Annual Report & Accounts 2012

UnderstandingNLMK

In 2012, NLMK Group produced 15 mt of steel, becoming the leader in steel output in Russia. The following competitive advantages are the driving force behind our success:

 

NLMK Group’s business model is based on a balance in our production chain, product portfolio, and sales markets. We continuously focus on all of the components of our business by investing in the development of assets, by expanding our product line and by improving product quality.


Efficient vertical integration of raw material assets and an increase in our level of energy self-sufficiency allow us to control production costs and to reduce the risks created by volatile raw material prices.

We are supplementing low-cost midstream operations in Russia that are sufficient in raw materials with the development of our overseas rolling assets located close to our extensive client base, which has very exacting requirements in terms of quality and lead times.

The Group employs a balanced model of steel production that ensures flexibility in response to changes in demand.

Our sales portfolio for most products is balanced between developing and mature markets, which helps to ensure solid sales performance.

Our broad product portfolio includes both ordinary and niche products and this allows us to react flexibly to changing market conditions.

NLMK’s balanced growth strategy is based upon the development of low-cost upstream and midstream facilities, coupled with downstream assets located close to the end-users. It is also founded on the continuous improvement of the efficiency of production and supporting processes.


We strive for self-sufficiency in key raw materials in order to guarantee stable deliveries and, hence, to remain a leader in terms of cost efficiency in the world steel industry.

We have expanded our low-cost steel production facilities in Russia. Constant upgrading and optimization of our technical processes allows us to improve our economic efficiency and to achieve better results.

We are developing facilities for the production of finished products in Russia and abroad and we are moving closer to the customer by opening new service centres. We invest in quality in order to meet growing and rapidly changing customer needs. By offering high value added products and by expanding our range of niche products, we are increasing the profitability of our business and thereby ensuring its stability.

Efficiency and safety have always been at the heart of our business.


Years of investment in the acquisition and development of assets have enabled the Group to achieve outstanding levels of cost efficiency. Our steel cash cost in 2012 was an average of US$ 388 per tonne, which is well below world averages. According to the ranking compiled by the World Steel Dynamics agency, NLMK’s integrated production in Russia has been one of the most efficient operations in the world for a number of years.

For many years, we have invested in environmental projects that reduce our negative impact on the environment in the regions where we operate. By completely stopping waste water discharge and reducing air emissions almost two-fold, we have been able to comply with the most stringent international environmental standards.

We are creating a safe working environment and improving our processes by investing in staff development, thereby minimizing risks and preventing accidents.

NLMK is led by a team of professionals who have extensive experience in managing the Group in times of difficult market conditions and who are capable of strengthening its position within the industry.


In recent decades, the Group has focused on improving the quality of its system of corporate governance. This gives us a significant competitive advantage and ensures guaranteed investment protection for shareholders and investors.

NLMK is led by a team of professionals who have extensive experience in managing the Group in times of difficult market conditions and who are capable of strengthening its position within the industry. The Group’s effective management approach ensures the stability of its business model and supports long-term economic growth.

We consider the professionalism of our employees to be essential to improving the Group’s performance. Consequently, the development of human capital is the main driver behind our sustainable growth and thus NLMK continues to invest in training and professional development for its employees.

As one of the most efficient steel producers in the world, NLMK consistently achieves excellent financial results.


A diversified sales portfolio with a large share of HVA products, along with an effective value chain based on vertical integration, low-cost production of steel and manufacture of finished products near the end users, enables the Group to demonstrate a high level of stability and performance independent of external market conditions.

NLMK maintains a relatively low level of debt, despite significant capital investments in major projects over the past decade.

The Group’s financial stability, its balanced business model and the high level of diversification in its business are highly assessed by independent international ratings agencies. The credit ratings that have been assigned to us by the three leading international agencies are investment-grade.

The diversification of the Group’s product portfolio and its sales markets, which are based upon an integrated production model, enables us to react flexibly to changes in the markets and to weather industry cycles.


The Group’s steel production technologies have become optimally balanced: around 80% of all steel is produced using the Basic Oxygen Furnace (BOF) method at Novolipetsk with about 20% by the Electric Arc Furnace (EAF) method at the Group’s NLMK Russia Long, NLMK USA, and NLMK Europe Plate divisions.

NLMK is a leading supplier of high value added products. We are continuing to grow and to expand our portfolio of HVA products, both through organic expansion and through the modernization of our rolling assets.

We supply products into markets in more than 70 countries around the world and this allows us to redirect supplies in reaction to changes in market conditions.