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GENERATOR

Annual Report & Accounts 2012

Chairman's letter

An effective system of corporate governance requires constant improvement in order to provide the conditions required to create long-term value for the Company.

Vladimir Lisin

Chairman of the Board of Directors

I have been Chairman of the Board of Directors of our company for more than 15 years. During this time, the steel industry has witnessed dizzying growth, followed by decline, and then a period of volatility and sporadic growth. For many companies, the ‘good times’ allow them to sweep their errors in strategic planning and execution under a carpet of impressive figures. Having achieved excellent results during the period of growth, we, on the other hand, were able to maintain our leading position, even in difficult market conditions.

Ensuring effective corporate governance

In times like these, differences in approach to company management – whether the leadership is focused on short-term results or whether its efforts are directed towards creating value in the long term – become highly apparent. This is where the role of the Board of Directors becomes particularly important. Do the directors understand the sector and the key forces that are driving it? Are important decisions preceded by a thorough analysis of the consequences for the Group and for shareholder value? Is the board working together with management as a single team to achieve the shared goal of increasing the long-term value of the Company?

For more information on our approach on corporate governance

Compliance with corporate governance codes

We strive to construct a system of corporate governance that complies with the high standards required of public companies. The Group’s system of corporate governance has been developed to comply with the fundamental principles recommended by the Organization for Economic Cooperation and Development (Principles of Corporate Governance, 1999) and the Corporate Behaviour Code of the Russian Federal Financial Markets Service.

The code of Corporate Governance of NLMK is available on our corporate website

Board’s diversity

In order to adequately assess what is good for the Company and its shareholders in the long term, directors must not only have a good understanding of the sector but must also be highly capable of adapting to market conditions and have experience of working in other sectors. Our Board contains people of different generations and different nationalities. They have many years of legal, financial and management experience. I believe that having independent directors is one of the cornerstones of our Group’s success. It allows us to scrutinize strategy from various viewpoints, while striking a balance between maintaining the Group’s current stability and securing its competitiveness and effectiveness in the long term.

For more information on the composition of our Board of Directors

Achievements in 2012 and priorities for 2013

An effective system of corporate governance requires constant improvement in order to provide the conditions required to create long-term value for the Company. I feel that the effectiveness of corporate governance depends heavily on the active involvement of every director in the work of the Company, which means not only attending board meetings but also holding meetings with the heads of the various departments and participating in site visits.

From 2012 to early 2013, a number of changes, which I view as positive, were made in the area of corporate governance. Changes in the composition and structure of the Management Board included the introduction of new management positions for logistics and procurement, which are fundamental to the Company’s operations. A new independent director, Benedict Sciortino joined the Board. Dr Sciortino has many years of experience in the industry and extensive knowledge in the field of law, which will undoubtedly prove useful to the Company in the future. Oleg Bagrin replaced Alexey Lapshin as Group President. We hope that Mr Bagrin’s appointment to senior management will enable the Company to expedite key governance decisions and improve the system for monitoring the execution of strategic Board decisions.

For more information on achievements and priorities of our Board of Directors

Our priorities remain the observance of Company shareholders’ rights and the defence of their interests, strict observance of information transparency principles, and improving corporate governance effectiveness.

Vladimir Lisin

Chairman of the Board of Directors

Achievements in 2012

New appointments and structure of the Management Board

Introduction of new management positions for logistics and procurement

Benedict Sciortino joining the Board as a new independent director

Oleg Bagrin appointed as Group President

Priorities for 2013

Defending the interests of shareholders

Observing the principles of information transparency

Increasing corporate governance effectiveness

“The Company has done a colossal amount of work in implementing the growth strategy adopted around 10 years ago. NLMK has been transformed from a Russian company into a world leader. This is the direct result of the efforts of both management and employees. As the Company’s President, I have set myself the task of not only maintaining but strengthening the Group’s leading position in Russia and worldwide.”

Oleg Bagrin

New President and Chairman of the Management Board