asia and Oceania
Other regions
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
3,887
1,932
1,730
1,083
277
1,156
10,065
3,077
1,328
1,373
629
317
912
7,636
3,146
1,357
1,603
684
374
844
8,008
Other regions are represented by countries from Central America, South America and the CIS.
The Group does not have customers with a share of more than 10% of the total revenue.
15
Labour costs
The 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.
Cost of sales
General and administrative expenses
Selling expenses
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
711
221
28
960
602
194
28
824
608
154
31
793
Remuneration of the key management personnel that comprises payments to members of the Management Board
and the Board of Directors of the Parent Company, is recorded within general and administrative expenses and
includes annual compensation and performance bonus contingent on the Group’s results for the reporting year and
a provision for long-term incentive plan for the Group’s strategic targets in 2017-2018.
Total remuneration of the key management personnel, including social security costs amounted to $24, $31 and
$11 in 2017, 2016 and 2015, respectively. As at 31 December 2017 accrued liabilities to key management personnel
related to long-term incentive plan and recorded within other long-term liabilities amounted to $9.
33
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
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.
Cost of sales
General and administrative expenses
Other operating expenses
17
Income tax
Income tax charge comprises the following:
Current income tax expense
Deferred income tax benefit/(expense)
Total income tax expense
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
70
3
7
80
64
2
4
70
67
4
5
76
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
(374)
3
(371)
(237)
4
(233)
(301)
(52)
(353)
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 11% to 35%.
Profit before income tax is reconciled to the income tax expense as follows:
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
Profit before income tax
Income tax at applicable tax rate 20%
Change in income tax:
- tax effect of non-deductible expenses
- non-taxable translation adjustments
- effect of different tax rates
- unrecognized deferred tax asset on investments in joint
ventures
- unrecognised tax loss carry forward for the year
- utilisation of previously unrecognised tax loss carry forward
- change in option and in NBH ownership
- write-off of previously recognised deferred tax assets
- other
1,823
(365)
(16)
(2)
5
(21)
(3)
50
-
(19)
-
1,172
(234)
(13)
(5)
-
(20)
(2)
51
-
(21)
11
1,321
(264)
(27)
17
32
(36)
(83)
-
19
(10)
(1)
Total income tax expense
(371)
(233)
(353)
34
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
17
Income tax (continued)
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 2017
Charged/(credited)
to profit or loss
Translation
adjustment
As at
1 January 2017
Deferred tax assets
Trade and other accounts payable
Trade and other accounts receivable
Inventories
Tax losses carried forward
Deferred tax liabilities
Property, plant and equipment
Other intangible assets
Inventories
Total deferred tax liability, net
Deferred tax assets
Trade and other accounts payable
Trade and other accounts receivable
Tax losses carried forward
Other
Deferred tax liabilities
Property, plant and equipment
Other intangible assets
Inventories
Other non-current liabilities
Total deferred tax liability, net
Deferred tax assets
Trade and other accounts payable
Trade and other accounts receivable
Inventories
Tax losses carried forward
Other
Deferred tax liabilities
Property, plant and equipment
Other intangible assets
Inventories
Other non-current liabilities
Total deferred tax liability, net
21
14
23
30
88
(410)
(11)
-
(421)
(333)
(5)
(1)
22
(36)
(20)
15
(3)
11
23
3
2
1
1
1
5
(17)
-
-
(17)
(12)
24
14
-
65
103
(408)
(8)
(11)
(427)
(324)
As at
31 December 2016
Charged/(credited)
to profit or loss
Translation
adjustment
As at
1 January 2016
24
14
65
-
103
(408)
(8)
(11)
-
(427)
(324)
(124)
20
149
(36)
9
(21)
3
9
4
(5)
4
74
(9)
(84)
20
1
(45)
(3)
(7)
(3)
(58)
(57)
74
3
-
16
93
(342)
(8)
(13)
(1)
(364)
(271)
As at
31 December 2015
Charged/(credited)
to profit or loss
Translation
adjustment
As at
1 January 2015
74
3
-
-
16
93
(342)
(8)
(13)
(1)
(364)
(271)
(18)
(10)
(21)
(13)
3
(59)
12
(1)
(14)
10
7
(52)
(9)
(3)
(4)
(2)
(1)
(19)
76
2
1
3
82
63
101
16
25
15
14
171
(430)
(9)
-
(14)
(453)
(282)
35
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
17
Income tax (continued)
The amount of tax loss carry forwards that can be utilised each year is limited under the Group’s different tax
jurisdictions. The Group regularly evaluates assumptions underlying its assessment of the realisability of its deferred
tax assets and makes adjustments to the extent necessary. In assessing the probability that future taxable profit
against which the Group can utilise 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. 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
utilised.
The table below summarises unused cumulative tax losses for which no deferred tax assets has been recognised,
with a breakdown by the expiry dates.
From 1 to 5 years
From 5 to 10 years
More than 10 years
No expiration
Total
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
99
115
749
1,486
2,449
211
98
828
1,398
2,535
294
376
851
977
2,498
The unused tax losses were incurred mostly by subsidiaries located in Europe.
The Group has not recorded a deferred tax liability in respect of temporary differences of $1,569, $1,448 and $908
for the years ended 31 December 2017, 2016 and 2015, respectively, associated with investments in subsidiaries
and joint ventures 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.
In accordance with the statutory legislation, the Group’s entities in Russia (major entities, including NLMK) and USA
were integrated in two separate consolidated groups of taxpayers for the purpose of assessment and payment of
corporate income tax in line with the combined financial result of business operations. The Group’s entities that are
not part of the consolidated groups of taxpayers assess their income taxes individually.
As at 31 December 2017, 2016 and 2015, the Group analysed its tax positions for uncertainties affecting recognition
and measurement thereof. Following the analysis, the Group believes that all deductible tax positions which form
the basis for income tax returns of the Group companies, are recognised and measured in accordance with the
applicable tax legislation.
36
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
18
Finance income and costs
Interest income on bank accounts and bank deposits
Other finance income
Total finance income
Interest expense on borrowings
Capitalised interest
Other finance costs
Total finance costs
19
Foreign exchange differences
Foreign exchange (loss)/gain on cash and cash equivalents
Foreign exchange (loss)/gain on financial investments
Foreign exchange gain/(loss)on debt financing
Foreign exchange gain/(loss) on other assets and liabilities
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
23
6
29
(88)
23
(22)
(87)
29
10
39
(104)
33
(34)
(105)
45
7
52
(119)
32
(8)
(95)
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
(3)
(56)
28
48
17
(84)
(434)
393
(4)
(129)
45
542
(415)
(62)
110
20
Operating leases
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
Within 1 year
From 1 to 5 years
After 5 years
Total commitments for minimum lease payments
10
35
16
61
9
33
20
62
7
28
23
58
In 2017, 2016 and 2015 total rental expenses relating to operating leases were equal to $11, $7 and $5, respectively.
37
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
21
Segment information
The Group management examines the Group’s performance both from a product and geographic perspective and
has identified six reportable segments of its business: Mining, Russian flat products, Russian long products, NLMK
USA, NLMK DanSteel and Plates Distribution Network, and Investments in NBH. Each of these segments represents
a combination of subsidiaries (except for Investments in NBH – see Note 4), offers its own products, has a separate
management team and is managed separately with relevant results reviewed on a monthly basis by the Group’s
Management Board which is the Chief Operating Decision Maker as defined by IFRS 8, Segment Reporting.
The Group management determines pricing for intersegmental sales, as if the sales were to third parties.
The revenue from external parties is measured in the same way as in the consolidated statement of profit or loss.
The Group management evaluates performance of the segments based on segment revenues, gross profit,
operating profit before share of results of joint ventures, impairment of non-current assets and loss on disposals of
property, plant and equipment, profit for the year and amount of total assets and total liabilities.
Elimination of intersegmental operations and balances represents elimination of intercompany dividends paid to
Russian flat products segment by other segments and presented within “Profit for the year” line together with other
intercompany elimination adjustments, including elimination of NBH’s liabilities to the Group companies (Note 23).
NBH deconsolidation adjustments include elimination of NBH’s sales, recognition of the Group’s sales to NBH and
elimination of unrealised profits (Notes 4, 23), elimination of NBH’s assets and liabilities and recognition of the
investment in joint venture (Note 4), recognition of impairment and share of NBH’s loss, and other consolidation
adjustments.
38
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
21
Segment information (continued)
Information on the segments’ profit or loss for the year ended 31 December 2017 and their assets and liabilities as of this date is as follows:
Revenue from external customers
Intersegment revenue
Cost of sales
Gross profit
Operating profit/(loss)*
Net finance income/(costs)
Income tax (expense)/benefit
Profit/(loss) for the year
Segment assets
Segment liabilities
Depreciation and amortisation
Capital expenditures
Mining
24
920
(356)
588
524
12
(92)
403
2,041
(479)
(118)
(116)
Russian flat
products
5,595
2,064
(5,320)
2,339
1,357
(52)
(279)
1,586
7,990
(4,288)
(365)
(422)
Russian long
products
1,391
403
(1,522)
272
77
(5)
(13)
56
1,210
(580)
(75)
(22)
NLMK DanSteel
and Plates
Distribution
Network
415
1
(372)
44
(6)
(4)
(21)
(32)
339
(303)
(8)
(15)
NLMK
USA
1,670
-
(1,459)
211
139
(9)
4
133
891
(367)
(58)
(28)
Investments in
NBH
1,473
66
(1,495)
44
(99)
(17)
15
(122)
1,626
(1,412)
(75)
(27)
Elimination of
intersegmental
operations and
balances
-
(3,388)
3,228
(160)
(33)
-
30
(576)
(1,728)
2,179
-
-
NBH deconsoli-
dation adjust-
ments
(503)
(66)
498
(71)
72
17
(15)
4
(1,373)
900
75
27
* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment.
Total
10,065
-
(6,798)
3,267
2,031
(58)
(371)
1,452
10,996
(4,350)
(624)
(603)
39
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
21
Segment information (continued)
Information on the segments’ profit or loss for the year ended 31 December 2016 and their assets and liabilities as of this date is as follows:
Revenue from external customers
Intersegment revenue
Cost of sales
Gross profit
Operating profit/(loss)*
Net finance income/(costs)
Income tax (expense)/benefit
Profit/(loss) for the year
Segment assets
Segment liabilities
Depreciation and amortisation
Capital expenditures
Mining
166
431
(218)
379
275
13
(48)
190
1,903
(312)
(43)
(218)
Russian flat
products
4,272
1,315
(3,725)
1,862
1,047
(60)
(205)
660
7,430
(3,939)
(297)
(301)
Russian long
products
1,020
274
(1,052)
242
91
(3)
(4)
89
1,171
(591)
(47)
(16)
NLMK DanSteel
and Plates
Distribution
Network
324
1
(292)
33
(7)
(3)
1
(10)
285
(288)
(8)
(5)
NLMK
USA
1,162
-
(991)
171
117
(13)
8
111
742
(302)
(61)
(19)
Investments in
NBH
1,176
45
(1,164)
57
(77)
(19)
5
(120)
1,406
(1,194)
(75)
(21)
Elimination of
intersegmental
operations and
balances
-
(2,021)
1,897
(124)
(36)
-
15
(40)
(1,484)
1,932
-
-
NBH deconsoli-
dation adjust-
ments
(484)
(45)
471
(58)
77
19
(5)
59
(1,214)
765
75
21
* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment.
Total
7,636
-
(5,074)
2,562
1,487
(66)
(233)
939
10,239
(3,929)
(456)
(559)
40
Novolipetsk Steel
Notes to the consolidated financial statements
(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:
Revenue from external customers
Intersegment revenue
Cost of sales
Gross profit/(loss)
Operating profit/(loss)*
Net finance income/(costs)
Income tax (expense)/benefit
Profit/(loss) for the year
Segment assets
Segment liabilities
Depreciation and amortisation
Capital expenditures
Mining
184
405
(226)
363
257
16
(71)
278
1,477
(326)
(41)
(281)
Russian flat
products
4,732
1,344
(4,004)
2,072
1,199
1
(253)
1,285
7,456
(3,603)
(378)
(266)
Russian long
products
858
293
(1,025)
126
(16)
(26)
2
(93)
951
(565)
(65)
(25)
NLMK DanSteel
and Plates
Distribution
Network
343
1
(321)
23
(11)
(4)
1
(14)
288
(284)
(10)
(3)
NLMK
USA
1,098
-
(1,192)
(94)
(155)
(30)
6
(192)
744
(1,101)
(62)
(20)
Investments in
NBH
1,221
57
(1,121)
157
(172)
(20)
7
(191)
1,485
(1,281)
(80)
(39)
Elimination of
intersegmental
operations and
balances
-
(2,043)
2,064
21
113
-
(38)
(193)
(2,125)
2,604
-
-
NBH deconsoli-
dation adjust-
ments
(428)
(57)
329
(156)
172
20
(7)
88
(1,358)
775
80
39
* Operating profit/(loss) before share of results of joint ventures, impairment of non-current assets and loss on disposals of property, plant and equipment.
Total
8,008
-
(5,496)
2,512
1,387
(43)
(353)
968
8,918
(3,781)
(556)
(595)
41
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
21
Segment information (continued)
Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA
and Europe. The following is a summary of non-current assets other than financial instruments, investments in joint
ventures and deferred tax assets by location:
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
5,512
350
124
8
5,994
5,242
378
103
6
5,729
4,260
420
107
4
4,791
Russian Federation
USA
Denmark
Other
22
(a)
Risks and uncertainties
Operating environment of the Group
The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive
to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying
interpretations (Note 24(f)).
The Russian economy was growing in 2017, after overcoming the economic recession of 2015 and 2016.
The economy is negatively impacted by low oil prices, ongoing political developments in the region and international
sanctions against certain Russian companies and individuals. The financial markets continue to be volatile.
This environment may have a significant impact on the Group’s operations and financial position and the future
effects of the current economic situation are difficult to predict therefore management’s current expectations and
estimates could differ from actual results. 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 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 borrowings with variable
interest rates. To manage this risk, the Group continuously monitors interest rate movements. The Group reduces
its exposure to this risk by having a balanced portfolio of fixed and variable rate borrowings.
42
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
22
Risks and uncertainties (continued)
The interest rate risk profile of the Group is follows:
Fixed rate instruments
Financial assets
- cash and cash equivalents (Note 3)
- financial investments (Note 5)
- trade and other accounts receivable less allowance for
impairment (Note 6)
Financial liabilities
- trade and other accounts payable (Note 10)
- dividends payable
- borrowings (Note 11)
Variable rate instruments
Financial liabilities
- borrowings (Note 11
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
301
1,286
982
2,569
(630)
(537)
(1,501)
(2,668)
610
1,134
676
2,420
(538)
(361)
(1,486)
(2,385)
343
1,463
622
2,428
(358)
(161)
(1,546)
(2,065)
(780)
(780)
(783)
(783)
(1,130)
(1,130)
A change of 100 basis points in interest rates for variable rate instruments would not have significantly affected
profit for the year 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 minimise 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.
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 financial assets and financial liabilities
denominated in a currency other than the functional currency of each entity at 31 December 2017.
Cash and cash equivalents
Trade and other accounts receivable
Financial investments
Trade and other accounts payable
Borrowings
Net foreign currency position
US dollar
21
4
1,057
(49)
(1,501)
(468)
Euro
92
379
222
(25)
(686)
(18)
43
Novolipetsk Steel
Notes to the consolidated financial statements
(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 financial assets and financial liabilities
denominated in a currency other than the functional currency of each entity at 31 December 2016.
Cash and cash equivalents
Trade and other accounts receivable
Financial investments
Trade and other accounts payable
Borrowings
Net foreign currency position
US dollar
414
10
861
(57)
(1,519)
(291)
Euro
50
249
272
(91)
(451)
29
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 financial assets and financial liabilities
denominated in a currency other than the functional currency of each entity at 31 December 2015.
Cash and cash equivalents
Trade and other accounts receivable
Financial investments
Trade and other accounts payable
Borrowings
Net foreign currency position
Sensitivity analysis
US dollar
196
3
1,080
(42)
(1,598)
(361)
Euro
40
304
351
(95)
(547)
53
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 2017,
2016 and 2015 would have increased/(decreased) equity by the amounts shown below, however effect on profit
for the year would be different, and would amount to $23, $45 and $88, respectively, due to foreign exchange gain
from intercompany operations (Note 19).
US dollar
Euro
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
(117)
(5)
(73)
7
(90)
13
A 25 percent weakening of these currencies against the functional currency would have had an equal but opposite
effect to the amounts shown above, provided 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 minimises its risks related to metal prices by having a wide range of geographical zones for sales, which
allows the Group to respond quickly to negative changes in the situation on its existing markets on the basis of an
analysis of the existing and prospective sales markets.
44
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
22
Risks and uncertainties (continued)
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.
(c)
Credit risk
Credit risk is the risk that a 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 outstanding receivables from customers) and from its financing activities, including deposits with
banks and financial institutions, 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. Prior to acceptance of a new counterparty,
management assesses the credit quality of a potential customer or financial institution and defines credit limits.
Credit limits attributable to counterparties are regularly reviewed, at a minimum quarterly.
The Group’s management on a monthly basis 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:
Cash and cash equivalents (Note 3)
Trade and other accounts receivable (Note 6)
Financial investments (Note 5)
Total on-balance sheet exposure
Financial guarantees issued (Note 23(d))
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
301
982
1,286
2,569
304
2,873
610
676
1,134
2,420
255
2,675
343
622
1,463
2,428
273
2,701
Analysis of trade accounts receivable, net of allowance for impairment, by credit quality, based on geographical
area is as follows:
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
European Union
Russia
North America
Middle East, including Turkey
Asia and Oceania
Other regions
380
314
140
57
33
49
973
279
182
98
50
23
37
669
Other regions are represented by countries from Central America, South America and the CIS.
289
131
59
49
42
27
597
45
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
22
Risks and uncertainties (continued)
Analysis by credit quality, based on international agencies’ credit rating, of bank balances and bank deposits is as
follows:
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
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
199
99
3
301
724
335
1,059
517
91
2
610
396
502
898
244
96
3
343
756
416
1,172
As at 31 December 2017, ageing of trade and other receivables is as follows:
Not past due
Past due, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Total
Trade and other receivables
Gross amount
Allowance for
impairment
Net of allowance
for impairment
869
102
4
8
42
1,025
-
-
-
(1)
(42)
(43)
869
-
102
4
7
-
982
As at 31 December 2016, ageing of trade and other receivables is as follows:
Trade and other receivables
Gross amount
Allowance for
impairment
Net of allowance
for impairment
Not past due
Past due, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Total
624
40
8
7
39
718
-
-
-
(3)
(39)
(42)
624
-
40
8
4
-
676
46
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
22
Risks and uncertainties (continued)
As at 31 December 2015, ageing of trade and other receivables is as follows:
Not past due
Past due, including:
- up to 1 month
- from 1 to 3 months
- from 3 to 12 months
- over 12 months
Total
(d)
Liquidity risk
Trade and other receivables
Gross amount
Allowance for
impairment
Net of allowance
for impairment
505
86
17
18
27
653
-
-
-
(4)
(27)
(31)
505
-
86
17
14
-
622
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 2017
As at
31 December 2016
As at
31 December 2015
348
298
735
1,255
2,636
536
647
609
762
2,554
752
473
1,800
38
3,063
Liquidity risk related to financial guarantees issued, is disclosed in Note 23(d).
As at 31 December 2017, 2016 and 2015, the Group does not have significant trade and other accounts payable
with maturity over one year and its carrying amount approximates its fair value.
47
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
22
(e)
Risks and uncertainties (continued)
Insurance
To minimize risks the Group concludes insurance policies which cover property damages and business interruptions,
freightage, vehicles and commercial (trade) credits. 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 and accident insurance for employees of the Group.
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
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
Other related parties
Purchases
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
NBH group companies
Other related parties
For the year ended
31 December 2017
For the year ended
31 December 2016
For the year ended
31 December 2015
970
1
1
335
66
4
692
1
1
330
45
6
793
2
3
325
57
8
(b)
Accounts receivable from and accounts payable to related parties
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
Accounts receivable and advances given
NBH group companies
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
Accounts payable
NBH group companies
Universal Cargo Logistics Holding group companies
(companies under the common control of beneficial owner)
Other related parties
289
26
25
5
-
199
34
16
3
-
221
27
18
6
1
48
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
23
(c)
Related party transactions (continued)
Financial transactions
As at 31 December 2017, 2016 and 2015, loans issued to NBH group companies amounted to $222, $230 and $285,
respectively. When issuing loans to the foreign companies of the Group and joint ventures, interest rate is
determined using information on similar external deals subject to company’s internal credit rating.
(d)
Financial guarantees issued
As at 31 December 2017, 2016 and 2015, guarantees issued by the Group for borrowings received by NBH group
companies amounted to $304, $255 and $273, 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 the probability of cash
outflows related to these guarantees, as low.
The maturity of the guaranteed obligations is as follows:
Less than 1 year
From 1 to 2 years
Over 2 years
(e)
Common control transfers
As at
31 December 2017
As at
31 December 2016
As at
31 December 2015
66
238
-
304
70
5
180
255
82
14
177
273
In September 2015, the Parent Company completed the sale of its full controlling interest in OJSC North Oil and Gas
Company (51.0%) to a company under common control for a cash consideration of $10 realising a gain of $10 upon
deconsolidation of assets amounting to $20 and liabilities amounting to $20.
The difference between transaction price and value of net assets is recorded in the line item “Disposal of assets to
an entity under common control” of the consolidated statement of changes in equity. Revenue and profit of OJSC
North Oil and Gas Company for the nine months ended 30 September 2015 were not material.
This transaction was carried out in line with the Group’s strategy to dispose of its 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 by the regulatory
authorities in the importers’ jurisdictions. The Group’s export sales prices were considered by local governments
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 and decisions as a result of anti-dumping
investigations has been made in the 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 management believes that any 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 consolidated financial
statements.
49
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
24
(c)
Commitments and contingencies (continued)
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 recognised in financial statements immediately.
Potential liabilities, which might arise as a result of future changes in existing regulations, civil litigation or
legislation, cannot be reasonably estimated. In the current enforcement climate under existing environmental
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 and
remediation.
(d)
Capital commitments
Management estimates the outstanding agreements in connection with equipment supply and construction works
amounted to $629, $473 and $565 as at 31 December 2017, 2016 and 2015, respectively.
(e)
Social commitments
The Group makes contributions to mandatory and voluntary social programs. The Group’s social contributions, 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, the Group
management expects that the Group will continue to fund certain social programs for the foreseeable future. These
costs are recorded in the period they are incurred.
(f)
Tax contingencies
Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review by tax
authorities of transactions without a clear business purpose or with tax-incompliant counterparties. Fiscal periods
remain open to review by the authorities in respect of taxes for three calendar years preceding the year when the
decision about the review was made. Under certain circumstances reviews may cover longer periods.
The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles
developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics.
This legislation provides the possibility for tax authorities to impose additional tax liabilities in respect of controlled
transactions (transactions with related parties and some types of transactions with unrelated parties), provided
that the transaction price is not arm’s length.
Tax liabilities arising from transactions between companies within the Group are determined using actual
transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such
transfer prices could be challenged.
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on
the basis that these companies are not subject to Russian income tax, because they do not have a permanent
establishment in Russia. This interpretation of the relevant legislation may be challenged. 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). The CFC income may be subject to a 20%
tax rate.
Russian tax legislation does not provide definitive guidance in certain areas. Management currently estimates that
the tax positions and interpretations that it has taken can probably be sustained. But there is a possible risk that an
outflow of resources will be required should such tax positions and interpretations be challenged by the tax
authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the
financial position and/or the overall operations of the Group.
50
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
24
(g)
Commitments and contingencies (continued)
Major terms of loan agreements
Certain of the loan agreements contain covenants that impose restrictions on the purposes for which the loans may
be utilised, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or
guarantees, obligations in respect of any future reorganisations procedures or bankruptcy of the borrowers, and
also require that the 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 to 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 were in compliance with all debt covenants as at
31 December 2017, 2016 and 2015.
25
Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out
below. The Group from one reporting period to another has consistently applied these accounting policies.
(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.
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.
51
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
Joint ventures
Joint ventures are entities over which the Group has joint control over financial or operating policies. 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.
Investments in joint ventures are initially recognised at cost (fair value of the consideration transferred). The Group
uses the equity method of accounting to subsequent measurement for an investment in joint ventures.
Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. The Group’s
share of profits or losses of joint ventures after acquisition is recorded in the consolidated statement of profit or
loss for the year as share of financial result of joint ventures. 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 joint ventures are recognised in
profit or loss within the share of financial results of the joint ventures, or consolidated statement of changes in
equity depending on the substance of the change.
However, when the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture,
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 joint venture.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the
Group’s interest in these entities. Unrealised losses arising from transactions between the Group and its joint
ventures 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 joint venture 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 and joint ventures
When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured
to its fair value as at the date of ceasing control or significant influence, 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 a joint venture, 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 a joint venture is reduced but joint control 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.
52
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
(c)
Significant accounting policies (continued)
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.
(d)
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.
(e)
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:
its purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates;
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.
53
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
Subsequent expenditures
The costs of minor repairs and maintenance 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.
54
Novolipetsk Steel
Notes to the consolidated financial statements
(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
10 – 50 years
2 – 25 years
5 – 25 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 was 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 (i) “Impairment of non-current assets”.
(f)
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.
55
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
(g)
Significant accounting policies (continued)
Goodwill and intangible assets
Goodwill is the difference between:
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 joint ventures 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.
Intangible assets
Intangible assets are initially recognised at cost.
The cost of a separately acquired intangible asset comprises:
its purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates;
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”.
56
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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 sum of accumulated amortisation and
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
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.
The range of estimated useful lives of different asset categories is as follows:
• Mineral rights
•
• Beneficial lease interest
Industrial intellectual property
(h)
Decommissioning obligation
20-36 years
5 years
80 years
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.
(i)
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.
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.
57
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
(j)
Pension and post-retirement benefits other than pensions
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.
(k)
Provisions for liabilities and charges
Provisions for liabilities and charges are accrued when the Group:
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.
58
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
(l)
Significant accounting policies (continued)
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.
(m)
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.
Deferred tax is not recognised if temporary differences:
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.
59
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
(n)
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.
(o)
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.
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.
(p)
Segment information
The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph
11 of IFRS 8, “Operating Segments”.
60
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
The Group’s organisation comprises six reportable segments:
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;
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 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;
NLMK USA, comprising production and sales of steel products in the United States;
NLMK DanSteel and Plates Distribution Network, comprising production and sales of plates in Europe and
other regions of the world;
Investments in NBH, comprising production of hot rolled, cold rolled coils and galvanised 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.
The accounting policies of each segment are similar to the principles outlined in significant accounting policies.
(q)
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:
loans and receivables;
held-to-maturity investments.
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.
61
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
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.
62
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
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:
financial liabilities at fair value through profit or loss;
borrowings and loans.
63
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
25
Significant accounting policies (continued)
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.
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.
64
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
26
Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make estimates and assumptions
that affect the reported amounts 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 positively or negatively, 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 amounts of assets and liabilities
within the next financial year are reported below.
(a)
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, fines 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 (Note 24).
(b)
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).
(c)
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).
(d)
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 whether the Group controls certain entities and,
accordingly, whether consolidation or equity method of accounting for these investments in the consolidated
financial statements is appropriate. As at 31 December 2017, 2016, and 2015, the Group owned 51% of shares in
NBH, however, management concluded that in the light of giving certain governance rights to the party that owns
the residual interest in this company, the Group does not control it, thus the Group’s investment in NBH is
accounted for under the equity method.
65
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
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 2018 or later, and which the Group has not early adopted:
IFRS 9 “Financial Instruments” (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).
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
lease and trade 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.
Management performed an analysis of Group financial assets and financial liabilities as of 31 December 2017 based
on factors and circumstances that existed on these date and also using forward-looking information and concluded
that application of the new standard since 1 January 2018 will not significantly impact classification of assets and
liabilities in the consolidated financial statements of the Group and also that the amount of expected credit loss as
of 1 January 2018 does not materially differ from the amount of recognized provisions and allowances in the
consolidated financial statements as of 31 December 2017.
66
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
27
New or revised standards and interpretations (continued)
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.
Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for
annual periods beginning on or after 1 January 2018). The amendments do not change the underlying principles
of the Standard but clarify how those principles should be applied. The amendments clarify how to identify a
performance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine
whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the
good or service to be provided); and how to determine whether the revenue from granting a licence should be
recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional
reliefs to reduce cost and complexity for a company when it first applies the new Standard.
In accordance with the transition provisions in IFRS 15 the Group has elected the simplified transition method with
the effect of transition to be recognised as at 1 January 2018 in the consolidated financial statements for the year-
ending 31 December 2018 which will be the first year when the Group will apply IFRS 15. The Group plans to apply
the practical expedient available for the simplified transition method. The Group applies IFRS 15 retrospectively
only to contracts that are not completed at the date of initial application (1 January 2018).
Based on the analysis of the Group’s revenue streams for the year ended 31 December 2017, individual contracts’
terms and on the basis of the facts and circumstances that exist at that date in view of the simplified transition
method application, the management of the Group is not expecting a significant impact on its consolidated financial
statements from the adoption of the new standard on 1 January 2018.
IFRS 16, Leases (issued on 13 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 statement of profit or loss and other comprehensive income. 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. Management is currently assessing the
impact of the new standard on its consolidated financial statements.
IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and effective for annual periods beginning on or after 1
January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance
contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the
financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to
account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard
requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the
future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment
cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus
(if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual
service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they
provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making,
an entity will be recognising the loss immediately. Management is currently assessing the impact of the new
standard on its consolidated financial statements.
67
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
27
New or revised standards and interpretations (continued)
IFRIC 22 “Foreign currency transactions and advance consideration” (issued on 8 December 2016 and effective for
annual periods beginning on or after 1 January 2018). This interpretation considers how to determine the date of
the transaction when applying the standard on foreign currency transactions, IAS 21. The interpretation applies
where an entity either pays or received consideration in advance for foreign currency-denominated contracts. The
interpretation specifies that the date of transaction is the date on which the entity initially recognises the non-
monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are
multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction
for each payment or receipt of advance consideration. Management is currently assessing the impact of the
interpretation on its consolidated financial statements.
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods
beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to
reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement
requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether
to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments
based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation
authority will examine amounts it has a right to examine and have full knowledge of all related information when
making those examinations. If an entity concludes it is not probable that the taxation authority will accept an
uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss,
tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected
value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity
will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or
estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and
circumstances or new information that can result in the reassessment of a judgment or estimate include, but are
not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority
or the expiry of a taxation authority’s right to examine or re-examine a tax treatment. The absence of agreement or
disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and
circumstances or new information that affects the judgments and estimates required by the Interpretation.
Management is currently assessing the impact of the interpretation on its consolidated financial statements.
The following other new pronouncements are not expected to have any material impact on the Group financial
statements when adopted:
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 for annual periods beginning on or after a
date to be determined by the IASB).
Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods
beginning on or after 1 January 2018).
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – Amendments to IFRS 4 (issued on
12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1
January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies
IFRS 9 for entities that choose to apply the overlay approach).
Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016 and effective for
annual periods beginning on or after 1 January 2018).
Annual Improvements to IFRSs 2014-2016 cycle ‒ Amendments to IFRS 1 and IAS 28 (issued on 8 December
2016 and effective for annual periods beginning on or after 1 January 2018).
Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017
and effective for annual periods beginning on or after 1 January 2019).
Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017
and effective for annual periods beginning on or after 1 January 2019).
Annual Improvements to IFRSs 2015-2017 cycle - Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued
on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019).
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly
the Group’s consolidated financial statements.
68
Novolipetsk Steel
Notes to the consolidated financial statements
(millions of US dollars)
27
New or revised standards and interpretations (continued)
The following amended standards became effective from 1 January 2017, but did not have a material impact on the
Group.
Disclosure Initiative – Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods
beginning on or after 1 January 2017). The new disclosures are included in Note 11.
Recognition of Deferred Tax Assets for Unrealised Losses – Amendment to IAS 12 (issued on 19 January
2016 and effective for annual periods beginning on or after 1 January 2017).
Amendments to IFRS 12 included in Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December
2016 and effective for annual periods beginning on or after 1 January 2017).
69
NOVOLIPETSK STEEL
NLMK 2 Metallurgov sq., Lipetsk, 398040
tel.: +7 (4742) 44 42 22 | fax: +7 (4742) 44 11 11
е-mail: info@nlmk.com | www.nlmk.com
ACCOUNTING (FINANCIAL) STATEMENTS
NOVOLIPETSK STEEL
FOR 2017
Independent Auditor`s Report
Joint-stock company “PricewaterhouseCoopers Audit” (JSC PWC Audit)
Business Center “Belaya Ploschad”, 10, Butyrskiy Val, Moscow 125047 Russia
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
Independent Auditor`s Report
To the shareholders and Board of Directors of Novolipetsk Steel:
Opinion
In our opinion the enclosed accounting statements that reflect accurately in all material aspects the financial position of Novolipetsk Steel
(hereinafter “the Company”) as of 31.12.2017 as well as financial performance and cash flow for the year ended as of the given date
according to the rules on preparation of accounting statements, established in the Russian Federation.
Audit subject
The Company`s accounting statements comprise:
Balance sheet as of December 31, 2017;
The statement of financial results for the year ended as of given date;
The statement of changes in equity for the year ended as of given date;
The statement of cash flows for the year ended as of given date;
Explanatory notes to the balance sheet and financial performance statement.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our liabilities under those standards are further
described in the Auditor`s Liabilities for the Audit of the Financial Statements section of our report
We believe that the audit evidence received by us is sufficient and appropriate in order to provide the basis for expression of our opinion.
Independence
We are independent of the Company in accordance with the International Ethics Standards Board for Accountants` Code of Ethics for
Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s
Independence Rules that are relevant to our audit of the financial statements in the Russian Federation. We have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code.
Joint-stock company “PricewaterhouseCoopers Audit” (JSC PWC Audit)
Business Center “Belaya Ploschad”, 10, Butyrskiy Val, Moscow 125047 Russia
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
Our audit approach
Synopsis
Materiality
Materiality of accounting statements for the Group on the whole:
Russian Roubles (“RUB”) 4,100 million, which represents 1% of the
Company`s revenue.
Key audit matter
Impairment of long-term financial investments: contributions to the
nominal capital of the subsidiaries
We designed our audit by determining materiality and assessing the risks of material misstatement in the accounting statements. In
particular, we considered where the management made subjective judgements, for instance, in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain. We also evaluated risk of management
override of internal control measures including among others, consideration of the presence of management bias that represents a risk of
material misstatements due to fraud.
We tailored the scope of our audit so as to perform works sufficient for expression of our opinion on the accounting statements as a whole
with regard to the structure of the Company, accounting processes and control means used by the Company as well as the industry in which
the Company operates.
Materiality
The scope of our audit was influenced by our application of materiality. Audit is designed to obtain reasonable assurance whether the
accounting statements are free from material misstatement. Misstatements may occur as a result of fraudulent actions or mistakes. They
are considered material if it is reasonable to expect that, individually or in aggregate, they could influence economic decisions of users
taken on the basis of the accounting statement.
Based on our professional judgement we determined certain quantitative thresholds for materiality, including materiality of accounting
statements for the Company on the whole as presented in the table below. Using this thresholds and considering qualitative considerations
we determined the scope of our audit and the nature, timing and extent of the audit procedures and evaluated the effect of misstatements,
both individually and in aggregate, on the accounting statements for the Group on the whole.
Overall materiality of
accounting statements:
RUB 4,100 million (2016: (RUB 3,350 million)
How we determined it
1% of revenue
Rationale for the
materiality benchmark
applied
We decided to use the Group`s revenue as the basic indicator for
materiality level as we believe that this basic indicator objectively
reflects the results of the Group’s operations during the period with
observable profit volatility. We chose materiality of 1% which is
consistent with acceptable quantitative thresholds for public
companies in this sector.
We also considered misstatements and/or potential misstatements which, in our view, are material due
to qualitative considerations.
Key audit matters
Key audit matters are those matters that according to our professional judgement were of most significance for the accounting statements
audit for the current period.
These matters were addressed in the context of our audit of the accounting statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the Key audit
matter
Impairment of long-term financial
investments: contributions to the nominal
capital of the subsidiaries
The Company`s management conducts
checking for impairment of financial
investments including contributions to the
nominal capital of the subsidiaries whose
market value is not determined annually as of
the reporting date.
During the analysis of signs of financial
investments impairment the Company
We received, reviewed and assessed the documents
on checking for impairment of financial
investments conducted by the management and
discovered no additional factors that are supposed
to be present, but were not considered during this
checking.
We checked the estimated value of contributions to
the nominal capitals of Russian and foreign
subsidiaries determined by the management on
basis of their net assets. We also reviewed and
assessed other factors considered by the
Key audit matter
reviews net assets of the subsidiaries as well
as the results of financial and economic
activity.
If there are signs of impairment the Company
defines estimated costs of financial
investments and compares it to their net
(book) value. If the impairment checking
reveals stable decrease of financial
investment cost, then the impairment
provision in the amount of difference
between the net (book) and estimated values
is set up.
The estimated value of contributions to the
nominal capital of Russian production
subsidiaries is determined as the amount of
their net assets calculated in consideration of
the ownership share.
The estimated cost of investment to the
nominal capital of the subsidiary NLMK
Overseas Holdings, that possesses
investments to its own subsidiaries, is
determined as the amount of net assets
adjusted in consideration of estimated cost of
investment`s final objects. Respectively, the
last is determined on basis of discounted cash
flow models for main production companies
and net assets for other companies. These
models and calculations are prepared as of
December 31, 2017. Evaluation performed by
the management revealed the increase of
estimated investment value of NLMK
Overseas Holdings. Respectively, the amount
How our audit addressed the Key audit
matter
management during estimation of stable decrease
of financial investment cost, the results of
subsidiaries` operations and forecasts in
particular.
In the course of evaluation of the investment
objects estimated cost of NLMK Overseas
Holdings, defined on the basis of discounted cash
flow models, we performed critical analysis of
judgements and key assumptions that influence
evaluation results.
Specific works conducted for evaluation of the
investment objects estimated cost of NLMK
Overseas Holdings comprised:
Assessment of discounted cash flow models
prepared by the management. We involved
assessment experts to support us in assessment
of methodology and allowances of the models;
Comparison of applied Key assumptions with
the company performance results for the past
reporting periods and with approved budget
indicators;
Comparison of applied Key assumptions
including product selling prices, inflation level,
discount rates with general and our own
forecasts;
Evaluation of completeness and accuracy of
disclosed information.
Key audit matter
of previously established provision decreased
by RUB 23,300 thou.
We paid special attention to this matter due
to presence of judgement factor in
impairment testing as well as significant book
value of assets being tested.
How our audit addressed the Key audit
matter
As the result of above mentioned procedures we
discovered no material misstatements of the
amount of provision for impairment of financial
investments reported by the management in the
accounting statements.
Other information
The management is responsible for other information. Other information is comprised of the Group’s 2017 Annual Report and the Issuer’s
Quarterly Report for Q1 2007 excluding accounting statements and our auditor`s opinion on these statements. It is assumed that these
Reports will be provided after the issue date of this audit opinion.
Our opinion on accounting statements is not attributable to other information and we do not and will not express any form of assurance
conclusion thereon.
Due to audit of accounting statements our duty is to review above mentioned other information upon submitting in order to reveal if there
are any possible material misstatements or significant discrepancy between other information, consolidated financial statements or our
knowledge obtained during audit.
Responsibility of the management and persons responsible for corporate governance and accounting statements
Management is responsible for the preparation and fair presentation of the accounting statements in accordance with the reporting rules
established in the Russian Federation, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the accounting statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Persons responsible for corporate government shall be responsible for supervision of the Group`s accounting statements preparation.
Auditor`s responsibility for the audit of the accounting statements
Our purpose is to obtain reasonable assurance that accounting statements do not contain any material misstatements due to fraud or errors
and to release our auditor`s report containing our opinion. Reasonable assurance represents high level of confidence but is not a guarantee
that audit performed in accordance with ISA shall always reveal material misstatements if any of them are present. Misstatements may
occur as a result of fraud or errors and are considered material if it is possible to reasonably assume that, separately or in aggregate, they
may influence users` economic decisions taken on the basis of this accounting statement.
In the framework of the audit performed in accordance with ISA we implement professional judgement and keep professional sceptical
attitude during the whole process of audit. Additionally, we perform following:
Identify and assess risks of material misstatements of the accounting statements due to fraud or errors; design and perform audit`s
procedures as a response to these risks; obtain audit evidence that is sufficient and appropriate in order to provide the basis for
expression of our opinion. Risk of failure to detect a material misstatement due to fraud is higher than risk of failure to identify
material misstatement due to error as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control system.
Obtain an understanding of internal control system, relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not to express our opinion on the effectiveness of the Group`s internal control system.
Evaluate the appropriateness of accounting policy used and the reasonableness whether the accounting estimates and related
disclosures made by the management are justified.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability
to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in
the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a
going concern.
We evaluate presentation of the accounting statements as a whole, its structure and contents including disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we observe all relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably influence our independence, and where applicable,
related precautions.
From the matters reported with those charged with governance, we determine those matters that were the most significant for audit of the
accounting statements of the current period and respectively the audit`s key matters. We describe these matters in our audit`s report,
except for the cases when public information disclosure of these matters is forbidden by the law or regulatory requirement or on rare
occasion when we decide that information on some matter should not be included in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.
The certified auditor responsible for the audit resulting in this independent auditor’s report is Alexei Ivanov.
February 19, 2018
Moscow, the Russian Federation
A. S. Ivanov, certified auditor (licence no. 01-000531), AO PricewaterhouseCoopers Audit
Audited entity: NLMK
State registration certificate № 5-Г
issued by Administration of Levoberezhny district of the city of
Lipetsk on January 28, 1993.
The certificate of registration in the Unified State Register of Legal
Entities issued on July 9, 2002 under № 1024800823123
398040, Russian Federation, Lipetsk Metallurgov sq. 2
Independent Auditor:
Joint-Stock Company “PricewaterhouseCoopers Audit"
Certificate of State Registration № 008.890
issued by Moscow Registration Chamber on 28 February 1992.
The certificate of registration in USRLE issued on August 22, 2002
under № 1027700148431
Self-regulating organization of auditors “Russian Union of Auditors”
(Association)
ORNZ in the register of auditors and auditing organizations -
11603050547.
Accounting
(Financial)
Statements
for 2017
Explanations
CONTENTS
BALANCE SHEET .................................................................................................................................................................................................................................... 4
PROFIT AND LOSS STATEMENT ............................................................................................................................................................................................................. 6
STATEMENT OF CHANGES IN EQUITY ................................................................................................................................................................................................... 8
CASH FLOW STATEMENT .................................................................................................................................................................................................................... 10
EXPLANATIONS TO BALANCE SHEET AND PROFIT AND LOSS STATEMENT ........................................................................................................................................ 12
1 GENERAL INFORMATION ................................................................................................................................................................................................................. 13
2 SIGNIFICANT ASPECTS OF ACCOUNTING POLICY AND BASIS OF ACCOUNTING (FINANCIAL) STATEMENTS PREPARATION ........................................................... 15
2 1 INTANGIBLE ASSETS ...................................................................................................................................................................................................................... 15
2 2 R&D RESULTS ................................................................................................................................................................................................................................ 16
2 3 FIXED ASSETS AND CONSTRUCTION IN PROGRESS ....................................................................................................................................................................... 16
2 4 FINANCIAL INVESTMENTS ............................................................................................................................................................................................................. 17
2 5 INVENTORIES ................................................................................................................................................................................................................................ 17
2 6 SHORT-TERM AND LONG-TERM ASSETS AND LIABILITIES ............................................................................................................................................................ 18
2 7 ADVANCE PAYMENTS MADE AGAINST NON-CURRENT ASSETS ................................................................................................................................................... 18
2 8 CASH AND CASH EQUIVALENTS .................................................................................................................................................................................................... 18
2 9 CREDITS AND LOANS ..................................................................................................................................................................................................................... 19
2 10 ESTIMATED LIABILITIES ............................................................................................................................................................................................................... 19
2 11 INCOME AND EXPENSES ............................................................................................................................................................................................................. 19
2 12 TAXES .......................................................................................................................................................................................................................................... 20
2 13 ASSETS, LIABILITIES AND OPERATIONS IN FOREIGN CURRENCY................................................................................................................................................. 20
2 14 INFORMATION BY SEGMENTS .................................................................................................................................................................................................... 21
2 15 CHANGES IN ACCOUNTING POLICY ............................................................................................................................................................................................ 21
2 16 COMPARATIVE DATA .................................................................................................................................................................................................................. 21
3 DISCLOSURE OF SIGNIFICANT INDICATORS ..................................................................................................................................................................................... 22
3 1 INTANGIBLE ASSETS ...................................................................................................................................................................................................................... 22
3 2 FIXED ASSETS AND CONSTRUCTION IN PROGRESS ....................................................................................................................................................................... 23
3 3 FINANCIAL INVESTMENTS ............................................................................................................................................................................................................. 25
3 4 INVENTORIES ................................................................................................................................................................................................................................ 26
3 5 ACCOUNTS RECEIVABLE AND LIABILITIES ..................................................................................................................................................................................... 27
3 5 1 Accounts Receivable .................................................................................................................................................................................................................. 27
3 5 2 Accounts payable ....................................................................................................................................................................................................................... 29
3 6 CASH AND CASH EQUIVALENTS .................................................................................................................................................................................................... 30
3 7 EQUITY AND DIVIDENDS ............................................................................................................................................................................................................... 31
3 8 CREDITS AND LOANS ..................................................................................................................................................................................................................... 33
3 9 ESTIMATED LIABILITIES ................................................................................................................................................................................................................. 34
3 10 INCOME AND EXPENSES ............................................................................................................................................................................................................. 35
3 10 1 Income and expenses from ordinary activities ........................................................................................................................................................................ 35
3 10 2 Other income and expenses .................................................................................................................................................................................................... 36
2
3 11 CURRENT PFORIT TAX FORMATION ............................................................................................................................................................................................ 36
3 12 INFORMATION BY SEGMENTS .................................................................................................................................................................................................... 37
3 13 SECURITY OF LIABILITIES ............................................................................................................................................................................................................. 38
INFORMATION ON RELATED PARTIES ................................................................................................................................................................................................ 39
3 14 1 The list of related parties1 ........................................................................................................................................................................................................ 39
3 14 2 Operations with related parties ............................................................................................................................................................................................... 41
3 15 CONTINGENT LIABILITIES ........................................................................................................................................................................................................... 48
3 16 EVENTS AFTER THE REPORTING DATE ........................................................................................................................................................................................ 49
Accounting
(Financial)
Statements
for 2017
Explanations
3
Accounting
(Financial)
Statements
for 2017
Accounting
Explanations
balance
Production of cold-rolled steel flats
NLMK
Company
Taxpayer Identification Number
Type of business
Type of business entity / form of ownership
Public company / Joint private and foreign property
Agency for
Unit of measurement - RUB thou.
state
Address
property
managemen
t
2, Metallurgov sq., 398040 Lipetsk
Parameter description
1
ASSET
I. Non-current assets
Intangible assets
R&D results
Fixed assets
Financial investments
Deferred tax assets
Other non-current assets
Total for Section I
II. Current assets
Inventories
Input value added tax
Accounts receivable
Financial investments (excluding cash equivalents)
Cash and cash equivalents
Other current assets
Total for Section II
BALANCE (sum of lines 1100 + 1200)
BALANCE SHEET
as of 31 December 2017
CODES
Form acc. to OKUD
0710001
Date (date, month, year)
acc. to OKPO
TIN
acc. to OKVED
31.12.2017
05757665
4823006703
24.10.4
acc. to OKOPF/ OKFS
acc. to OKEI
12247 / 34
384
Code
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
2
3
4
5
1110
1120
1150
1170
1180
1190
1100
1210
1220
1230
1240
1250
1260
1200
1600
1,603,351
18,810
130,017,060
147,965,809
161,667
6,158,438
285,925,135
54,022,367
3,037,696
146,072,418
62,557,498
8,910,318
67
274,600,364
560,525,499
807,061
22,161
130,676,632
124,336,442
153,987
1,964,808
257,961,091
53,201,748
6,486,168
134,055,175
58,323,950
27,801,961
67
279,869,069
537,830,160
479,344
28,414
131,024,265
152,520,560
148,597
1,846,963
286,048,143
42,543,057
7,914,804
123,151,582
90,796,881
14,628,783
67
279,035,174
565,083,317
Disclosure in
Explanations
6
2.1, 3.1
2.2
2.3, 3.2
2.4, 2.6, 3.3
2.12, 3.11
2.7, 3.5.1
2.5, 3.4
2.6, 3.5.1
2.4, 2.6, 3.3
2.8, 3.6
4
Accounting
(Financial)
Statements
for 2017
Parameter description
1
LIABILITIES
III. Capital and reserves
Authorized capital
Revaluation of non-current assets
Additional capital (without revaluation)
Reserve capital
Retained earnings (uncovered loss)
Total for Section III
IV. Long-term liabilities
Borrowed funds
Deferred tax liabilities
Other liabilities
Total for Section IV
V. Short-term liabilities
Borrowed funds
Accounts payable
Estimated liabilities
Total for Section V
BALANCE (sum of lines 1300 + 1400 + 1500)
NLMK Manager
by virtue of Power of Attorney #500 dd. 11.12.2017
19 February 2018
Accounting
Explanations
balance
Form 0710001 p. 2
Disclosure in
Explanations
6
3.7
2.6, 2.9, 3.8
2.12, 3.11
2.6, 3.5.2
2.6, 2.9, 3.8
2.6, 3.5.2
2.10, 3.9
Code
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
2
3
4
5
1310
1340
1350
1360
1370
1300
1410
1420
1450
1400
1510
1520
1540
1500
1700
5,993,227
3,300,202
771,777
299,661
329,936,615
340,301,482
79,363,678
10,954,069
4,296
90,322,043
25,360,981
100,068,427
4,472,566
129,901,974
560,525,499
5,993,227
3,308,264
771,777
299,661
304,722,304
315,095,233
95,619,746
11,341,530
12,258
106,973,534
20,796,621
89,819,854
5,144,918
115,761,393
537,830,160
5,993,227
3,333,289
771,777
299,661
317,835,836
328,233,790
137,275,933
11,079,929
22,861
148,378,723
27,893,440
58,666,218
1,911,146
88,470,804
565,083,317
O. Zarubina
5
Accounting
(Financial)
Statements
for 2017
Profit and
Explanations
Loss Statement
NLMK
Company
Taxpayer Identification Number
Type of business
Type of business entity / form of ownership
Public company / Joint private and foreign property
Unit of measurement – RUB thou.
Production of cold-rolled steel flats
Indicator description
1
Revenue
incl. sales of steel-making products
Cost of sales
including steel- making products sold
Gross profit (loss)
Commercial expenses
Administrative expenses
Sales profit (loss)
Income from shareholding in other organizations
Interest receivable
Interest payable
Other income
Other costs
Profit (loss) before tax
Current profit tax
incl. fixed tax liabilities (assets)
Change in deferred tax liabilities
Change in deferred tax assets
Other
Profit tax redistribution among a consolidated group of taxpayers
Net profit (loss)
PROFIT AND LOSS STATEMENT
for 2017
Form acc. to OKUD
Date (date, month,
year)
acc. to OKPO
TIN
acc. to OKVED
CODES
0710002
31.12.2017
05757665
4823006703
24.10.4
acc. to OKOPF/ OKFS
acc. to OKEI
12247 / 34
384
Code
For 2017
For 2016
2
2110
2110.1
2120
2120.1
2100
2210
2220
2200
2310
2320
2330
2340
2350
2300
2410
2421
2430
2450
2460
2465
2400
3
411,806,469
409,649,446
(299,452,589)
(297,037,958)
112,353,880
(30,111,863)
(13,769,489)
68,472,528
37,962,345
1,507,064
(4,616,732)
320,870,508
(301,562,359)
122,633,354
(13,549,212)
(11,372,600)
387,461
7,680
(20,587)
7,555
109,466,251
4
335,238,197
333,592,630
(238,026,159)
(236,404,867)
97,212,038
(26,474,726)
(13,873,410)
56,863,902
14,860,979
2,056,988
(6,658,656)
229,988,441
(249,795,041)
47,316,613
(11,614,819)
2,407,704
(261,601)
5,390
(276,316)
1,250,217
36,419,484
Disclosure in
Explanations
5
2.11, 3.10.1
2.11, 3.10.1
3.3
2.4, 3.3
2.9, 3.8
2.11, 3.10.2
2.12, 3.11
2.12, 3.11
3.7
6
Accounting
(Financial)
Statements
for 2017
Parameter description
1
Combined financial performance for the period
FOR REFERENCE
Base profit (loss) per share (RUB)
Code
2
2500
2900
For 2017
3
For 2016
4
109,466,251
36,419,484
Form 0710002 p. 2
Disclosure in Explanations
5
18.26
6.08
3.7
NLMK Manager
by virtue of Power of Attorney #500 dd. 11.12.2017
O. Zarubina
19 February 2018
Profit and
Loss Statement
Explanations
7
Accounting
(Financial)
Statements
for 2017
Statement of
Explanations
changes in equity
NLMK
Company
Taxpayer Identification Number
Type of business
Type of business entity / form of ownership
Public company / Joint private and foreign property
Unit of measurement – RUB thou.
1 Capital flow
Production of cold-rolled steel flats
STATEMENT OF CHANGES IN EQUITY
for 2017
Form acc. to OKUD
Date (date, month, year)
acc. to OKPO
TIN
acc. to OKVED
CODES
0710003
31.12.2017
05757665
4823006703
24.10.4
acc. to OKOPF/ OKFS
acc. to OKEI
12247 / 34
384
Parameter description
1
Capital as of December 31, 2015
Capital increase– total:
For 2016
including:
net profit
income directly pertaining to the capital
increase
Capital reduction– total:
including:
dividends
Additional capital change
Capital as of December 31, 2016
For 2017
Capital increase– total:
including:
net profit
income directly pertaining to
the capital increase
Capital reduction– total:
including:
dividends
Additional capital change
Capital as of 31 December 2017
Code
2
3100
3210
3211
3213
3220
3227
3230
3200
3310
3311
3313
3320
3327
3330
3300
Authorized
capital
3
Additional
capital
4
5,993,227
4,105,066
Reserve
capital
5
299,661
Retained earnings
(uncovered loss)
6
317,835,836
Total
7
328,233,790
--
Х
Х
--
--
Х
--
--
--
Х
Х
--
36,425,432
36,425,432
36,419,484
36,419,484
5,948
(49,563,989)
5,948
(49,563,989)
Х
Х
5,993,227
Х
(25,025)
4,080,041
Х
--
299,661
(49,563,989)
25,025
304,722,304
(49,563,989)
Х
315,095,233
--
Х
Х
--
--
Х
--
--
--
Х
Х
--
109,471,022
109,471,022
109,466,251
109,466,251
4,771
(84,264,773)
4,771
(84,264,773)
Х
Х
5,993,227
Х
(8,062)
4,071,979
Х
--
299,661
(84,264,773)
8,062
329,936,615
(84,264,773)
Х
340,301,482
8
3 Net assets
Parameter description
1
Net assets
Accounting
(Financial)
Statements
for 2017
Code
2
3600
As of 31.12.2017
3
As of 31.12.2016
4
As of 31.12.2015
5
340,301,482
315,095,233
328,233,790
Form - 0710003 p.2
NLMK Manager
by virtue of Power of Attorney #500 dd. 11.12.2017
O. Zarubina
19 February 2018
Statement of
Explanations
changes in equity
9
CASH FLOW STATEMENT
for 2017
Accounting
(Financial)
Statements
for 2017
NLMK
Company
Taxpayer Identification Number
Type of business
Type of business entity / form of ownership
Public company / Joint private and foreign property
Unit of measurement – RUB thou.
Production of cold-rolled steel flats
Parameter description
1
Cash flow from current operations
Inflow – total
including:
from sales of goods, products, works and services
from rent, license payments, royalties, commissions and other similar payments
other inflow
Payments - total
including:
to suppliers (contractors) for raw and other materials, works, services
related to employee salaries and wages
interest on debt liabilities
corporate income tax
other payments
Balance of cash flows from current operations
Cash flow from investment operations
Form acc. to OKUD
Date (date, month, year)
acc. to OKPO
TIN
acc. to OKVED
CODES
0710004
31.12.2017
05757665
4823006703
24.10.4
acc. to OKOPF/ OKFS
acc. to OKEI
12247 / 34
384
Code
2
For 2017
3
For 2016
4
4110
403,885,705
350,628,794
4111
4112
4119
4120
4121
4122
4123
4124
4129
4100
402,486,200
223,889
1,175,616
(351,753,029)
348,961,523
194,929
1,472,342
(283,633,979)
(294,302,426)
(28,778,649)
(4,796,091)
(13,436,802)
(10,439,061)
52,132,676
234,309,472)
(24,545,052)
(7,216,116)
(7,697,072)
(9,866,267)
66,994,815
Inflow – total
including:
from sale of non-current assets (except financial investments)
from sale of stock (shares) in other companies
from repayment of loans granted, from sale of debt securities (rights of demand of monetary funds from
other persons)
from dividends, interest on debt financial investments and similar incoming funds from share participation
in other organizations
other inflow
4210
130,448,980
77,717,520
4211
4212
4213
4214
4219
61,229
47,359
15,223
183,134
97,751,341
35,687,103
32,589,051
--
23,826,840
18,005,220
Cash flow
Explanations
statement
10
Accounting
(Financial)
Statements
for 2017
Indicator description
1
Payments – total
including:
those related to acquisition, set-up, upgrade, reconstruction and preparation for usage of non-current
assets
those related to acquisition of debt securities (rights of demand of monitory funds from other persons),
granting of loans to other entities
interest on debt liabilities included into the cost of an investment asset
other payments
Balance of cash flows from investment operations
Cash flow from financial operations
Inflow – total
including:
receiving loans and credits
Payments – total
including:
payment of dividends and other payments related to profit distribution in favour of owners (participants)
related to repayment (buy- back) of bills of exchange and other debt securities, repayment of loans and
credits
other payments
Balance of cash flows from financial operations
Balance of cash flows for the reporting period
Balance of cash and cash equivalents as of the beginning of the reporting period
Balance of cash and cash equivalents as of the end of the reporting period
Foreign currency to RUB exchange rate fluctuation effect
Code
2
4220
For 2017
3
(118,025,092)
For 2016
4
(58,203,302)
4221
(16,165,709)
(13,591,803)
4223
4224
4229
4200
(92,989,809)
(1,072)
(8,868,502)
12,423,888
(44,236,534)
(1,193)
(373,772)
19,514,218
4310
66,264,878
78,993,227
4311
4320
4322
4323
4329
4300
4400
4450
4500
4490
66,264,878
(149,222,539)
78,993,227
(147,080,393)
(71,828,728)
(37,688,759)
(73,990,193)
(3,403,618)
(82,957,661)
(18,401,097)
27,801,289
8,910,224
(489,968)
(107,374,574)
(2,017,060)
(68,087,166)
18,421,867
14,628,545
27,801,289
(5,249,123)
NLMK Manager
by virtue of Power of Attorney #500 dd. 11.12.2017
O. Zarubina
Cash flow
statement
Explanations
19 February 2018
11
EXPLANATIONS
TO BALANCE SHEET
AND PROFIT AND LOSS STATEMENT
Accounting
(Financial)
Statements
for 2017
Explanations
12
1. GENERAL INFORMATION
Novolipetsk Steel (hereinafter referred to as “the Company”) is an integrated steel-making company specializing in production of a wide variety of flats.
Accounting
(Financial)
Statements
for 2017
Abbreviated Company name: NLMK
Domicile of the Company: Russia, Lipetsk, 2, Metallurgov sq.
Postal address of the Company: Lipetsk 398040 Russia 2, Metallurgov sq.
Main activities of the Company are:
production and sale of iron and steel products;
production and sale of mechanical engineering products (equipment, accessories, tools and spare parts);
production of construction materials, structures, and products;
generation, transmission and distribution of electrical and heat power;
industrial construction, rendering construction and public utilities services;
foreign and domestic trade;
and others.
The Company has obtained licenses for all types of licensable activities.
The Company has a representative office in Moscow as well as a branch office in Yekaterinburg.
As of 31.12.2017 the Company’s headcount was 27,130 persons, as of 31.12.2016 – 27,346 persons.
Board of Directors as of December 31, 2017:
Chairman of the Board of Directors
Vladimir Lisin
Members:
Oleg V. Bagrin
Thomas Veraszto
Helmut Wieser
Nikolai Gagarin
Karen Sarkisov
Stanislav Shekshnya
Benedict Sciortino
Franz Struzl
Explanations
13
Accounting
(Financial)
Statements
for 2017
Management Board as of December 31, 2017:
Oleg Bagrin
Grigory Fedorishin
Sergey Filatov
Tatiana Averchenkova
Ilya Guschin
Barend de Vos
Sergey Likharev
Stanislav Tsyrlin
President (Chairman of the Management Board)
Senior Vice President - Deputy Chairman of the Management Board
Managing Director
Vice-President, Operational Efficiency
Vice President, Sales
Vice-President, International Operations
Vice President, Logistics
Vice President, HR & Management System (until December 29, 2017)
President (Management Board Chairman) is a sole executive body of the Company.
The Audit Commission composition as of December 31, 2017:
Mikhail Makeev
Yulia Kunikhina
Natalia Savina
Elena Skladchikova
Sergey Ushkov
Chairman of the Audit Commission, Director, Audit Division
Senior Specialist for comprehensive assessment of the internal control system, risk management
and corporate governance system of NLMK Group companies
Senior Specialist, Internal Audit Organization and Methodology Department
Lead Auditor, Audit Department
Lead Auditor, Audit Department
Information on the Register Holder and the Auditor:
Register Holder of the Company is JSC Agency “RNR”; license No. 042-13984-000001, dd. 29.11.2002 with an unlimited validity. The Register of the issuer’s registered
securities owners has been held by the registrar since March 4, 2004.
The company’s auditor is PvK JCK
Financial and tax accounting
Financial and tax accounting of the Company's business to the extent established by the current legislation is conducted by NLMK Accounting Centre in line with
Service Contract No. 91408 dd. 01.02.2011.
Olga Zarubina, Director General of NLMK-Accounting Center, performs the functions of the Company’s chief accountant on the basis of a Power of Attorney.
The Company’s operational environment
The Russian economy demonstrates some characteristics typical of emerging markets. Low oil prices, continuous political tension in the region as well as the
extended international sanctions against some Russian companies and nationals were having a negative impact on the Russian economy. Financial markets are
characterized by absence of stability, frequent and significant changes in prices and increase in trade operations spreads as before. Moreover, the existing tax,
currency and customs legislation is subject to various interpretations and thus creates additional difficulties for Russian companies. Such economic environment
cannot but influence the Company’s business. The Management takes all necessary steps to assure sustainable financial standing of the Company. However future
consequences of the economic situation are difficult to foresee and their influence on the Company’s business might differ from today’s expectations of the
Management.
Explanations
14
Accounting
(Financial)
Statements
for 2017
Main financial risks intrinsic to the Company’s operations include market risks, credit risks, currency risks and underliquidity risks. Financial risk management is
aimed at determination of risk limits and subsequent observance of the established limits. Risk management is to ensure proper functioning of the Company’s
internal policy and procedures for the purpose of minimizing these risks. The Company discloses its risks management procedures at its official website
http://.www.nlmk.com
The Russian Law on transfer pricing provides for a possibility of additional charging of tax liabilities to monitored transactions (transactions with related parties and
certain transactions between independent parties), if the transaction price does not correspond to the market one.
In order to meet requirements of the applicable legislation on transfer pricing the Company’s Management introduced internal control procedures. In the reporting
year the Company submitted the “Notice of controlled transactions for 2016” to the Tax authority (in 2016 - for 2015).
The Company is preparing transfer pricing documentation which will confirm the compliance of prices used with the market level for tax purposes. Nevertheless,
there is a possibility that due to further practice in application of transfer pricing rules these prices can be contested and consequences of such outcome cannot be
securely evaluated.
According to the Law on Controlled Foreign Companies (hereinafter - CFC) taxation on profit was introduced in the Russian Federation for foreign companies and
foreign ventures without establishing an entity (including funds) being controlled by tax residents of the Russian Federation (controlling persons). Starting from 2015
CFCs’ income is taxed at 20% in line with the legislation requirements.
The Company has established a consolidated taxpayer group (hereinafter - CTG) for the purpose of calculation and payment of corporate income tax, taking into
account the total financial result of a business, in which it acts as the responsible party. Since 2016 21 NLMK Group company has been included into the CTG.
The Company concluded an Agreement with Bank of Social Development and Construction Lipetskkombank and Sberbank of Russia on accession to Cash pooling
service for a Master account where the Company acts as a Parent Company for the purpose of NLMK Group companies’ liquidity management by cash consolidation.
Cash consolidation is performed through conducting operations under loan agreements between the Company and NLMK Group companies.
2. SIGNIFICANT ASPECTS OF ACCOUNTING POLICY AND BASIS OF ACCOUNTING (FINANCIAL) STATEMENTS PREPARATION
The accounting (financial) statements have been prepared in accordance with the rules of accounting and reporting effective in the Russian Federation, in particular,
with the Federal Law “Accounting” and Regulation on accounting and reporting in the Russian Federation approved by the RF Ministry of Finance.
The unit of measurement for accounting indicators is RUB thousand without decimal digits. In the accounting (financial) statements, negative figures or figures
deductible from relevant indicators in order to calculate intermediate or total values, are given in round brackets.
The companies whose names were brought in line with the Civil code requirements (renaming to Public Company, Joint-Stock Company or Production Cooperative)
as of the reporting date, are presented with their names changed.
The Company’s consolidated financial statements have been made in line with the International Financial Reporting Statements (IFRS).
2. 1 INTANGIBLE ASSETS
Intangible assets are reflected in balance sheets upon actual costs of acquisition, manufacture and additional expenses in order to bring assets to a state in which
they could be used as intended, less depreciation charged.
Depreciation of intangible assets is calculated by a straight-line method with an exclusion of cases when application of another method to determine depreciation
can be justified by a reliable calculation of expected receipt of future economic benefits from using the intangible asset, including financial result from potential sale
of that asset.
When useful life of an intangible asset is checked in order to revise it, more accurate definition of the useful life is performed in case of significant change in the
period (for 12 months and longer of the previously defined one) within which the Company plans to use that asset.
Explanations
15
Accounting
(Financial)
Statements
for 2017
Should it be impossible to define useful life for intangible assets accounted before January 1, 2008, standard depreciation charges are established on the basis of a
20-year term. For similar intangible assets accounted from January 1, 2008, depreciation is not charged.
There are no regular revaluations of intangible assets or checks for their impairment.
Expenses for purchasing non-exclusive rights for using the result of intellectual activity or the means of individualization (computer software etc.) are charged to
relevant accounts on a monthly basis by equal portions and in the amount determined by the Company’s agreements or calculations, during the period they refer to.
2. 2 R&D RESULTS
Scientific research, development- and- design and process works the results of which are used for production or management purposes are shown on account 04 “
Intangible assets” separately and are reflected in the balance sheet under item” R&D results". They are written off on a straight-line basis as operational expenses
within three years starting from the first day of the month following the month of their actual use commencement.
2. 3 FIXED ASSETS AND CONSTRUCTION IN PROGRESS
Structure of fixed assets
Fixed assets acquired from January 1, 2011 with the initial cost of RUB 40 thou. per item and below, are accounted within inventories.
Special tools, devices, equipment and special clothing the lifetime of which is longer than 12 months and the cost of which is over RUB 40 thou. per item are
accounted under the procedure established for fixed asset accounting.
Evaluation basis
The original value of fixed assets acquired by the Company for payment, is formed by the actual costs of acquisition, construction and manufacture less taxes
refundable. The initial cost of fixed assets received under agreements which provide for the fulfilment of liabilities (payments) by non-monetary means shall be
recognized as the price of valuables handed over or to be handed over, based on the price upon which the Company usually defines the value of similar valuables in
comparable circumstances.
Costs related to completion, additional supply of equipment, modernization and upgrading increase the initial cost of fixed assets.
Over the period from 1992 to 1997, the Company conducted annual re-evaluations of fixed assets in accordance with the Russian Government regulations. Currently,
no annual re-evaluation of fixed assets is conducted.
Fixed assets purchased before 01.01.1997 are shown in the balance sheet at replacement cost, and those purchased after 01.01.1997 – at initial cost, minus
accumulated depreciation amounts respectively.
Depreciation
Depreciation of fixed asset items is charged on a straight-line basis from the initial (replacement) value of items and using depreciation norms calculated for
established useful lives of such items.
Groups of fixed assets
Buildings
Structures
Machinery and equipment including household equipment and
other objects.
Vehicles
Cultivated resources of natural origin
Explanations
Useful life (years) of items taken onto the books
before 01.01.2003
since 01.01.2003
3-256
2-106
2-100
2-35
40
2-45
2-45
2-42
2-25
30
16
Accounting
(Financial)
Statements
for 2017
For fixed asset items commissioned before 01.01.2003, useful life is set on the basis of depreciation norms approved by USSR Ministers Council’s Resolution No.
1072 "On uniform norms of depreciation for complete recovery of national economy of the USSR" dd. 22.10.1990, and for those acquired starting from 01.01.2003 -
according to the norms calculated based on the useful lives set by the Company.
Depreciation is not charged for objects under preservation for longer than three months as well as within renewal period longer than 12 months.
Retirement, writing-off and disposal
Retired or disposed fixed asset items are written off from the balance sheet along with the accrued depreciation amount. The revaluation surplus amount of a
retired fixed asset item shall be transferred from additional capital to retained profit of the Company, remaining within the equity.
Any profits and expenses induced by fixed asset retirement shall be reflected in the Profit and Loss Statement for the reporting period when they were incurred as
other income and expenses.
Construction in progress
The Construction in Progress reflects the scope of construction works which the Company accepted from its contractors.
Settlements between the Company (Builder) and contractors are performed on a monthly basis according to the agreements on construction, after step-by-step
(intermediate) acceptance of the construction and installation works done. Information on value of works done contained in Forms KC-2 and KC-3 is a basis for
reflection of expenses related to construction of fixed assets. The value of works is reflected in the contract prices, also in the estimated costs according to which the
settlements of NLMK with the contractors are effected with the progressive total since the beginning of the works, the beginning of the year also including the
reporting period.
2. 4 FINANCIAL INVESTMENTS
A unit of financial investment accounting is: for shares – a share; for bonds – a bond; for nominal capital contributions – interest; for certificates of deposit, notes –
series and number of a security; for loans, deposits, assignment and special partnership contracts – a contract.
Financial investments are accounted on the basis of actual acquisition costs. Debt securities for which current market value is not determined are accounted before
the retirement at original cost. Financial investments, for which the current market value is determined under the established procedure, are reflected as of the
quarter end at their current market value.
Debt securities and granted loans are not estimated in terms of discounted value. Financial investments in securities (shares, bonds), for which the current market
value is not defined, are depreciated at time of retirement upon the average acquisition cost for that type of securities.
Interests on loans granted and other similar agreements are accrued as of the month end.
In order to show the impairment of the Company’s financial investments a provision for their impairment is set up calculated according to the method summarizing
information on cost reduction factors and signs of depreciation. If there are signs of impairment of financial investments for which market value is not defined, as of
the end of reporting year the Company generates a provision amounting to the excess of book value of such investments over their estimated value determined
based on the information available to the Company.
Short- term deposits placed for a period not exceeding 3 months, are classified as cash equivalents and reported as part of other cash assets.
2. 5 INVENTORIES
Explanations
Evaluation of inventories acquired at a charge, as of the end of the reporting period is done at actual costs. In the reporting period accounting is carried out at book
prices, determined when first assigning a nomenclature number. When materials arrive, their cost is determined based on the price specified in the delivery order on
the basis of a contract or other data. Subsequently actual first cost of materials based on the data for the period preceding the previous period is used as accounting
price of the acquired materials. Entry of materials purchased is accounted using control accounts 15 “Procurement and acquisition of tangible assets” and 16
17
Accounting
(Financial)
Statements
for 2017
Explanations
“Deviation of tangible assets cost”. In the end of a reporting period, any deviations of the actual cost of materials from their cost of acquisition are written off pro
rata the value of materials consumed in the reporting period at book prices to accounting accounts in accordance with the purposes of materials usage and to
account 10 “Materials" for the adjustment of its balance by the amount of deviations related to the unused materials balance.
Inventories received without settlement documents of suppliers are recorded as non-invoiced deliveries at book prices.
When tangible assets are released into production or otherwise retire they are valued within the reporting period at book prices with subsequent writing off of
deviations of actual cost from the book prices to the relevant accounts at the end of the reporting period. When materials are written off, their evaluative calculation
includes their quantity and cost as per the nomenclature number as of the beginning of the month, and also all incomings during the month.
Finished products are valued as of the end of the reporting period at actual costs for each product type, which is formed by the cost of finished product balances as
of the beginning of the reporting period and the first cost of the reporting period.
Within the reporting period, finished products accounting is carried out on the basis of book prices without application of account 40 “Product (works, services)
output”. Actual first cost of the finished products upon the data of the reporting period before the last one is used as a book price.
Difference between actual first cost and book price of the finished goods is charged to a separate subaccount of account 43 “Finished goods” broken down to
product types.
Finished goods are written off at book prices when dispatched. At the same time deviations related to finished goods sold are written off to sales accounts pro rata
their quantity. Deviations related to the balance of finished goods are written off from deviations subaccount to finished goods subaccounts at the end of the
reporting period, when actual calculation is formed, by product type for the purpose of determination of actual first cost.
Work-in-progress as of the reporting period end is valued on the basis of the actual first cost generated based on work-in-progress value as of the period beginning
and production costs of the reporting period. The order-by-order calculation of work-in-progress is evaluated on the basis of actual costs.
In the balance sheet inventories, including work-in-progress, are accounted less the assessed reserves charged quarterly. The method of reserves estimation takes
into account the value of identified unused nonvolatile stocks and probable price of their sale.
2. 6 SHORT-TERM AND LONG-TERM ASSETS AND LIABILITIES
Accounts payable and receivable, including indebtedness under credits and loans, are accounted as short- term assets and liabilities, if their maturity does not
exceed 12 months from the balance sheet date in accordance with contractual conditions, or if not fixed. Financial investments are classified as short- term or long-
term depending on estimated time of their use (circulation, ownership or repayment).
As of the end of reporting period, long-term assets and liabilities are shown in the balance sheet as short-term ones when their remaining maturity (repayment
period) does not exceed 12 months from the balance sheet date.
2. 7 ADVANCE PAYMENTS MADE AGAINST NON-CURRENT ASSETS
For a more reliable accounting of information on the property status of the Company, the amounts of advances, given for capital construction, purchasing fixed asset
items and other non-current assets, are reflected in Section I of the Balance sheet in line 1190 “Other non-current assets”.
2. 8 CASH AND CASH EQUIVALENTS
Short-term deposits placed for a period not exceeding 90 days, are classified as cash equivalents and reported in the accounting (financial) statements as part of
other cash assets. Interest received on cash equivalents is accounted in cash flow statement as part of ongoing operation.
Cash flow amount in foreign currency is converted into rubles at the official rate of this foreign currency to ruble established by the Central Bank of the Russian
Federation as of the date of the payment effecting or receipt.
18
Accounting
(Financial)
Statements
for 2017
Explanations
In the presentation of cash flows in the cash flow statement, the following items are presented in summarized form as cash inflow (payments) in accordance with
cash flow type:
placement and refund of deposits for 3 months and up;
indirect taxes as part of cash inflow from buyers and customers, payments to suppliers and contractors and payments to / refunds from the RF budget system;
inflow from contractors as refund of payments made earlier;
currency exchange transactions;
execution and receipt of payments as refunds under earlier transactions;
receipt and granting of loans in the framework of cash pooling.
Cash flows from current, investment and financial transactions are included in the same reporting segment identified by the type of activity.
The cash flow necessary to maintain the current Company’s business volume is included in current transactions. The cash flow associated with the Company’s
business expansion is included in investment transactions.
Proceeds and payments on the investment activities include cash flows related to interest-free loans granted to related parties on the grounds of the economic
benefits the Company receives from them as dividends or in any other indirect way.
2. 9 CREDITS AND LOANS
Interest payable to a lender (creditor) is recognized in the cost of an investment asset or as part of other expenses evenly over the contract validity period.
Additional borrowing costs for the received credits and loans are accounted in the balance sheet and statements in the reporting period which they belong to.
The discount on notes passed and bonds placed is reflected as included in other expenses proportionally over a loan contract validity period.
2. 10 ESTIMATED LIABILITIES
The Company accepts estimated liabilities for forthcoming expenses on vacation pays and on payment of bonuses to employees. The Balance Sheet has such
liabilities which are reported in short-term liabilities. The procedure for this estimated liabilities accrual and their further accounting is governed by the
methodologies approved by the Company.
The necessity of recognizing other estimated liabilities is subject to consideration by the Company on the basis of the financial and economic activity.
2. 11 INCOME AND EXPENSES
Income and expenses of the Company are classified as operational and other income and expenses.
Sales proceeds are defined as of transfer date of title for products, goods, results of works, services rendered (for charge) on the basis of settlement documents
presented to buyers (customers).
Production costs of products (works, services) sold domestically or exported are defined by straight-line calculation on the basis of types of products and their actual
price.
Expenses related to the sales of products (services, works) and general expenses are recognized in full in costs of products (services, works) sold in the reporting
period as operational expenses.
Expenses on compulsory and voluntary insurance are recognized as cost of products (works, services) produced within the reporting period in which in accordance
with the contract terms the funds for payment of insurance contributions were transferred. If the insurance contract terms provide for insurance contributions to be
paid as a lump sum, the expenses under the contracts concluded for the period exceeding one reporting period are recognized pro rata the number of calendar days
of the contract validity in the reporting period throughout the contract validity period.
19
Accounting
(Financial)
Statements
for 2017
If the insurance contract terms provide for insurance premium to be paid by instalments, the expenses for each instalment under the contracts concluded for the
period exceeding one reporting period are recognized pro rata the number of calendar days of the contract validity in the reporting period throughout the period
corresponding to the contributions payment period (year, half year, quarter, month. Expenses for licenses, certificates are included into the cost of goods
manufactured (works, services) on a monthly basis by equal amounts during their validity.
Actual expenses related to routine and major repairs are recognized as current period expenses upon repairs completion.
Income generated from granting of assets, rights, arising out of patents for inventions, industrial models and other kinds of intellectual property for temporary use
and possession subject to payment, from holding shares in nominal capitals of other organizations, interests received from granting organization’s monetary funds
for use, and other income from securities not related to the organization’s core activity is attributed to other income.
The Company generates provisions for inventory impairment, shortage and losses from tangible assets impairment, for financial investment depreciation, provisions
for bad debts. Accrual of evaluation reserves is effected on the account of other expenses.
Profits and expenses resulted from foreign currency sales are reflected in the Profit and Loss Statement: Currency purchase – in summarized form; currency sales –
detailed.
2. 12 TAXES
Income tax
Accounting and taxable profit are defined according to current legislative requirements of the Russian Federation using different methods of assessment and
accounting of income and expenses.
The amount of the current profit tax is determined on the basis of the accounting data based on the amount of contingent expense (contingent income) adjusted in
line with the sums of permanent tax liabilities (asset), deferred tax asset and deferred tax liability of the reporting period.
The Company takes into account constant and temporary differences which are generated on the basis of analytical data by comparison of balances on accounts and
tax accounts with regards to income and expense. The data are recorded in the tax registers for accounting differences regarding the groups of uniform objects.
Deferred tax assets and liabilities are shown in the balance sheet as non-current assets and long-term liabilities, respectively.
CTG’s consolidated taxation base shall be defined as arithmetic sum of the profits of all CTG participants decreased by the arithmetic sum of all CTG participants’
expenses taking into account the provisions of the Tax Code of the Russian Federation.
Settlements with participants in respect of CTG’s income tax are included in other receivables (line 1230 "Accounts Receivable") and other payables (line 1520
"Accounts Payable").
The Company states individually calculated profit tax in line 2410 "Current profit tax" of the income statement.
The due share of savings on CTG’s operating results is shown in the Profit and Loss statement in line 2465 "Profit tax redistribution within a consolidated taxpayer
group" Cash flows of CTG members are reflected within the cash flows from current operations of the Cash Flow Statement.
Land tax
The Company pays land tax since it has property right to industrial area land. The Company pays rent for the rest of the land used.
2. 13 ASSETS, LIABILITIES AND OPERATIONS IN FOREIGN CURRENCY
For accounting items in foreign currencies, the official exchange rate of a foreign currency to the Russian ruble as of the date of operation is used.
In order to prepare accounting (financial) statements, funds on bank accounts (bank deposits), cash and payment documents, securities (except for the shares),
accounts receivable including for borrowing liabilities (except for granted and received advance payments and down-payments, prepayments) expressed in foreign
currency are recalculated into rubles at the exchange rate valid for the reporting date.
Exchange rate differences are shown in the balance sheet as part of other income and expenses separately from other kinds of income and expenses including
financial results from operations with foreign currency during the period they occurred in.
Explanations
20
Accounting
(Financial)
Statements
for 2017
Explanations
Exchange rates of foreign currencies to Russian ruble set by the RF Central Bank:
Foreign currency
1 USD
1 EUR
2. 14 INFORMATION BY SEGMENTS
(RUB)
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
57.6002
68.8668
60.6569
63.8111
72.8827
79.6972
The Company owns assets only in the territory of the Russian Federation and is a sole integrated facility for the production and sale of ferrous products.
The Company identifies reporting segments based on the activity type. Key indicators: proceeds from sale of products, financial result (profit or loss). The
information on assets and liabilities within a reporting segment is not disclosed, because for the Company as a whole the segment share in the production and sales
is exceeding.
Besides the key indicators, proceeds from sales by product types, the share of proceeds from export sales and the total proceeds from sales of products to major
customers are disclosed additionally.
Reporting segment information is stated using the same valuation techniques as used for the presentation of similar figures in the Company’s financial statements
taken as a whole.
Besides, the Company discloses segment information in its consolidated financial statements in line with the Financial Reporting Statements (IFRS), where the
Company is included in the Strip Russia Segment without further subdivision by product types.
2. 15 CHANGES IN ACCOUNTING POLICY
Since the beginning of the reporting year no changes in accounting legislation which could cause any significant changes in the Company’s accounting policy as well
as any conversions or adjustments in the accounting and book-keeping came into force.
No significant changes have been made to the accounting policy.
2. 16 COMPARATIVE DATA
Comparative data of these statements are derived by carrying over the respective reporting parameters for the previous reporting period.
21
Accounting
(Financial)
Statements
for 2017
3. DISCLOSURE OF SIGNIFICANT INDICATORS
3. 1 INTANGIBLE ASSETS
Availability of intangible assets
Description
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
Groups of intangible assets – total
1,692,832
(114,973)
1,577,859
892,965
(113,416)
779,549
577,251
(115,928)
461,323
including:
research and development
software and data bases
trademarks and service marks
original works of entertainment books or
art
other intellectual property items
Costs for purchase of intangible assets
Total
For reference:
intangible assets, created by the
organization itself
the intangible assets with fully repaid value
32,727
(10,613)
22,114
26,074
(9,063)
17,011
26,068
(7,572)
1,657,349
658
(101,694)
(570)
1,555,655
88
864,192
601
(101,771)
(486)
762,421
115
548,484
601
(105,811)
(449)
2,073
25
Х
Х
(2,071)
(25)
Х
Х
2
--
25,492
1,603,351
2,073
25
Х
Х
(2,071)
(25)
Х
Х
2
--
27,512
807,061
2,073
25
Х
Х
(2,071)
(25)
Х
Х
18,496
442,673
152
2
--
18,021
479,344
--
84,485
--
(84,485)
27,362
--
--
82,537
--
(82,537)
20,708
--
--
89,407
--
(89,407)
20,308
--
There are no intangible assets with undetermined useful life.
Explanations
22
3. 2 FIXED ASSETS AND CONSTRUCTION IN PROGRESS
Availability of fixed assets and capital investments in progress
Accounting
(Financial)
Statements
for 2017
Description
As of 31.12.2017
As of 31.12.20161
As of 31.12.20151
(RUB thou.)
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
n
o
i
t
a
i
c
e
r
p
e
D
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
32,856,070
32,551,043
(9,955,710)
(15,224,151)
22,900,360
17,326,892
29,261,902
31,337,035
9,082,248)
(14,023,466)
20,179,654
(17,313,569)
27,422,133
(8,300,861)
(30,213,346) (12,729,174)
19,121,272
17,484,172
149,840,879
3,911,984
(93,851,423)
(2,414,458)
55,989,456 144,112,424
3,838,479
1,497,526
(82,234,095)
(2,232,243)
61,878,329
1,606,236
138,206,877
3,624,606
70,514,596
(1,955,017)
67,692,281
1,669,589
1,370
(474)
896
1,370
(434)
936
1,370
(395)
975
1,052,339
220,213,685
--
(121,446,216)
1,052,339
1,052,339
98,767,469 209,603,549
--
(107,572,486)
1,052,339
102,031,063
1,052,382
--
200,520,714 (93,500,043)
1,052,382
107,020,671
4,740,599
Х
Х
3,612,067
Х
Х
3,488,028
Х
Х
1,525,902
(795,928)
729,974
1,739,455
(837,573)
901,882
1,656,584
(695,996)
960,588
Х
Х
Х
Х
Х
Х
23,673,727
121,558
6,331,156
Х
Х
Х
Х
Х
Х
22,731,690
323,994
4,027,628
Х
Х
Х
Х
Х
Х
18,426,908
148,693
3,292,303
Fixed assets
Buildings
Structures
Machinery and equipment
including household equipment and
other objects.
Vehicles
Cultivated resources of natural
origin
Land lots and land improvement
expenses
Total
For reference:
the cost of real estate objects,
received for use and undergoing
state registration.
cost of the main assets rented on
lease
Capital investments in progress
Facilities Construction2
Acquisition of objects
Equipment to be installed
Materials and spare parts for
construction and installation works
Total
Х
Х
1 Comparative data for 31.12.2016 and 31.12.2015 were changed due to reclassification of the fixed assets’ types.
2 Major construction in progress facilities as of 31.12.2017 are Revamping of By-Product Collection Shop combining coke gas flows from coke batteries, Replacement of BOF with off-gas system and
construction of secondary dedusting and cleaning system, pulverized coal injection system for blast furnaces, replacement of turbine generator No.5, RCGP reconstruction, turbo blower installation.
1,123,150
31,249,591
1,562,257
28,645,569
Х
Х
Х
Х
Х
Х
Х
Х
Х
Х
2,135,690
24,003,594
Explanations
23
Accounting
(Financial)
Statements
for 2017
Explanations
Fixed assets flow (original value)
Description
For 2017
For 2016
Retired1
Retired
Received
Retired
(RUB thou.)
(53,075)
(15,666)
3,647,243
1,229,674
Buildings
Structures
Machinery and equipment including household equipment
and other objects.
Vehicles
Cultivated resources of natural origin
Total
For reference:
The increase of the objects’ value due to additional
construction, installation of additional equipment,
reconstruction
the decrease of the objects’ value as a result of partial
liquidation
1 Major assets commissioned within the reporting year are the assets obtained within the frames of NLMK Investment Programme, please see the details at www.nlmk.com.
6,298,203
120,240
--
11,295,360
6,906,464
254,308
--
10,238,026
(569,748)
(46,735)
--
(685,224)
1,856,319
1,220,935
2,388,191
3,671,909
(196,340)
--
--
--
(16,550)
(97,246)
(1,000,917)
(40,435)
(43)
(1,155,191)
--
(106,742)
(RUB thou.)
Non-depreciable fixed assets
Description
Plots of land
Facilities on preservation
Housing facilities
Other
Total
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
Original value
1,052,339
728,025
--
--
1,780,364
1,052,339
739,627
2,033
2,252
1,796,251
1,052,382
826,796
2,033
2,419
1,883,630
As of 31.12.2017 the company rents fixed assets (including land lots) in the amount of RUB 4,564,719 thousand, as of 31.12.2016 – RUB 4,477,847
thousand, as of 31.12.2015 – RUB 4,667,867 thousand. The Company rents land lots with the total area of 2,471 thousand square meters. The land lots rented are
located in Lipetsk and Lipetsk Region.
24
3. 3 FINANCIAL INVESTMENTS
Availability of financial investments
Accounting
(Financial)
Statements
for 2017
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
l
e
u
a
v
l
a
n
i
g
i
r
O
r
o
f
n
o
i
s
i
v
o
r
P
l
a
i
c
n
a
n
i
f
t
n
e
m
t
s
e
v
n
i
t
n
e
m
r
i
a
p
m
i
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
r
o
f
n
o
i
s
i
v
o
r
P
l
a
i
c
n
a
n
i
f
t
n
e
m
t
s
e
v
n
i
t
n
e
m
r
i
a
p
m
i
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
l
e
u
a
v
l
a
n
i
g
i
r
O
r
o
f
n
o
i
s
i
v
o
r
P
l
a
i
c
n
a
n
i
f
t
n
e
m
t
s
e
v
n
i
t
n
e
m
r
i
a
p
m
i
l
n
o
i
t
a
u
a
v
e
c
n
a
a
B
l
174,759,372
26,793,563
147,965,809
174,431,948
50,095,506
124,336,442
182,320,071
29,799,511
152,520,560
173,708,827
(26,399,511)
147,309,316
173,790,510
(49,699,511)
124,090,999
173,872,560
29,799,511
144,073,049
55,362,843
39,185,090
21,196,293
18,477,302
14,754,878
12,901,320
4,196,960
654,782
395,763
(15,160,000)
--
--
--
--
(11,225,918)
--
--
(394,052)
40,202,843
39,185,090
21,196,293
18,477,302
14,754,878
1,675,402
4,196,960
654,782
1,711
55,362,843
39,185,090
21,196,293
18,477,302
14,754,878
12,901,320
4,196,960
233,268
408,170
(38,460,000)
--
--
--
--
(11,225,918)
--
--
(395,995)
16,902,843
39,185,090
21,196,293
18,477,302
14,754,878
1,675,402
4,196,960
233,268
12,175
55,362,843
39,185,090
21,196,293
18,477,302
14,754,878
12,901,320
4,196,960
8,447,505
6
(18,560,000)
--
--
--
--
(11,225,918)
--
--
--
36,802,843
39,185,090
21,196,293
18,477,302
14,754,878
1,675,402
4,196,960
8,447,505
6
65,952,322
6,623,516
(3,394,824)
(3,394,824)
62,557,498
3,228,692
61,713,003
7,875,150
(3,389,053)
(3,389,053)
58,323,950
4,486,097
94,193,025
11,009,766
(3,396,144)
(3,396,144)
90,796,881
7,613,622
10,653
3,383,171
59,328,806
240,711,694
(10,653)
(3,383,171)
--
(30,188,387)
--
--
59,328,806
210,523,307
5,883
3,383,171
53,837,853
236,144,951
(5,883)
(3,383,171)
--
(53,484,559)
--
--
53,837,853
182,660,392
1,200
3,396,144
83,183,259
276,513,096
--
(3,396,144)
--
(33,195,655)
1,200
--
83,183,259
243,317,441
Description
Long-term financial
investments - total
Investments in charter
capitals of other entities
of which:
NLMK Overseas Holdings
NLMK Kaluga
Stoilensky
Altai-Koks
VIZ Steel
Uralvtorchermet
NLMK-Metalware
Loans granted
Other financial investments
Short-term financial
investments - total
Loans granted
of which:
Holiday Hotel Metallurg
Maxi-Group
Deposits
Total
As of 31.12.2017, 31.12.2016 and 31.12.2015 there were no financial investments for which the current market value was to be determined.
Explanations
25
Financial investments flow
Accounting
(Financial)
Statements
for 2017
In October 2017 the Company completed the transaction on selling 100% interest in LLC Ussuriisk Steel Service Center. The sales revenue was RUB 45,000 thousand.
The balance value of the retired asset was RUB 101,121 thousand.
In February 2017 the Company increased the charter capital of Zhernovsky-1 for RUB 19,438 thousand by property contribution.
As per the result of investment into Overseas Holdings LLC impairment testing as of 31 December 2017, the reserve established before was adjusted (reduced) on
RUB 23,300,000 thou., the income is shown in line 2340 Other Income of the Profit and Loss Statement.
The Company granted loans to its related parties.
Income from financial investments
Description
Income from short-term deposits (from 3 months up to 1 year)
Dividends from subsidiaries
Interests on loans granted
Total
3. 4 INVENTORIES
Structure of inventories
Type of inventories
Income, RUB thou.
For 2017
For 2016
801,345
37,962,345
301,464
39,065,154
1,425,856
14,860,979
271,071
16,557,906
(RUB thou.)
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
s
t
s
o
c
n
o
i
t
c
u
d
o
r
P
r
o
f
s
n
o
i
s
i
v
o
r
P
y
r
o
t
n
e
v
n
i
t
n
e
m
r
i
a
p
m
i
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
s
t
s
o
c
n
o
i
t
c
u
d
o
r
P
r
o
f
s
n
o
i
s
i
v
o
r
P
y
r
o
t
n
e
v
n
i
t
n
e
m
r
i
a
p
m
i
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
s
t
s
o
c
n
o
i
t
c
u
d
o
r
P
r
o
f
s
n
o
i
s
i
v
o
r
P
y
r
o
t
n
e
v
n
i
t
n
e
m
r
i
a
p
m
i
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
Raw and other materials, other
similar valuables
WIP costs
Finished products and goods for
reselling
Goods shipped
Deferred expenses
Total
28,374,650
10,590,667
(2,715,456)
(290,843)
25,659,194
10,299,824
27,456,603
9,220,414
(2,100,994)
(385,255)
25,355,609
8,835,159
22,704,417
7,847,539
(1,756,083)
(355,530)
20,948,334
7,492,009
8,808,085
8,889,954
365,310
57,028,666
--
--
--
(3,006,299)
8,808,085
8,079,423
8,889,954 10,739,125
192,432
54,022,367 55,687,997
365,310
--
--
--
(2,486,249)
8,079,423
10,739,125
192,432
7,086,030
6,983,754
32,930
53,201,748 44,654,670
--
--
--
(2,111,613)
7,086,030
6,983,754
32,930
42,543,057
Inventories which rather be sold to buyers than be used in a further production stage were accounted for in finished product.
Explanations
26
Accounting
(Financial)
Statements
for 2017
Explanations
3. 5 ACCOUNTS RECEIVABLE AND LIABILITIES
3. 5. 1 Accounts Receivable
Structure of accounts receivable
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
r
e
p
s
a
d
e
t
n
u
o
c
c
A
t
c
a
r
t
n
o
C
e
h
t
s
m
r
e
t
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
r
e
p
s
a
d
e
t
n
u
o
c
c
A
t
c
a
r
t
n
o
C
e
h
t
s
m
r
e
t
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
r
e
p
s
a
d
e
t
n
u
o
c
c
A
t
c
a
r
t
n
o
C
e
h
t
s
m
r
e
t
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
(RUB thou.)
17,034,573
--
17,034,573
6,646,329
14,102
1,870,896
77,391
1,793,505
15,149,575
--
--
--
--
--
14,102
1,394
1,870,896
1,117,623
77,391
1,793,505
15,149,575
90,234
1,027,389
5,527,312
--
--
--
--
--
--
6,646,329
97,116,582
--
97,116,582
1,394
2,038
1,117,623
1,042,834
90,234
1,027,389
5,527,312
84,690
958,144
96,071,710
--
--
--
--
--
2,038
1,042,834
84,690
958,144
96,071,710
144,153,088
(8,956,805) 135,196,283
138,175,361
(8,801,707)
129,373,654
37,419,654
(9,537,691)
27,881,963
17,742,667
(348,103)
17,394,564
9,778,687
(340,322)
9,438,365
7,455,599
(191,668)
7,263,931
6,682,037
(186,884)
6,495,153
3,167,579
(98,220)
3,069,359
3,502,122
(262,627)
3,239,495
2,315,786
(185,566)
2,130,220
2,228,842
4,366,251
(1,318)
4,364,933
938,737
(96,902)
(1,318)
2,131,940
2,613,303
(262,627)
2,350,676
937,419
888,819
--
888,819
Type of debt
Long-term accounts
receivable - total
including:
settlements with buyers and
customers
advance payments made1 -
total
including:
for current operations
for non-current assets3
other
Short- term accounts
receivable - total
including:
settlements with buyers and
customers
advance payments made -
total
including:
for current operations
for non-current assets3
other
Total
1 Here and hereafter the advance payments made are shown VAT included.
2 Including the provision for bad debt under N. Maksimov’s claim in the amount of RUB 5,611,354 thousand, CJSC Concern Stalkonstruktsiya in the amount of RUB 2,046,892 thousand.
3 Advance payments, given for the purposes of capital construction, purchase of fixed assets and other non-current assets, reflected in line 1190 «Other non-current assets» of the balance sheet.
(8,421,818)2
111,306,566
(8,956,805) 152,230,856
116,865,930
136,019,983
119,728,384
161,187,661
125,229,095
144,821,690
26,461,933
134,536,236
(8,363,165)
(8,801,707)
(9,083,396)
(9,537,691)
17,378,537
124,998,545
27
Other debtors
Type of debt
Other long-term receivables - total
including:
settlements with personnel on other operations
calculations of assignment of claims
interest-free loans granted
interest on long-term financial investments
Other short-term receivables - total
including:
interest-free loans granted
received non-interest bearing notes
settlements related to interest accrued
calculations of assignment of claims
including
Debt related to assignment transactions
NLMK Overseas Holdings2
settlements with budget and off-budget funds in terms of taxes and duties
settlements with VAT budget
settlements with customs
claim settlements
settlements with CTG participants
settlements related to reimbursable services
lease settlements
settlements with staff in terms of salaries and wages and other operations
settlements with reporting persons
settlements related to dividends
interest-free loans granted (cash pooling)
including:
interest-free loan to NLMK Overseas Holdings LLC
others
Total
1 Including the interest related to loan to NKML Ural of RUB 10,941,392 thou. Due in 2019.
2 In January 2018 it was decised to extend the due period till 31 December, 2019.
Accounting
(Financial)
Statements
for 2017
Explanations
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
15,149,575
5,527,312
96,071,710
(RUB thou.)
338,120
--
3,622,856
11,188,5991
111,306,566
2,881,205
400,500
2,624,736
12,306,651
12,305,940
590,339
3,907,073
188,315
15,344
585,152
11,961
22,834
7,059
2,248
8,012,324
79,508,707
78,686,486
242,118
126,456,141
325,773
--
2,915,581
2,285,958
116,865,930
4,608,857
374,500
12,070,532
12,305,940
12,305,940
265,486
3,461,979
153,531
39,784
--
10,644
17,961
18,367
2,140
1,009,983
82,455,974
332,001
12,305,940
70,472,950
12,960,819
17,378,537
--
139,000
4,449,766
228
--
25,023
4,867,989
220,898
926,521
2,257,470
124,614
16,171
8,766
2,567
4,305,829
--
78,515,913
70,252
122,393,242
--
33,695
113,450,247
28
Accounting
(Financial)
Statements
for 2017
Explanations
Over-due accounts receivable
Type of debt
Accounted as per
the Contract terms
Balance sheet
value
Accounted as per
the Contract terms
Balance
sheet
value
Accounted as per
the Contract terms
Balance
sheet
value
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
Total
including:
settlements with buyers and
customers
advance payments made - total
including:
for current operations
other
3. 5. 2 Accounts payable
Structure of accounts payable
2,073,734
776,493
1,432,371
305,876
2,909,443
960,742
611,252
548,680
548,680
913,802
263,149
363,114
363,114
150,230
556,824
168,364
168,364
707,183
216,502
71,462
71,462
17,912
873,986
517,892
517,892
1,517,565
682,318
255,266
255,266
23,158
Type of debt
Long-term accounts payable - total
including:
settlements with suppliers and contractors
Short-term accounts payable - total
including:
Advances received1
suppliers and contractors
settlements related to payables to employees
settlements related to taxes and duties
settlements related to debt to state off-budget funds
debt to shareholders on dividend payment2
other
Total
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
4,296
4,296
100,068,427
37,226,487
27,100,279
772,034
3,050,388
692,730
30,922,278
304,231
100,072,723
12,258
12,258
89,819,854
40,170,712
23,972,950
683,757
790,964
620,751
21,853,073
1,727,647
89,832,112
22,861
22,861
58,666,218
25,484,239
18,020,018
689,366
2,018,971
537,215
11,740,580
175,829
58,689,079
1 Hereinafter advance payments received from buyers and customers are indicated net of VAT to be paid to the budget.
2 All statutory procedures related to notification of shareholders of the right to dividends are met by the Company. At the same time the back-log on interim dividend payment for 2017 was RUB 30,745,256
thousand, while the remainder is outstanding from previous periods.
29
Accounting
(Financial)
Statements
for 2017
Explanations
Overdue accounts payable
Parameter description
Total
including:
settlements with suppliers and contractors
advance payments received
other
3. 6 CASH AND CASH EQUIVALENTS
Description
Carrying amount
Settlement accounts
Currency accounts
Deposits (up to 3 months)
Loans granted for cash-pooling
Other cash equivalents
of which: financial documents
Total
Other income and payments from current operations
Description
Other income from current operations
Income from litigation, claims
Interest on cash equivalents
Other income
Other payments under the current operations
Tax payments
Including VAT
Other settlements with personnel
Settlements with various creditors
Funds transfer to Group companies
Insurance settlements
Settlements related to claims
Charity expenses
Land lease settlements
Settlements with the pension fund
Other remittance
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
2,835,415
2,418,120
407,083
10,212
2,165,967
2,050,786
111,746
3,435
2,052,357
1,829,432
218,365
4,560
(RUB thou.)
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
--
497,259
1,516,315
6,892,858
--
3,886
94
8,910,318
--
520,280
2,394,798
24,882,260
--
4,623
672
27,801,961
6
697,734
3,172,560
10,708,047
43,098
7,338
238
14,628,783
(RUB thou.)
For 2017
For 2016
1,175,616
282,452
405,584
487,580
10,439,061
7,569,942
5,474,357
946,335
612,381
--
424,320
370,779
202,328
127,935
106,397
78,644
1,472,342
749,802
334,672
387,868
9,866,267
5,705,225
3,362,631
903,734
799,066
670,000
638,238
515,019
260,050
127,306
110,288
137,341
30
Within the cash flows of current operations CGT participants’ cash transfers to the Company as well as CGT income tax payments to the budget have been shown in
summarized form.
Other cash flows from investment activities include the summarized transactions on placement and return of deposits over 3 months.
Cash flows with Subsidiaries and Affiliates (including VAT)
Inflow
Payments
For 2017
For 2016
For 2017
For 2016
(RUB thou.)
Accounting
(Financial)
Statements
for 2017
Explanations
Description
Cash flow from current operations
Subsidiaries
Other companies1
including:
Novex Trading (Swiss) S.A.
Cash flow from investment operations
Subsidiaries
Cash flow from financial operations
Subsidiaries
Other companies1
Total
3. 7 EQUITY AND DIVIDENDS
Description
Authorized capital
Reserve capital
Paid-in capital - total
including:
revaluation of fixed assets
other sources
Retained profit (loss) - total
including:
of previous years
of the reporting year
Total
1 Cash flows of Novex Trading (Swiss) S.A., Novexco (Cyprus) Limited, NLMK DanSteel A/S
232,341,990
11,001,986
221,340,004
221,020,078
36,520,032
36,520,032
36,265,055
32,575,915
3 689 140
305,127,077
196,337,626
10,563,028
185,774,598
155,057,468
56,837,955
56,837,955
32,707,510
32,707,510
--
285,883,091
142,886,261
142,511,091
375,170
375,144
1,454,484
1,454,484
28,140,614
28,140,614
--
172,481,359
87,203,568
86,388,621
814,947
727,735
57,919,821
57,919,821
34,079,535
34,079,535
--
179,202,924
(RUB thou.)
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
5,993,227
299,661
4,071,979
3,300,202
771,777
329,936,615
284,465,195
45,471,420
340,301,482
5,993,227
299,661
4,080,041
3,308,264
771,777
304,722,304
303,272,294
1,450,010
315,095,233
5,993,227
299,661
4,105,066
3,333,289
771,777
317,835,836
294,970,987
22,864,849
328,233,790
31
Accounting
(Financial)
Statements
for 2017
Company’s shares
As of 31.12.2017 the authorized capital is paid up in full and consists of 5 993 227 240 common shares at par value RUB 1 each.
Shareholders holding more than 5% of the nominal capital
Description
FLETCHER GROUP HOLDINGS LIMITED
As of 31.12.2017
Share, %
As of 31.12.2016
As of 31.12.2015
84.03
84.03
85.54
Other free-floating shares (including: global depositary shares traded on London Stock Exchange (Deutsche Bank Trust Company Americas is NLMK’s depositary
bank) and shares traded on Moscow Stock Exchange.
Earnings per share
Description
Net profit for the reporting period, RUB thou.
Weighted average number of outstanding common shares, pcs.
Basic profit (loss) per share, RUB
For 2017
For 2016
109,466,251
5,993,227,240
18.26
36,419,484
5,993,227,240
6.08
Diluted profit per share was not calculated due to absence of factors, having the diluting effect on the basic profit per share indicator.
Dividends
The Annual General Shareholders’ Meeting held on 02.06.2017 approved payment of dividends in the amount of RUB 9.22 per common stock upon 2016
performance results that made in total RUB 55 257 555 thou. with account of interim dividends of RUB 35 000 447 thou. accrued in 2016.
In the reporting year the following interim dividends were declared: RUB 2.35 per common stock for Q1 which made RUB 14 084 084 thou.; RUB 3.20 per common
stock for H1 which made RUB 19 178 327 thou.; RUB 5.13 per common stock for 9 months which made RUB 30 745 256 thou.
As of 31.12.2017 the dividends for 2016, Q1 and H1 of 2017, accrued to the main company running business, are paid in full.
Explanations
32
Accounting
(Financial)
Statements
for 2017
3. 8 CREDITS AND LOANS
Structure of credits and loans
Type of liabilities
Long-term liabilities - total
including:
loans
credits
Short-term liabilities - total
including:
loans
Loans followed-up by Cash-pooling agreement
credits
Total
Bank credits
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
79,363,678
77,660,747
1,702,931
25,360,981
15,618,871
5,313,838
4,428,272
104,724,659
95,619,746
137,275,933
80,308,896
15,310,850
20,796,621
11,234,461
2,779,470
6,782,690
116,416,367
95,877,612
41,398,321
27,893,440
21,692,969
651,856
5,548,615
165,169,373
As of 31.12.2017 and 31.12.2016 the Company signed agreements with ALFA-BANK, Sberbank and VTB Bank on the opening of credit facilities with the limit not
exceeding RUB 78 000 000 thou., for working capital financing and for other corporate purposes. Unused credit limit for all the credit facility agreements makes RUB
78,000,000 thou.
Bank credits
Lender description
Deutsche Bank AG , Amsterdam branch1
Deutsche Bank AG 1
Sberbank of Russia
Total bank credits, incl. interest accrued
including:
with maturity up to 1 year, incl. current portion of long-term credits
1 This credit was obtained from a syndicate of banks, the agent bank is specified as the creditor here.
Maturity
2019
2018
As of
31.12.2017
As of
31.12.2016
--
6,116,765
14,438
6,131,203
12,193,238
9,900,302
--
22,093,540
(RUB thou.)
As of
31.12.2015
29,304,393
17,642,543
--
46,946,936
4,428,272
6,782,690
5,548,614
Explanations
33
Accounting
(Financial)
Statements
for 2017
Loans
Lender
Steel Funding DAC (Eurobonds)2
Subsidiaries and other related parties
of which: interest-free loans
Bond loan
Loans under cash-pooling
of which: interest-free loans
Total loans, incl. interest accrued
including:
with maturity up to 1 year, incl. current portion of long-term loans
1 Including the interest accrued.
2 Four issues of Eurobonds due in 2018-2024. The rest o f debt is a short-term debt.
As of 31.12.2017
86,463,3271
6,816,2911
2,430,859
--
5 313 8381
4,467,771
98,593,456
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
79,939,0981
1,414,9951
542,000
10,189,2641
2,779,4701
2,320,051
94,322,827
87,167,2091
4,866,3111
3,969,310
25,537,0611
651,8541
225,284
118,222,435
20,932,709
14,013,931
22,344,825
Detailed information on the structure and terms and conditions of the debt portfolio is published on the Company's web-site (http://www.lipetsk.nlmk.com)
3. 9 ESTIMATED LIABILITIES
Name of an estimated liability
Estimated liabilities - total
including:
on upcoming expenses for vacations
on upcoming expenses for bonuses
on unsettled court proceedings and claims
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
4,472,566
5,144,918
1,911,146
(RUB thou.)
1,769,826
2,668,608
34,132
1,368,716
3,724,764
51,438
1,290,962
509,761
110,423
Explanations
34
Accounting
(Financial)
Statements
for 2017
3. 10 INCOME AND EXPENSES
3. 10. 1 Income and expenses from ordinary activities
Income from ordinary activities
Description
Revenue from sales of products (services) outside the RF
Revenue from sales in the RF
Total
Expenses for production
Description
Material expenses - total
including: raw and other materials
fuel, energy
work and services rendered by third parties1
Labour Costs
Social allocations
Depreciation
Other costs
Total for components
Balance change (increase [-], decrease [+]): construction in progress, semi-finished
products, finished products
Total expenses on ordinary activities
For reference:
Expenses for capital and routine repair
1Including expenses related to the sale of products in the amount of RUB 28 396 715 thou. (for 2016– RUB 24 978 417 thou.).
Explanations
For 2017
For 2016
235,300,494
176,505,975
411,806,469
For 2017
For 2016
293,778,209
185,855,190
73,443,770
34,479,249
21,490,333
6,396,987
13,940,583
7,648,255
343,254,367
79,574
343,333,941
12,602,878
(RUB thou.)
182,019,896
153,218,301
335,238,197
(RUB thou.)
235,804,170
149,522,029
56,514,094
29,768,047
22,007,327
5,712,144
14,865,415
6,982,303
285,371,359
- 6 997 064
278,374,295
12,639,518
35
Accounting
(Financial)
Statements
for 2017
Explanations
3. 10. 2 Other income and expenses
Other income and expenses
For 2017
For 2016
(RUB thou.)
Description
Sale of foreign currency
Exchange rate difference1
The right of claim assignment
Valuation reserves
Profit and loss of previous years
Sales of inventories
Retirement of fixed assets, capital investments
Transactions with securities
Expenses on credits
Writing-off of inventories, tare, inventories from repairs
Other
Total
Expenses
216,249,024
173,013
5,168,969
19,998,926
1,435,701
827,196
312,116
82,160
1,871,1192
787,312
2,889,505
249,795,041
1 Exchange rate difference data are presented in summarized form with the exception of exchange rate difference expenses formed by recalculation of assets and liabilities value expressed in foreign currency
to be paid in rubles.
2 Credit expenses for 2016 include fee for early repayment of the part of bond issues in Russian rubles made by the Company in July 2016 for the purpose of debt portfolio optimization.
Expenses
292,516,897
296,863
566,341
704,489
1,755,069
956,299
264,427
101,178
696,437
1,488,160
2,216,199
301,562,359
Income
216,144,42
5,784,486
5,168,969
35,299
166,101
1,053,911
216,615
183,134
--
613,026
622,158
229,988,441
Income
292,485,456
772,647
579,402
23,319,054
396,094
1,247,284
183,805
45,000
--
1,021,923
819,843
320,870,508
3. 11 CURRENT PFORIT TAX FORMATION
Calculation of profit tax according to Accounting rules (PBU) 18/02 requirements
Description
Book profit (loss) before tax
Contingent expenses (income) for profit tax (according to accounting data)
Fixed tax liabilities (assets)
Change in deferred tax assets
Change in deferred tax liabilities
Current profit tax
Taxable profit (according to the tax accounting data)
Permanent difference leading to taxable profit increase according to the tax accounting data
Permanent difference leading to taxable profit decrease according to the tax accounting data
Taxable temporary differences
Deductible temporary differences
For 2017
122,633,354
24,526,671
(11,372,600)
7,680
387,461
13,549,212
67,746,059
4,449,239
(61,312,238)
1,937,305
38,398
(RUB thou.)
For 2016
47,316,613
9,463,322
2,407,708
5,390
(261,601)
11,614,819
58,074,098
26,899,429
(14,860,979)
(1,308,005)
26,950
36
When the taxation base was determined by the profit tax the income received in the form of dividends from participation in authorized capitals and also the income
received from recovery of provision for impairment of financial investments were not accounted for. Expenses not used for taxation purposes are mainly related to
the accrual of valuation reserves and other expenses within NLMK Group companies.
Accounting
(Financial)
Statements
for 2017
Taxable temporary differences are associated with differences in recognition in accounting and taxation of initial appraisal of property to be depreciated,
accumulated depreciation, depreciation premium, appraisal of construction-in-progress, WIP, semi-finished products and materials produced in-house, finished
products.
Deductible temporary differences are associated with differences in recognition in accounting and taxation of exchange rate differences paid to suppliers, deferred
expenses, losses from servicing facilities and companies, losses from sale of depreciated property.
3. 12 INFORMATION BY SEGMENTS
The Company discloses information on a single segment based on the type of activity.
Parameter
Sales revenue, RUB thou.
Share of proceeds from sales in total proceeds, %
Total production cost, RUB thou.
Sales profit (loss), RUB thou.
Share of profit in total profit, %
Type of product
HM
Slabs
Hot rolled flats
Cold rolled flats
Coated steel
Electrical steel flats
Other by-products and energy resources
Total
Segment
Not distributed
Company as a whole
(RUB thou.)
2017
407,870,453
99.04
340,268,050
67,602,403
98.73
2016
333,063,831
99.35
276,651,998
56,411,833
99.20
2017
3,936,016
0.96
3,065,891
870,125
1.27
2016
2,174,366
0.65
1,722,297
452,069
0.80
2017
411,806,469
100.00
343,333,941
68,472,528
100.00
2016
335,238,197
100.00
278,374,295
56,863,902
100.00
(RUB thou.)
Sales revenue
for 2017
for 2016
Change
11,149,853
178,895,801
86,800,407
53,534,290
51,943,401
18,273,676
7,273,025
407,870,453
6,763,928
141,273,689
70,293,667
42,843,659
48,555,912
17,490,364
5,842,612
333,063,831
4,385,925
37,622,112
16,506,740
10,690,631
3,387,489
783,312
1,430,413
74,806,622
In the reporting year the proceeds from sales to foreign customers accounted for 57.69% (54.65% in 2016) of the total proceeds from sales in the segment and 100%
(100% in 2016) of the proceeds from sales outside of Russia as a total for the Group.
In 2017 two major customers (at least 10% of sales) accounted for 59.95% (in 2016 – 51.38%) of the proceeds from sales of the Company in total.
Explanations
37
3. 13 SECURITY OF LIABILITIES
Description
Received -total
including:
bank guarantees
Guarantees and sureties granted
Accounting
(Financial)
Statements
for 2017
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
4,734,313
2,647,504
4,734,313
56,884,966
2,647,504
37,722,198
2,695,856
2,695,856
47,486,668
(RUB thou.)
As of 31.12.2017, 31.12.2016, 31.12.2015 the Company has liabilities under the surety agreements (RUB 56,580,595 thou.., RUB 37,722,198 thou., and RUB
47,001,993 thou. Accordingly) issued to the Lenders of the affiliates. The liabilities in accordance with the terms and conditions of the agreements will remain valid
by 2022 and they cease to exist pro rata the repayment of the credits by the related parties. Granted sureties are not likely to have negative consequences.
Explanations
38
3. 14 INFORMATION ON RELATED PARTIES
3. 14. 1 The list of related parties1
Accounting
(Financial)
Statements
for 2017
The list of related parties includes the affiliates of the Company1 in accordance with the RF legislation as well as related parties acting on other grounds.
The main business entity owning 84.03% of the Company’s stock is FLETCHER GROUP HOLDINGS LIMITED.
The Beneficiary of the above companies in accordance with definition of this notion by the Russian legislation is Mr. Vladimir Lisin.
There are no predominant (participating) business entities.
List of NLMK’s subsidiaries and affiliates as of 31.12.2017:
Description
VIZ Steel
NLMK- Communications
Vtorchermet NLMK
Stagdok
Dolomit
Uralvtorchermet
NLMK-Metalware
NLMK Kaluga
Mining & Concentration Complex Zhernovsky-1
Mining & Concentration Complex Usinsky-3
Altai-Koks
NLMK Information Technologies
NLMK Overseas Holdings
* Acquisition made 50% plus 1 share of Maxi-Group.
Stake in
authorized
capital as of
31.12.2017, %
100
100
100
100
100
100
100
100
100
100
100
100
100
Description
Holiday Hotel Metallurg
Trade House NLMK
Construction and Assembly Trust NLMK
Stoilensky
NLMK Long Products
Novolipetsk Steel Service Center
Hotel Complex “Metallurg”
Novolipetsk Printing House
NLMK Accounting Center
NLMK Ural
NLMK Engineering
Maxi-Group
Neptune
Stake in
authorized
capital as of
31.12.2017, %
100
100
100
100
100
100
100
100
100
92.59
57.57
50.00
25.00
All the companies specified are registered in the Russian Federation.
Operations with the affiliate Neptune are insignificant and are not disclosed in the reporting and comparative period.
Explanations
1 The complete list of the Company’s affiliated parties is subject to mandatory disclosure by the Issuer of issue-grade securities and is published at NLMK’s web-site (http://www.nlmk.com).
39
Other related parties
Other related parties include entities belonging to the same group as the Company does, as well as organizations and their subsidiaries, which are significantly
influenced by the members of the Company’s Board of Directors and/or the Company’s management by way of voting interest ownership / participation in
management.
Other related parties with whom the Company had operations in the reporting year and/or in regards of which there are balances under settlements of
operations not completed on the reporting date
Accounting
(Financial)
Statements
for 2017
First Freight Company
Universalny Expeditor
Tuapse Sea Trade Port
Taganrog Sea Trade Port
Saint-Petersburg Sea Port
UNIVERSAL FORWARDING COMPANY (UFC) LIMITED
Novexco (Cyprus) Limited1
Novex Trading (Swiss) S.A.1
NLMK Sales Europe S.A.
NLMK Verona SpA
NLMK DanSteel A/S1
NLMK La Louvière S.A.
NLMK Clabecq S.A.
NLMK Plate Sales S.A.
NLMK Belgium Holdings S.A.
NLMK International B.V.1
NLMK Pennsylvania LLC1
Steel Funding DAC
Advocate Bureau "Reznik, Gagarin & Partners", Moscow
VIZ- Broker
Bank of Social Development and Construction Lipetskkombank
(by 15.06.2017)
ZENIT Bank (by 15.06.2017)
NLMK - Ural Service
Railcar Repair Company "Gryazi"
InServicePlus
LLC Gazobeton 48 1
Metallurgical Holding
Verkh-Isetsky Steel Plant
LLC Blinovskoye
Explanations
1Other affiilates controlled by Novolipetsk Steel through NLMK Overseas Holdings
Heat Supply Organization
IP Molodechnensky Pipe Plant
VMI Recycling Group
PO TatVtorchermet
Vtorchermet
Chuvashvtormet
Vtorchermet NLMK Center
Vtorchermet NLMK North
Vtorchermet NLMK Siberia
Vtorchermet NLMK Western Siberia
Vtorchermet NLMK Ural
Vtorchermet NLMK Black Belt Region
Vtorchermet NLMK South
Vtorchermet NLMK East
Vtorchermet NLMK Perm
Vtorchermet NLMK West
Vtorchermet NLMK Republic
Vtorchermet NLMK Povolzhie
Vtorchermet NLMK Bashkortostan
Vtorchermet NLMK Volga
Ural Research & Development Institute for Architecture & Construction
Association of ferrous metallurgy enterprises “Russian steel”
Novolipetsk Medical Center
SC Lipetsk Metallurg
Lisya Nora
Ural Health-Center Nizhnie Sergi
TVK
Pride Media
Non-Governmental Pension Fund “Social Development” (by 1.02.2017)
40
Accounting
(Financial)
Statements
for 2017
Explanations
3. 14. 2 Operations with related parties
Operations related to individual companies are disclosed for the period of their actual inclusion into the list of related parties including VAT.
The Company makes transactions with the related parties in line with market principles.
Sales to related parties
Description
Subsidiaries
of which:
VIZ Steel
Novolipetsk Steel Service
Center
Other related parties
of which:
Novexco (Cyprus) Limited
Novex Trading (Swiss) S.A.
Total
For 2017
For 2016
Total
10,720,338
Products,
commodities
10,215,509
Inventorie
s
145,474
Services
Lease
Total
265,972
93,383
10,577,753
Products,
commodities
10,155,869
Inventorie
s
105,109
Services
Lease
234,799
81,976
(RUB thou.)
7,307,669
7,285,344
--
22,325
--
5,311,038
5,273,113
16,690
21,235
--
2,479,008
225,065,619
2,428,731
224,870,712
136
--
32,657
183,960
17,484
10,947
3,649,260
173,041,930
3,559,606
172,876,655
36,369
--
35,801
153,568
17,484
11,707
2,323,970
221,941,359
235,785,957
2,323,970
221,923,791
235,086,221
--
--
145,474
--
17,568
449,932
--
--
104,330
31,081,823
141,161,102
183,619,683
31,081,823
141,161,102
183,032,524
--
--
105,109
--
--
388,367
--
--
93,683
Purchases from other related parties
Description
Subsidiaries
of which:
Altai-Koks
Stoilensky
Vtorchermet NLMK
Other related parties
of which:
First Freight Company
Total
For 2017
For 2016
Total
145,612,492
Inventories
142,256,417
Services
3,347,667
Lease
8,408
Total
Inventories
90,693,754 87,031,239
Services
3,647,208
Lease
15,307
(RUB thou.)
55,285,059
61,588,729
23,469,628
18,990,393
55,285,018
61,588,729
23,469,628
347,443
41
--
--
18,220,696
--
--
--
422,254
35,028,213 35,028,198
32,224,537 32,224,501
17,906,258 17,906,258
17,607,762
15
36
--
127,278 16,964,710
--
--
--
515,774
15,639,023
164,602,885
--
142,603,860
15,216,769
21,568,363
422,254
430,662
14,120,903
-- 13,605,129
108,301,516 87,158,517 20,611,918
515,774
531,014
41
Accounts receivable
Accounting
(Financial)
Statements
for 2017
Description
Subsidiaries
of which:
NLMK Ural
NLMK Overseas Holdings
Other related parties
of which:
First Freight Company
Total
Accounts payable
Description
Subsidiaries
of which:
Stoilensky
Altai-Koks
Other related parties
of which:
Novex Trading (Swiss) S.A.
Total
(RUB thou.)
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
t
b
e
D
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
t
b
e
D
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
t
b
e
D
t
b
e
d
d
a
B
n
o
i
s
i
v
o
r
p
e
c
n
a
a
B
l
n
o
i
t
a
u
a
v
l
35,514,203
(571,099)
34,943,104 28,869,401
(572,870) 28,296,531 35,797,244
(1,497,356)
34,299,888
13,123,572
12,305,971
1,693,491
(1,459)
--
(45,281)
13,122,113 13,437,157
12,305,971 12,305,970
1,762,132
1,648,210
-- 13,437,157 16,606,577
-- 12,305,970 12,305,975
1,906,547
1,760,489
(1,643)
(799,068)
--
(7,668)
15,807,509
12,305,975
1,898,879
1,125,886
37,207,694
(42,018)
(616,380)
1,083,868
1,483,916
36,591,314 30,631,533
--
(574,513)
1,483,916
1,536,342
30,057,020 37,703,791
--
(1,505,024)
1,536,342
36,198,767
(RUB thou.)
As of 31.12.2017
10,518,733
As of 31.12.2016
As of 31.12.2015
8,670,489
5,750,901
5,502,852
4,460,019
32,031,094
31,454,493
42,549,827
4,236,883
3,823,910
34,834,962
32,537,765
43,505,451
2,250,061
2,584,708
22,080,648
19,302,155
27,831,549
Explanations
42
Accounting
(Financial)
Statements
for 2017
Explanations
Dividends received from subsidiaries
Description
Stoilensky
Dolomit
Altai-Koks
NLMK Accounting Center
Novolipetsk Steel Service Center
Novolipetsk Printing House
VIZ-Steel
Construction and Assembly Trust NLMK
Trade House NLMK
NLMK Information Technologies
NLMK Engineering
Other subsidiaries which ceased to be related parties
Total
Loans granted to related parties
For 2017
For 2016
(RUB thou.)
23,005,563
180,176
7,201,200
25,000
135,000
--
--
30,000
90,000
40,000
243,065
10,000
30,960,004
3,500,167
137,978
6,202,180
32,000
120,000
3,500
7,900,000
110,000
131,000
--
--
20,000
18,156,825
In the reporting year the Company granted loans, repayment of which is envisioned not later than by 2018:
Description
Subsidiaries
including:
interest-free loans
Other related parties
including:
interest-free loans
Total
For 2017
For 2016
Granted
Repaid
Granted
Repaid
(RUB thou.)
4,770
--
--
--
4,770
256,240
256,240
1,907
--
258,147
31 907 3761
31,902,693
86,041
84,134
31,993,417
34,738,378
30,989,712
905,052
--
35,643,430
1Taking into account NLMK Overseas Holdings’ loan reclassification into interest-free loan, granted under cash-pooling in the amount of RUB 17 127 600 thou.
43
Accounting
(Financial)
Statements
for 2017
Outstanding loans:
Borrower’s name
Subsidiaries2
including:
NLMK Ural
Maxi-Group
Vtorchermet NLMK
Other related parties3
Total
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
9,897,885
4,100,041
3,383,171
1,923,306
871,134
10,769,019
10,913,492
4,864,178
3,383,171
1,923,306
878,242
11,791,734
88,092,1931
7,027,497
3,396,171
2,114,256
1,776,187
89,868,380
1In 2016 NLMK Overseas Holdings’ loan was reclassified into interest-free loan, granted under cash-pooling in the amount of RUB 70 472 950 thou.
2 Including the interest-free loans to the subsidiaries as of 31.12.2017 and 31.12.2016 in the amount of RUB 6,504,061 thou. and RUB 7,524,438 thou. As of 31.12.2015 there were no interest-free loans.
3Interest-bearing loans
The Company granted loans to the related parties under cash pooling agreement:
Borrower’s name
Subsidiaries1
including:
NLMK Ural
Vtorchermet NLMK
NLMK Kaluga
Stoilensky
NLMK Overseas Holdings
NLMK Metalware
Other related parties
Total
(RUB thou.)
For 2017
For 2016
Granted
Repaid
Granted
Repaid
92,751,005
97,247,288
60,988,095
49,144,072
29,996,347
21,796,918
24,113,252
4,585,433
5,612,477
6,106,155
177,166
92,928,171
32,952,366
22,307,841
24,891,570
5,020,516
5,441,903
6,106,154
170,605
97,417,893
11,729,172
18,616,113
16,346,565
1,771,079
7,856,517
4,265,154
84,134
61,072,229
11,197,240
17,625,733
12,563,517
1,335,997
1,718,304
4,265,154
78,933
49,223,005
1 Including interest0free loans for 2017 in the amount of RUB 68,626,133 thou. (in 2016 - RUB 44,632, 946 thou.), repaid – RUB 72,344,121 thou. (RUB 36,571,971 thou. in 2016).
Explanations
44
Outstanding loans granted under cash pooling agreement:
Accounting
(Financial)
Statements
for 2017
Borrower’s name
Subsidiaries1
including:
NLMK Overseas Holdings
Other related parties
including:
interest-free loans
Total
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
82,501,676
78,686,487
11,762
11,762
82,513,438
86,233,8222
78,515,913
--
--
86,233,822
1 Including the interest-free loans to the subsidiaries as of 31.12.2017, 31.12.2016 and 31.12.2015 in the amount of RUB 79 496 945 thou. RUB 82,450,774 thou. and RUB 43,098 thou.
2Taking into account reclassification in 2016 of NLMK Overseas Holdings’ interest-free loan in the amount of RUB 78,515,913 thou.
Returns on loans:
Borrower’s name
Subsidiaries
Other related parties
Total
For 2017
For 2016
618
70,403
71,021
Loans granted to related parties
The Company received loans from subsidiaries and other related parties.
43,098
--
--
--
43,098
(RUB thou.)
37,656
136,461
174,117
(RUB thou.)
Lender
Subsidiaries
including:
Stoilensky
Other related parties
including:
Novexco (Cyprus) Limited
Total
For 2017
For 2016
Received
Repaid
Received
Repaid
30,428,813
28 493 6821
31 387 269
34 084 7291
30,254,723
3 689 140
3 689 140
34 117 953
28,323,864
--
--
28 493 6821
22,739,785
--
--
31 387 269
25,437,095
--
--
34 084 7291
1 Including the interest accrued.
2 Including interest-free loans for 2017 in the amount of RUB 30,428,813 thou. (in 2016 - RUB 31,103, 825 thou.), repaid – RUB 28,381,464 thou. (RUB 33,931,135 thou. in 2016).
Explanations
45
Interest payable:
Lender
Subsidiaries
Other related parties
Total
Accounting
(Financial)
Statements
for 2017
For 2017
For 2016
35,497
65,146
100,643
In addition, the Company received loans from subsidiaries and other related parties under cash-pooling agreement.
(RUB thou.)
56,506
--
56,506
(RUB thou.)
Lender
Subsidiaries1
including:
Stoilensky
Altai-Koks
Vtorchermet NLMK
VIZ-Steel
Other related parties
Total
For 2017
For 2016
Received
115,843,268
Repaid
113,746,800
Received
Repaid
55 908 011
54 587 769
64,474,193
23,402,120
11,315,882
7,692,211
810,066
116 653 334
61,643,424
24,211,611
11,315,882
7,216,159
803,426
114 550 226
22,522,517
6,586,738
11,680,492
-
785,847
56 693 858
1 Including interest0free loans for 2017 in the amount of RUB 114,945,732 thou. (in 2016 - RUB 51,575, 840 thou.), repaid – RUB 112,978,142 thou. (in 2016 - RUB 50,430,369 thou. ).
Interest payable for loans received from subsidiaries under cash pooling agreement:
Lender
Subsidiaries
Total
For 2017
For 2016
52,769
52,769
Explanations
22,522,517
5,921,807
11,680,492
-
770,980
55 358 749
(RUB thou.)
26,886
26,886
46
Security
The Company stood surety for subsidiaries and other related parties:
Accounting
(Financial)
Statements
for 2017
Security granted by the Company
NLMK Ural
NLMK Kaluga
VIZ Steel
Stoilensky
NLMK Clabecq S.A.
NLMK DanSteel A/S
NLMK Verona SpA
NLMK Belgium Holdings S.A.
Novex Trading (Swiss) S.A.
NLMK Plate Sales S.A.
VIZ- Broker
NLMK Pennsylvania LLC
Total
As of 31.12.2017
As of 31.12.2016
As of 31.12.2015
(RUB thou.)
--
879,082
310,192
8 674 459
346,639
6,473,947
7 787 569
3 443 713
17 303 357
5 930 851
67,026
5 668 131
56,884,966
--
1 093 326
403,359
9 606 891
963,550
6 717 708
6 023 747
3 280 119
4 571 657
4 976 787
85,054
--
37,722,198
195,110
1 713 725
400,287
11 865 672
2 591 427
8 488 466
7 415 072
3 985 059
5 496 530
5 265 320
70,000
--
47,486,668
Liabilities under the above securities are valid till 2022.
Other operations with related parties
In 2016 the Company provided, free of charge cash in the amount of RUB 670 000 thou. to Vtorchermet NLMK.
Deposits and current accounts
Deposits and current accounts in Bank of Social Development and Construction “Lipetskcombank” (related party till 15.06.2017) accounted for RUB 1 101 630 thou.
and RUB 1 097 138 thou. as of 31.12.2016 and 31.12.2015, respectively. The total interest income in 2017 amounted to RUB 2 651 thou., in 2016 – RUB 28 853 thou.
Deposits and current accounts with ZENIT Bank (related party till 15.06.2017) amounted to RUB 571 thou. and RUB 3 606 thou. as of 31.12.2016 and 31.12.2015,
respectively. The total interest income from deposits and current accounts in 2017 accounted for RUB 9 thou. (in 2016 - RUB 10 052 thou.).
In NPF “Social development” company’s contributions amount for 2017 made RUB 8 930 thou. (over 2016– RUB 109 818 thou.).
Explanations
47
Accounting
(Financial)
Statements
for 2017
Explanations
Operations with key management personnel
Members of the Board of Directors and the Management Board are the top management of the Company.
Conditions and procedure for payment of remuneration and reimbursement of expenses related to the execution of the Board of Directors member’s functions, is
provided for by NLMK’s Regulations on the Board of Directors members' Remuneration (“Regulations”) approved by the General Shareholders Meeting.
Terms and procedure of payment of remuneration to the members of the Management Board are determined by the contract concluded with the members on the
proposal of the Committee for Human Resources, Remuneration and Social Policy. Data for 2016 is adjusted with consideration of the actual payments in 2017.
Description
Bonuses and salaries (without estimated liabilities for upcoming expenses
for vacations)
Remunerations
Dividends
Other payments 3
Total
For 2017
For 2016
759 6491
123 9562
182
520,379
1,404,166
(RUB thou.)
562,370
123,930
111
1 018 757
1 705 168
1 Bonuses to the members of the Management Board in 2017 include liabilities on their payment based on a preliminary calculation upon the reporting year performance.
2 Remuneration to the members of the Board of Directors in 2017 are determined on the basis of a preliminary calculation according to the Regulation.
3 Other payments include estimated liability for long-term motivation programme for achieving the Company's strategic targets in 2017-2018, payments under which are expected in 2019. Other payments
for 2016 included estimated liability for long-term motivation programme for achieving the Company's strategic targets in 2014-2016, payments under which were performed in 2017.
In 2016 the Company granted interest-bearing loans to the Management Board members. In the reporting year loans to the Management Board members are fully
paid. Total debt for loans as of 31.12.2016 accounted for RUB 45 517 thou. (including accrued interest – RUB 2 517 thou).
3. 15 CONTINGENT LIABILITIES
In the ordinary course of business the Company participates in several legal proceedings acting as a claimant or a defendant. The Company’s management believes
that its liabilities, which may arise from these proceedings, cannot have a material adverse effect on financial status and performances.
Since the Company fulfils the requirements of regulatory authorities within the framework of environment protection and takes actions aimed at improvement of
environmental situation in the region, at present there are no liabilities related to damage to the environment and its elimination.
The Russian tax law admits various interpretations and is subject to frequent changes. The Company’s Management does not rule out some possible disputes with
supervisory agencies on any transactions that took place in the reporting and previous periods, which could result in changes of performance results. Tax audits may
cover three calendar years of business immediately preceding the year of audit. Earlier periods may be subject to auditing under certain circumstances. In the
Company management’s opinion, as of 31.12.2017 the respective legal regulations have been interpreted correctly by it, and the Company’s position in terms of tax
laws is going to be stable.
48
Accounting
(Financial)
Statements
for 2017
Explanations
3. 16 EVENTS AFTER THE REPORTING DATE
In January 2018 the Company acquired common shares of NLMK Engineering for RUB 199.936 thou., thus the share in the authorized capital of NLMK Engineering
increased from 57.57% up to 97.16%.
NLMK Manager
by virtue of Power of Attorney No.500 dd. 11.12.2017
O. Zarubina
19 February 2018
49
abouT nLmK
2017
this brochure gives an overview
of the structure, business model,
strategy, and performance of the
group over the past decade.
“The scale of NLMK’s business, the quality of our
strategy and execution will ensure that we use
available growth options to continue creating
shareholder returns going forward.”
oleg bagrin,
president and Ceo of nlmk group*
our Team
2017
Detailed information on
nlmk group’s team, talent
development, occupational safety
policy and financial contribution
to the development of local
communities, and much more.
“In the common cause of realizing Strategy 2017,
it was not just the contribution of individual
people that was important, but above all the
contribution of the team that our large, interna-
tional company represents.”
oleg bagrin,
president and Ceo of nlmk group*
Governance
2017
this brochure aims to showcase
nlmk group’s corporate govern-
ance practices, how the process
of continuous improvement of
corporate governance is ar-
ranged, and how we ensured our
leadership in investor relations.
“In 2017, the Company continued to actively im-
prove its corporate governance practices as part
of the corporate governance reform.”
Stanislav Shekshnia,
Independent Director, Chairman of the Human
resources, remuneration and Social policies
Committee
envIronmenT
2017
In this brochure we talk about
how advanced technologies,
efficient processes, and envi-
ronmentally friendly approaches
ensure our leadership as an envi-
ronmentally-oriented company.
“Our goal is to minimize our environmental foot-
print. And we will continue to implement the best
available technologies.”
Galina Khristoforova,
nlmk group’s Director for the environment
for eSg InveStorS
our company is a socially responsible business. We focus on ensuring nlmk’s
performance leadership goes hand in hand with the most advanced corporate
governance practices. We have developed a dedicated section on the Company
website at www�nlmk�com to enable investors to review environmental and social
questions, as well as corporate governance (environmental, Social, governance)
when they are considering investment.
* oleg bagrin held the position of president (Chairman of the management board) until 12 march 2018