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GENERATOR

Annual Report & Accounts 2012

Corporate governance

The Board of Directors has convened the following permanent committees in order to address specific tasks and in accordance with the best corporate governance practices and the Regulations on the Board of Directors of NLMK:

Strategic Planning Committee.

Audit Committee.

Human Resources, Remuneration, and Social Policies Committee.

 

Strategic Planning Commitee

“It is reassuring to see that the strategy that has been gradually implemented by the Group has enabled us to remain one of the most efficient steel companies in the world over the course of several years. We have every chance of maintaining and strengthening our leading position in the industry. We have successfully completed a period of extensive growth and, in the medium-term, we see opportunities to increase the value of the Group through further reduction of production costs and improvement of management systems. This will allow us to increase the efficiency and stability of our business. Moreover, we are planning to further develop our raw materials division, integrate new technologies, improve the efficiency of core and secondary production and to optimize business processes.”

Vladimir Lisin

Chairman of the Strategic Planning Committee

Composition of the Committee*

Full name

Position on the
Committee

Position in the
Company

Vladimir Lisin

Chairman of the Committee

Chairman of the Board of Directors

Oleg Bagrin

Member of the Committee

Member of the Board of Directors

President (Chairman of the Management Board)

Vladimir

Skorokhodov

Member of the Committee

Deputy Chairman of the Board of Directors

Karl Doering

Member of the Committee

Member of the Board of Directors

Benedict Sciortino

Member of the Committee

Independent Member of the Board of Directors

Karen Sarkisov

Member of the Committee

Member of the Board of Directors

Helmut Wieser

Member of the Committee

Independent Member of the Board of Directors

Franz Struzl

Member of the Committee

Independent Member of the Board of Directors

Alexey Lapshin

Member of the Committee

Advisor to the Chairman of the Board of Directors

* as at 31 December 2012

Achievements in 2012

Comprehensive work on updating the Group’s long-term strategy was continued

Areas of development for the Group and its production facilities were determined

Investment projects as part of NLMK’s areas of development were determined

Goals for 2013

Develop recommendations for the Group’s strategic areas of development

Monitor the implementation of planned investment projects


Role of the Committee

The Strategic Planning Committee develops and submits recommendations to the Board of Directors on the following:

Establishing the company’s priority areas of activity.

The development strategy of the Group.

Projects that increase the effectiveness of the Company’s business over the long term, increase its assets and profitability and attract investment.

The Strategic Planning Committee is completely accountable to the Board of Directors of NLMK and acts as an advisory body. The activity of the Committee is governed by the ‘Regulations on the Strategic Planning Committee’, which can be found on the corporate website.

Documentation is available on the Group’s website

Participation of Members of the Board of Directors in Committee Meetings in 2012

Full name

Participation in meetings in 2012*

Vladimir Lisin

4(5)

Oleg Bagrin

5(5)

Vladimir Skorokhodov

5(5)

Karl Doering

3(5)

Benedict Sciortino**

2(3)

Karen Sarkisov

5(5)

Helmut Wieser

4(5)

Franz Struzl

3(5)

Alexey Lapshin

3(5)

* The number of Committee meetings held during the given member’s tenure as member of the Committee is indicated in brackets

** Benedict Sciortino became member of the Committee in June 2012 (replacing Bruno Bolfo); the other members remained the same

Results of the Committee’s activity for 2012

In 2012, the Strategic Planning Committee held five meetings (all meetings were held in person). The Committee continued its comprehensive work on updating the Group’s long-term strategy, which will be completed and presented to the Board of Directors in early 2013. Decisions were made on the following issues:

Areas for the development of divisions, companies, and operating units.

Investment projects as part of areas of development.

Priorities for 2013

In 2013, the Committee will continue its work to develop recommendations on the Company’s strategic areas of development. This is especially important in the current volatile market conditions that the industry and the economy as a whole are experiencing.

Audit Committee

“The role of the Audit Committee encompasses not only auditing and related procedures; it also includes all-round consulting on the various aspects of business operations and is an essential component of the Risk Management System. The management needs an independent confirmation of the results in order to make strategic decisions on the future development of the Group. Investors and shareholders need reliable data to weigh potential profit against possible risks that might impact upon the Group’s performance. Suppliers and creditors are interested in the Group’s financial solvency as an indicator of its ability to pay off debts, whereas workers are looking at business profitability to estimate their financial and employment prospects. For all of these parties a well- informed and effective Audit Committee is essential to the integrity of the Group.”

Benedict Sciortino

Chairman of the Audit Committee, Independent Director

Composition of the Committee*

Full name

Position on the
Committee

Position in the
Company

Benedict Sciortino

Chairman of the Committee

Independent Member of the Board of Directors

Nikolai Gagarin

Member of the Committee

Member of the Board of Directors

Karl Doering

Member of the Committee

Member of the Board of Directors

Karen Sarkisov

Member of the Committee

Member of the Board of Directors

Franz Struzl

Member of the Committee

Independent Member of the Board of Directors

* as at 31 December 2012

Achievements in 2012

Hedging strategy was approved (hedging interest rates)

Transition plan to International Financial Reporting Standards was reviewed

Mechanisms to improve the internal control system were reviewed

Recommendations were made on selecting an external auditor and its remuneration

Recommendations were made to approve the RAS and US GAAP statements for 2012, and the interim US GAAP reporting was approved

Goals for 2013

Further improvement of the internal control system

Improvement of the risk management system

Cooperation with external auditors

Role of the Committee

The Audit Committee develops and submits recommendations to the Board of Directors for the effective auditing of the Group’s financial and economic performance, including those relating to the following issues:

Conducting independent audits of financial statements.

Quality of audit services.

Observing independent auditing requirements.

Selecting an external auditor.

Evaluating the effectiveness of the internal audit system.

The activity of the Audit Committee is fully accountable to the Board of Directors of NLMK and is an advisory body. The activity of the Audit Committee is governed by the ‘Regulations on the Audit Committee’, which can be found on the corporate website.

Documentation is available on the Group’s website

Participation of Members of the Board of Directors in Committee Meetings in 2012

Full name

Participation in meetings in 2012*

Benedict Sciortino

2(2)

Oleg Bagrin

3(3)

Nikolai Gagarin

0(1)

Karl Doering

4(4)

Karen Sarkisov

0(1)

Franz Struzl

4(4)

* The number of Committee meetings held during the given member’s tenure as member of the Committee is indicated in brackets

Results of the Committee’s activity for 2012

In 2012 there were four meetings of the Audit Committee, in which the following decisions were made and measures adopted for their implementation:

A proposal was prepared and submitted for the Annual General Shareholder Meeting recommending that the RAS financial (accounting) statements of the Group for 2011 be approved.

A draft assessment of the external auditor’s audit report of the Group’s RAS financial (accounting)statements for 2011 was prepared and approved. A proposal was submitted to the Board of Directors to confirm the assessment of the audit report as material to be presented at the Annual General Shareholder Meeting.

A proposal was prepared for the Board of Directors containing recommendations for the General Shareholder Meeting on the Group’s external auditor in 2012 and the amount of its remuneration.

A recommendation to approve the US GAAP consolidated financial statements for the year 2011 was prepared and submitted to the Board of Directors.

The US GAAP condensed interim consolidated financial statements for Q1, H1, and the first 9 months of 2012 were reviewed and approved.

Reports were reviewed on the results of the activity of the Internal Audit Directorate of the Company for 2011, H1 2012, and Q3 2012, including issues relating to the implementation of a project to improve the internal control system at NLMK and throughout the Group’s companies.

A recommendation to improve the regulation governing internal audits of the Group’s financial and operating performance, as well as the regulation governing the Audit Committee of NLMK in a new edition, was proposed and submitted to the Board of Directors.

The 2012 hedging strategy was approved as it relates to hedging interest rates.

The Group’s transition plan to International Financial Reporting Standards was reviewed.

Priorities for 2013

In 2013, the Committee will continue its work to improve the control system, risk management system and cooperation with external auditors.

Human Resources, Remuneration and Social Policies Committee

“As the Chairman of the Human Resources, Remuneration and Social Policies Committee, I personally place utmost importance on our HR strategy. The people who work for the Company are the most important element in its success, which is reflected in the well-being and quality of life of our employees and their families. We are creating the best possible environment for career promotions and professional development and we always adhere to high occupational health and safety standards. All of this ultimately results in an increase in productivity and, subsequently, pay rises and improvements in the standard of living for our staff.”

Vladimir Lisin

Chairman of the Human Resources, Remuneration and Social Policies Committee

Composition of the Committee*

Full name

Position on the
Committee

Position in the
Company

Vladimir Lisin

Chairman of the Committee

Chairman of the Board of Directors

Vladimir Skorokhodov

Member of the Committee

Deputy Chairman of the Board of Directors

Oleg Bagrin

Member of the Committee

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

Stanislav Tsyrlin

Member of the Committee

Vice President, HR & Management System

Alexey Lapshin

Member of the Committee

Advisor to the Chairman of the Board of Directors

Sergey Melnik

Member of the Committee

Director of Human Resources and General Affairs

* as at 31 December 2012

Achievements in 2012

Proposals were submitted on the candidates for independent directors (Benedict Sciortino, Helmut Wieser, Franz Struzl)

Proposals were submitted on the candidates for the position of President of the Group (Oleg Bagrin)

The candidacies of managers for Management Board member positions (G. Kumar, A. Sapronov, A. Burayev, G. Fedorishin, S. Filatov) were approved

Proposals were submitted on the amount of remuneration for members of the Board of Directors on the basis of 2011 annual results

A KPI-based remuneration system for members of the Management Board was approved

The implementation of the Production Efficiency Improvement System was continued

A common, open-ended Personnel Training and Development Programme was approved

Goals for 2013

Increase the effectiveness of corporate governance

Continue to improve the human resources policy

Develop new social projects and monitor their implementation

Improve the Group’s environmental safety practices

Role of the Committee

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

Development of a strategy, policy and standards aimed at attracting qualified professionals to manage the Group.

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

Implementation of occupational safety and health standards.

Remuneration of members of the management and the Internal Audit Commission of the Group.

Implementation of social programmes.

Ensuring the transparency and accessibility of social programmes supported by the Group.

Making charitable contributions.

Partnership with state and municipal government agencies.

Environmental safety and environmental protection measures.

The activity of the Human Resources, Remuneration and Social Policies Committee is governed by the ‘Regulations on the Human Resources, Remuneration and Social Policies Committee, which can be found on the corporate website.

Documentation is available on the Group’s website

Participation of Members of the Board of Directors in Committee Meetings in 2012

Full name

Participation in meetings in 2012*

Vladimir Lisin

3(3)

Vladimir Skorokhodov

1(1)

Oleg Bagrin**

1(0)

Stanislav Tsyrlin

3(3)

Alexey Lapshin

3(3)

Sergey Melnik

3(3)

* The number of Committee meetings held during the given member’s tenure as member of the Committee is indicated in brackets

** Oleg Bagrin was in attendance at one Committee meeting (not being a member of the Committee at the time)

Results of the Committee’s activity for 2012

Three meetings of the Committee on Human Resources, Remuneration and Social Policies were held in 2012 (including 2 remote meetings). The following issues were discussed at the meetings:

Implementation of a Production Efficiency Improvement System.

Development of a common, open-ended Personnel Training and Development Programme.

Prospects for the creation of an industry standard for the development of new educational programmes that comply with current qualification requirements for steelmaking personnel.

Proposals on the amount of remuneration of members of the Board of Directors on the basis of the 2011 annual results.

Proposed candidates for independent directors submitted to the Board of Directors (Benedict Sciortino, Helmut Wieser, Franz Struzl).

Proposed candidates for President of the Company submitted to the Board of Directors (Oleg Bagrin).

Approval of the candidacies of managers for Management Board member positions (G. Kumar, A. Sapronov, A. Burayev, G. Fedorishin, S. Filatov) as well as for positions as the heads of the main shop/production units and general directors of subsidiary companies.

Priorities for 2013

In 2013, the Committee will continue to work on improving the Group’s human resources policy, personnel development and on implementing social projects and environmental protection measures.