Annual Report 2015 - Журнал "Рынок ценных бумаг"kgo.rcb.ru/2016/otchet/omk_2015_en.pdfOMK Annual Report 2015 6 1.1 ABOUT THE COMPANY OMK’s business includes

Annual Report

2015

ABOUT THE REPORT

THE OMK ANNUAL REPORT FOR 2015 INCLUDES INFORMATION ABOUT OMK’S PERFORMANCE.

REPORTING PERIOD FROM 1 JANUARY 2015 TO 31 DECEMBER 2015.

THE FINANCIAL INFORMATION IN THE ANNUAL REPORT HAS BEEN CONSOLIDATED IN ACCORDANCE WITH RUSSIAN ACCOUNTING STANDARDS (RAS). OPERATIONAL DATA IS PROVIDED ACCORDING TO AN INTERNAL COMPANY ORDER. INFORMATION ABOUT OMK’S SUSTAINABLE DEVELOPMENT ACTIVITIES IS PRESENTED IN ACCORDANCE WITH THE GRI G4 SUSTAINABILITY REPORTING GUIDELINES.

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3OMK Annual Report 2015

CONTENTS

1 OVERVIEW

1.1 ABOUT THE COMPANY

1.2 BEST PIPELINE PROJECTS

1.3 RESULTS FOR THE YEAR

1.4 MESSAGE FROM THE CHAIRMAN OF THE BOARD

1.5 MAIN EVENTS IN 2015

2 STRATEGY

2.1 MISSION

2.2 VISION

2.3 PRIMARY AREAS FOR DEVELOPMENT

2.4 OMK BUSINESS PRINCIPLES

2.5 BUSINESS MODEL

2.6 STRATEGY IMPLEMENTATION

2.7 INVESTMENT AND R&D

2.8 STRATEGIC VISION AND OBJECTIVES

2.9 MARKET OVERVIEW

2.9.1 GLOBAL ECONOMY

2.9.2 DOMESTIC MARKET

2.9.3 PROSPECTS FOR EXPANSION OF EXPORTS

3 CORPORATE GOVERNANCE

3.1 APPROACH TO CORPORATE GOVERNANCE

3.2 MANAGEMENT STRUCTURE

3.3 MANAGEMENT BOARD

4 KEY INDICATORS AND ANALYSIS

4.1 MESSAGE FROM THE DIRECTOR OF THE ECONOMICS

AND FINANCE DEPARTMENT AND MEMBER OF THE

MANAGEMENT BOARD

4.2 FINANCIAL PERFORMANCE

4.3 MESSAGE FROM THE PRESIDENT

4.4 COMPANY OPERATING RESULTS IN 2015

• LARGE DIAMETER PIPE DIVISION

• OIL AND GAS PIPE DIVISION

• TRUBODETAL PLANT

• BLAGOVESHCHENSK VALVES PLANT

• APP DIVISION

• RAILWAY WHEELS DIVISION

• CHUSOVOY DIVISION

• NORTH AMERICA DIVISION

5 SUSTAINABLE DEVELOPMENT ACTIVITIES

5.1 MESSAGE FROM THE DEPUTY CHAIRMAN

OF THE BOARD

5.2 APPROACH TO SUSTAINABLE DEVELOPMENT

5.3 PERSONNEL

5.4 OCCUPATIONAL SAFETY

5.5 ENVIRONMENTAL PROTECTION

5.6 DEVELOPING OPERATING REGIONS

5.7 RESPONSIBLE PROCUREMENT

6 APPENDICES A AND B

APPENDICES C

7 CONTACT INFORMATION

CONTENTS OVERVIEW KEY INDICATORSMANAGEMENT SUSTAINABLE DEVELOPMENT CONTACT INFORMATIONSTRATEGY


OVERVIEW 1

CONTENTS KEY INDICATORSMANAGEMENTSTRATEGYOVERVIEW CONTACT INFORMATIONSUSTAINABLE DEVELOPMENT


ABOUT THE COMPANY1.1

OMK is an integrated high-tech producer of steel, rolled sheet, pipes, pipeline valves and fittings, railway wheels, and automotive springs. Our products enable safe and efficient transportation of freight and passengers.

THE GROUP CONSISTS OF SEVEN LARGE INDUSTRIAL PLANTS:

VYKSA STEEL WORKS (NIZHNY NOVGOROD REGION)

CASTING AND ROLLING MILL (NIZHNY NOVGOROD REGION)

BLAGOVESHCHENSK VALVES PLANT (REPUBLIC OF BASHKORTOSTAN)

TRUBODETAL PLANT (CHELYABINSK)

ALMETYEVSK PIPE PLANT (REPUBLIC OF TATARSTAN)

CHUSOVOY STEEL WORKS (PERM TERRITORY)

OMK TUBE (HOUSTON, USA)

RUSSIA

USA


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OMK’s business includes six divisions and two subsidiaries

LARGE DIAMETER PIPE DIVISION, Vyksa

• Thick-Plate Mill 5000 (Mill 5000) producing hot-rolled

thick sheet

• VSW electric pipe welding shop No. 4 producing large

diameter pipes

TRUBODETAL PLANT*, Chelyabinsk

• Producing pipe fittings

CSW DIVISION, Chusovoy

• Chusovoy Steel Works

producing automotive springs

APP DIVISION, Almetyevsk

• Almetyevsk Pipe Plant producing oil and gas pipes,

water and gas pipes and shaped pipes

NORTH AMERICA DIVISION, Houston

• Pipe shop producing casing

and tubing pipes

• Finishing shop for pipe finishing

BLAGOVESHCHENSK VALVES PLANT*, Blagoveshchensk

• Producing pipeline valves

OIL AND GAS PIPE DIVISION, Vyksa

• Casting and rolling mill producing hot rolled sheet

• VSW electric pipe welding shop No. 2 producing water

and gas pipes and small sections

• VSW electric pipe welding shop No. 3 producing

oil and gas pipes and large sections

• VSW electric pipe welding shop No. 5 producing casing

pipes

RAILWAY WHEELS DIVISION, Vyksa

• VSW Steel Works producing blanks for railway wheels

• VSW Wheel Plant producing railway wheels

* A direct subsidiary since 2015


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OMK is the largest supplier of pipes for trunk oil

and gas pipelines. We supply more than half of all railway wheels and more

than two thirds of all truck springs in Russia.

OMK’s strategic partners include leading Russian and foreign oil and gas,

transportation, and machine building companies: Gazprom, Transneft,

Gazprom Neft, Lukoil, Rosneft, NOVATEK, Sibir, Shell, ExxonMobil, Russian

Railways, Kamaz, GAZ, UAZ, MAZ, etc.

RUSSIAN MARKET POSITION AND SHAREIN PRODUCTION OF LARGE DIAMETER PIPES,RAILWAY WHEELS AND AUTOMOTIVE SPRINGS OMK IS NO. 1 NOT ONLY IN RUSSIA, BUT THROUGHOUT EUROPE

COMPANY SHARE OF DOMESTIC TUBULAR GOODS MARKET — 20%

1st place 2nd placeSignificant market share

39% 14% 7%

56% 15% 13%

68% 18%

Large diameter pipes Water and gas pipes Shaped pipes

Railway wheels Pipe fittings Pipeline valves

Springs Oil and gas pipes

23%Casing pipes


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BEST PIPELINE PROJECTS1.2

OMK pipes are used in the construction of the largest oil and gas pipelines.

km of large diameter pipes745

thou tonnes

thou tonnes

thou tonnes370 55 15

thou tonnes

thou tonnes


Bovanenkovo ››› Ukhta

Sakhalin ››› Khabarovsk ›››

Vladivostok

Yug petroleum product pipeline

Syzran ››› Novorossiysk

Central Asia ››› China

Nord Stream 2

OMK was one of the winners of the

international tender to supply large

diameter pipes for two additional

legs. Shipments are due to begin in

Q3 2016

thou tonnes

thou tonnes


Nord Stream Baltic Pipeline System Dzhubga ››› Lazarevskoye ››› Sochi

thou tonnes

thou tonnes


East Siberia ››› Pacific Ocean Ukhta ››› Torzhok Almaty ››› Taldykorgan

thou tonnes

thou tonnes

thou tonnes 215 20495

Power of Siberia

Development of Orenburg

gas field

Southern Corridor

Pisarevka CS ››› Russkaya CS

deliveries in 2015 deliveries ongoing

Filanovsky field pipeline

Filanovsky field ››› Kalmykia

Novy Port field pipeline

Novy Port field ››› Cape Kamennyy


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RESULTS FOR THE YEAR1.3

FINANCES PRODUCTION PERSONNEL

Total tubular goods

thou tonnes

Social programmes for personnel (pay-ments, benefits, etc.) RUB million

Pipeline fittings

thou tonnes

Large diameter pipes thou tonnes

Wide sheet thou tonnes

Percentage of personnel

under 30

Number of employees

persons

Railway wheels thou units

Rolled products (rolls and sheets)

thou tonnes

Pipeline valves thou tonnes

Automotive springs thou tonnes

↑ 2,453 ↑ 747↓ 16

↑ 1,380 ↑ 937 24%

> 24,000↓ 320 ↑ 1,181

↑ 6.7 ↓ 43.4

+15% +8%-15%

+30% +32%

-29% +15%

+5% -21%

RevenueRUB billion

EBITDARUB billion

ProfitRUB billion

↑ 161

↑ 36

↑ 10

+25%

+44%



MESSAGE FROM THE CHAIRMAN OF THE BOARD 1.4

DEAR FRIENDS, COLLEAGUES AND PARTNERS,

LAST YEAR WAS ONE OF OMK’S MOST PRODUCTIVE AND PROFITABLE YEARS, BUT IT WAS ALSO STRESSFUL AND DIFFICULT. WITH AN ACUTE SENSE OF THE IMPACT OF GLOBAL ECONOMIC DIFFICULTIES, WE DEVOTED SIGNIFICANT EFFORTS TO MAINTAINING THE FINANCIAL STABILITY OF OUR PLANTS AND THEIR PERSONNEL. WE CONCENTRATED ON IMPROVING PRODUCTION AND MANAGEMENT EFFICIENCY, USING RESOURCES WISELY, AND UNWAVERING COMPLIANCE WITH THE STRICTEST PRODUCT QUALITY REQUIREMENTS. AS A RESULT, OMK DEMONSTRATED GOOD OPERATING RESULTS, INCLUDING IN TERMS OF REVENUE, EBITDA, AND NET PROFIT.

These outstanding indicators were the result of more

than ten years of consistent investment in expanding

domestic production. We created a unique complex

for the production of line pipe and pipelines at the highest

level of technology and an entirely Russian manufacturing

chain for large diameter pipes. The project became one

of the largest in the field of import substitution,

and rightfully won the ‘Best Import Substitution Project’

category in the Russian Union of Industrialists

and Entrepreneurs ‘Leaders of Russian Business: Dynamics

and Responsibility — 2015’ national competition.

Our carefully selected strategy, aimed at producing goods

able to compete on an equal footing with foreign imports,

enabled us to increase sales over all previous years and

become a world leader in the large diameter pipe market.

This is further reflected in the deliveries we have made

for the most high-profile pipeline projects currently under

way. Today, we are continuing production of large volumes

of pipes, including for the largest trunk pipeline in history,

the Power of Siberia. We are also preparing to supply

the Nord Stream 2 project.

Every OMK employee has been affected by the investments

we have made in modernizing our existing production

facilities and building new ones. The majority of our

employees work with twenty-first-century equipment, where

the conditions, level and results of the problems solved meet

the highest global standards. This enables employees not

only to ‘keep their job’, but also to grow and develop, show

initiative and take a creative approach to their work.



We are committed to our goal of expanding our area

of operations, while doing everything possible to ensure

stability for our employees and allowing revenues

to account for current economic conditions. In 2015,

we launched a number of new social partnership

projects, continued charitable investments and expanded

professional education and cultural initiatives. In all,

the company has contributed more than RUB 5 billion

to social development over the past five years.

Since current macroeconomic conditions remain difficult,

it is incumbent on us to work consistently to improve

the competitiveness of each OMK plant. We tie our future

prospects to both achieving and further increasing

potential in pipe production and expanding our integrated

offerings for the oil and gas sector. We are also working

to qualitatively change the level of products and replace

imports in the pipeline fittings and pipeline valves

segments, and are expanding our offerings in springs

for foreign haulers operating in Russia. These tasks have

required us to revise our investment strategy and plan

for a serious increase in investment to expand production

in 2016–2017.

I want to emphasize that our future outlook is optimistic

as we aim to improve the business of our company

and our partners. Our goal is to become more efficient

and to be competitive in periods of both high and low

market demand.

In conclusion, I would like to express my profound

gratitude to our partners: Gazprom, Transneft, Rosneft,

Lukoil, Gazprom Neft, Russian Railways, and many other

business leaders for their productive cooperation. We

are also grateful to Sberbank, Gazprombank, Rosbank,

UniCredit Bank, Nordea Bank, and other banks for their

comprehensive support.

And, finally, as is traditional, I would like to address my

warmest words to our OMK employees. In less than a year,

in 2017, OMK will celebrate its 25th anniversary. We are

approaching this quarter-century mark as a friendly and

unified team. With OMK’s high degree of professionalism,

we will always achieve our most ambitious goals. I am

absolutely confident that together we can handle any

challenges that come our way!

ANATOLY SEDYKH

MESSAGE FROM THE CHAIRMAN OF THE BOARD 1.4


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MAIN EVENTS IN 20151.5

BUSINESS

• OMK produced 1.38 million tonnes of large

diameter pipes. The Thick-Plate Mill 5000

produced 937,000 tonnes of product.

Both figures represent company records

• OMK supplied pipes for the following

pipeline projects: Power of Siberia,

Ukhta–Torzhok, Bovanenkovo–Ukhta,

and others

• OMK and NLMK extended the contract

for supply of slabs for production of rolled

sheet and large diameter pipes

for a further five years

• OMK successfully tested pipes

and pipeline fittings made from the new

05KhGB steel grade

• Large shapes with cross section

up to 300х300 mm are being produced

at Vyksa Steel Works

• OMK has created a Strategic Projects

Centre, tasked with the development

of new products and the creation

and promotion of complex integrated

offerings

• With financial support from OMK, the 10th Victors’ Ball in honour of veterans was held

at the Museum of the Great Patriotic War on Poklonnaya Hill in Moscow

• The first OMK Partnership competition for social and charitable projects was held.

OMK financed 101 initiatives in its operating regions. The company spent RUB 13 million

on the projects

• The Blagoveshchensk Valves Plant built a year-round, two-storey sports facility with

a standardized playing court and modern fitness equipment for local residents

• More than 500 children and adults participated in the ‘We – the Children of Victory’

competition for the best readings of poetry about the Second World War organized by OMK

• More than a million pine trees were planted in the burned-out forests in Vyksa with

the active involvement of OMK employees

• Four blood donation drives were held in OMK’s Moscow office in 2015. Employees

of OMK companies and partners donated more than 100 litres of blood

• OMK held the fifth Art Ravine festival in Nizhny Novgorod Region

SOCIAL RESPONSIBILITY

OMK Annual Report 2015



MAIN EVENTS IN 2015

• OMK was declared the best employer among Russian

companies in the mining and metallurgical industry

by the Randstad Award 2015

• The encyclopaedia Metallurgy and Time, a joint project of

OMK and the Moscow Institute of Steel and Alloys was

declared the best book publishing project at the ‘Best

Books and Publishers – 2014’ national awards

• The Ministry of Culture of Russia awarded a prize

to the Batashevykh-Shepelevikh farms restoration project

in Vyksa

• The OMK Casting and Rolling Mill was declared the best

metallurgical plant in the country in terms of labour

productivity

• Clients declared the Blagoveshchensk Valves Plant the best

facility for pipeline valve production in the country

• VSW won the Russian ‘Mining and Metallurgical Industry

Facility with High Social Efficiency’ national competition

in the ‘Occupational Health and Safety’ category

AWARDS

1.5



STRATEGY2



MISSION2.1

PRODUCTION OF HIGH VALUE ADDED METAL PRODUCTS FOR THE FUEL AND ENERGY INDUSTRY, WHICH BEST SATISFY CLIENT DEMAND BY OFFERING AN OPTIMAL PRICE-TO-PERFORMANCE RATIO



VISION2.2

OMK IS A MANUFACTURER OF HIGH VALUE ADDED METAL PRODUCTSOMK IS THE LARGEST PRODUCER OF STANDARD PARTS AND AN INTEGRATED SUPPLIER OF PRODUCTS AND SOLUTIONS FOR RUSSIAN FUEL AND ENERGY INDUSTRY COMPANIESOMK HAS ASSEMBLED THE BEST TEAM OF PROFESSIONALS AMONG METALLURGICAL COMPANIES IN RUSSIA



PRIMARY AREAS FOR DEVELOPMENT2.3

In 2015, OMK continued its chosen strategy of becoming a key supplier of integrated solutions for the oil and gas industry. This model is based on developing the company’s high-tech products to meet the strictest requirements of clients.

IMPROVING OPERATIONAL EFFICIENCY

• Developing the production system

• Eliminating bottlenecks

• Using available reserves to lower operating

and non-operating expenses

• Applying an integrated approach: we devote significant

attention to environmental protection and improving

safety and working conditions

CREATING A NEW BUSINESS MODEL

• Integrating products and facilities

• Developing and using synergies

• Undergoing certification of production facilities

according to leading international standards

RETAINING OUR POSITIONS AND REVENUES IN TRADITIONAL SEGMENTS, INCLUDING BY INCREASING OUR SHARE OF NON-STANDARD PRODUCTS AND VALUE-ADDED PRODUCTS

EMPLOYING CRITICAL RISK MANAGEMENT

EXPANDING OUR PRODUCT LINE, ENTERING NEW PRODUCT SEGMENTS, AND INCREASING OUR PRESENCE IN THE OCTG SEGMENT

1 2 3

4 5



OMK BUSINESS PRINCIPLES2.4

1. HIGH-TECH

• We invest in developing high-tech, high value added

products with high barriers to entry

2. RELIABILITY

• Procurement reliability.

We procure raw materials and components by

establishing mutually profitable long-term relationships

with suppliers that offer an optimum price-quality ratio

• Delivery reliability.

We develop reliable long-term relationships with

consumers, using a long-term formula pricing system

that ensures reliable company revenue

• Production chain reliability.

We have a predictable order filling chain – from raw

materials to delivery of the product to the consumer –

with minimum process losses

• We comply with ISO social and environmental

standards

3. SYNERGY

• We invest in those business areas that enable the most

efficient use of the production and intellectual capital

accumulated in the company and the possibility

for cooperation between divisions

4. OPERATIONAL LEADERSHIP

• When it comes to our flagship products, we are

the leaders in Russia in terms of unit cost

of production

• We consider operational efficiency to be the main

driver of OMK’s future development

5. INVESTMENT LEADERSHIP

• Our investment policy is aimed at earning maximum

profit or covering unacceptable risks

• We have the best per-unit capital expenses

per unit of capacity of all similar facilities

• We have the best ROI of all Russian pipe manufacturers

6. OMK EMPLOYEES – OUR PRIORITY

• Human capital is our most important asset

• We create teams of professionals first and invest

further resources second

• Employee safety is the company’s priority

7. SOLVENCY

• We always meet our obligations to creditors

• We maintain a reliable company debt-to-income ratio

(debt/EBITDA), which ensures that we can reliably meet

our obligations and are attractive to creditors

8. PRIORITY OF BUSINESS MODEL

OVER PRODUCT

9. SAFETY AND ENVIRONMENT

• Adhering to precautionary principles, we create safe

working conditions for personnel and contractors

and guarantee the environmental safety of our

products

10. BUSINESS RESPONSIBILITY

• The company complies unwaveringly with all legal

requirements and adheres to the principles of ethical

behaviour in its interactions with internal

and external interested parties, following

the principles of accountability and transparency

in our operations


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BUSINESS MODEL 2.5

Divisions Raw materials OMK Group assets – redistribution and integration Finished products

LARGE DIAMETER

PIPE DIVISIONSlabs TPM 5000 Sheet EPWS4

Large diameter pipes

Hot-rolled wide sheet

OIL AND GAS PIPE DIVISIONScrap

EPWS2

Casting and Rolling Mill Roll EPWS 3

EPWS 5

Oil and gas pipes

Water and gas pipes

Casing pipes

Shaped pipes

Hot-rolled sheet

APP DIVISION Roll Pipe production

Oil and gas pipes

Water and gas pipes

Shaped pipes

NORTH AMERICA DIVISION

Roll Pipe Shop “Green Pipe” Finishing Shop

OCTG

Smooth pipes

RAILWAY WHEELS DIVISION Scrap,

Cast ironSteel Works Wheel Rolling Plant Railway wheels

CSW DIVISION Blanks Section rolling mill Automotive spring shop Springs

Rolled sections

TRUBODETAL PLANTPipes, components,

sheet steel

Large Diameter Pipes and Large

Diameter Pipe Division sheet Trubodetal

Pipeline fittings

BLAGOVESHCHENSK

VALVES PLANTScrap, rolled stock Blagoveshchensk Valves Plant Pipeline valves

Finishing Centre 1

1 The Finishing Centre is a planned OMK project which will enable the company to enter the new segment for casing pipes with diameters in excess of 245 mm.

CLI

ENTS



STRATEGY IMPLEMENTATION2.6

In 2015, OMK production and sales took place against the background of a persistent

economic decline and a drop in production indicators across a number of industries that

use the company’s products. Nevertheless, production increased in a number of segments,

primarily tubular goods, while in other segments the decrease was less than in the

corresponding market segments. This was the result of coordinated teamwork

by the company’s commercial and production departments, as well as the effect

of the decrease in the exchange rate of the rouble and the process of substituting imports

with domestic products.

We implemented a number of management and production projects in 2015:

MANAGEMENT

• The Strategic Projects Centre was founded at OMK. This new unit will expand the ability

of the company’s facilities to produce new products, create and promote complex

integrated solutions in line with the corporate strategy, implement import substitution

programmes, and penetrate new sales markets, including export markets.

The functions of the Centre include planning and management of interdivisional

projects, from development of the business model to series production of products

• Today, OMK’s divisions are independent units capable of initiating and completing

investment projects and systematically addressing tasks to improve efficiency

• To improve efficiency, it was decided to close down the OMK Pipeline Fittings

and Pipeline Valves Division. The directors of the Trubodetal Plant and Blagoveshchensk

Valves Plant will henceforth be directly subordinate to OMK President Vladimir Markin

• OMK introduced a CRM system to achieve a new and improved level of interaction

with clients. This innovation made it possible to increase the transparency of sales

processes and their efficiency, as well as the quality of client service

PIPES

• A new grade of steel, 05KhGB, with improved operational reliability was developed, and

the production of large and medium diameter pipes from this steel was perfected.

• Production of 1420 mm diameter pipes with wall thickness of 32 mm for Gazprom from

our own sheet on the Thick-Plate Mill 5000 was perfected

• Production of rolled sheet on the Thick-Plate Mill 5000 and pipes 720 mm in diameter

with wall thickness of 26 and 28 mm from grade 08GFBU for development

of the Gazprom Neft Orenburg gas field was developed

• Production of strength class K52–K60 rolled sheet and oil and gas line pipes 530 mm

in diameter with wall thickness of 8–12 mm was developed

• Production of shaped pipes used in construction with cross sections of 250×250 mm,

300×200 mm and 300×300 mm was mastered on the modernized 203-530 rolling

mill at Vyksa Steel Works Pipe Shop No. 3 (previously the maximum shape size was

200×200 mm). This resulted in the production of 1,500 tonnes of new products with

various wall thickness


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PIPELINE VALVES

• A new flaskless moulding line was commissioned

at the Blagoveshchensk Valves Plant which enabled

automation of the process of fabricating boxless

moulds made of a cold hardening mix

for the manufacture of pipeline valve bodies.

Castings with nominal internal diameter up to 250 mm

will be produced on the new line. In comparison with

traditional casting methods, the new line provides

castings of higher quality, more comfortable working

conditions for the mould operators, and higher

productivity

• A number of new standard sizes were developed and

placed in production as part of our project to expand

the range of standard sizes in new segments (wellhead

and ball valves)

• New standard sizes of safety relief valves have been

developed with increased capacity (sixth-generation

spring-loaded safety relief valves)

• The existing designs of wedge gate valves

and check valves have been optimized to improve their

specifications

• The Blagoveshchensk Valves Plant has continued its

project to expand capacity for production of large

valves over 500 mm in diameter and valves

for cogeneration plants, while simultaneously

modernizing the existing equipment

PIPELINE FITTINGS

• A facility for cold bending of taps has been installed

at the Trubodetal plant. It enables production

of products with diameter from 1020 to 1420 mm, wall

thickness up to 41 mm and strength class K65.

The plant already had equipment for such diameters,

but with lesser pipe wall thickness. The new facility

enables the plant to supply products for complex stra-

tegic gas pipelines with strict requirements

• The plant also commissioned a new unit for machining

branch pipe ends and spoolers for pipelines with diam-

eter from 32 to 325 mm. It will operate to fill orders

for production of modular assemblies for the energy

industry

SPRINGS

• The Chusovoy Steel Works has developed 48 new

types of spring, including 20 for foreign models. Sales

volume in this segment has more than doubled.

The range of complex springs, including half springs

(arms) for air suspensions, has been expanded. Design

time has been reduced

RAILWAY WHEELS

• OMK began production of wheels for Lastochka high-

speed trains

STEEL AND ROLLED PRODUCTS

• The first stage of the Pure Steel project has been

successfully implemented at the Casting and Rolling

Mill, resulting in waste reduction from etching blister

and scab defects

• The company has started production of super-

thin 1 mm thick rolled stock and pipes made from

it. Combined roll shearing and slitting line No.

1 entered operation following modernization, making

it possible to provide more reliable delivery of strips

for VSW Pipe Shop No. 3.

• The entire pipe product line made from

our own rolled sheet on the Thick-Plate Mill 5000 has

been certified for the Nord Stream 2 project

• The technology has been developed for producing

rolled stock 13–29 mm thick and electrically welded

pipes 720–1020 mm in diameter with strength classes

K48-K50 made of grade 08GBF-U steel with strict

requirements on ductility, cold resistance, and

resistance to sulphide stress cracking

STRATEGY IMPLEMENTATION2.6



INVESTMENT AND R&D2.7

PRIMARY COMPANY INVESTMENT PROJECTS INITIATED IN 2015:

• Constructing a high-tech casing pipe finishing centre at Vyksa

• Modernizing the blank shop at the wheel rolling facility to switch

to billets

• Upgrading and expanding casing pipe cutting capacity

• Setting up shops for applying various types of coatings (silicate-enam-

el, polyurethane foam, and preservative) to small and medium diameter

pipes

• Expanding the capacity of the unit for volume heat treatment of small

and medium diameter pipes in VSW Shop No. 3

• Developing modular designs for mineral developers

PRIMARY AREAS FOR R&D IN 2015:

• Developing technology for fabricating pipes from our own rolled stock for participation

in the Nord Stream 2 pipeline project

• Optimizing the chemical composition of the steels for fabrication of rolled stock on the Thick-Plate

Mill 5000 and at the Casting and Rolling Mill

• Developing technology for fabricating railway wheels from billets

• Developing technology for fabricating wheels for high-speed trains

• Improving the specifications of pipeline fittings

• Reducing the content of non-metallic inclusions in steel

• Developing resource-efficient steelmaking technologies

• Developing modular designs for oil and gas field development

• Developing technology for production of pipeline fittings for pressures up to 32 MPa

• Perfecting production technology at all stages, including smelting, casting, rolling, pipe processing,

welding, etc. to improve the properties and increase finished product output

InvestmentRUB billion

R&D expenditureRUB million

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

16.6

16.9

16.8

85.4

16.1 128.8

11.5

119.0

5.3

131.3

We maintained a conservative investment policy in the report-

ing year due to adverse external factors.

We concentrated on key projects in the production of oil and

gas line pipes and railway wheels. We also made important

decisions in 2015 for the medium-term perspective, aimed at

further developing the pipe facility and expanding the range of

high-demand pipeline fittings and pipeline valves meeting our

clients’ strictest requirements.


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STRATEGIC VISION AND OBJECTIVES2.8

LARGE DIAMETER PIPES

OMK will retain a large share of the Russian market

in the near future. The company plans to participate

in major projects by Gazprom, Transneft, and oil

companies, and to supply large diameter pipes

for production and workover needs. There are also plans

to increase pipe exports as part of the project to build two

new legs of the Nord Stream 2 pipeline (OMK was one

of the winners of the tender and will supply 745 km

of pipes). In addition, OMK plans to participate in tenders

for projects in the CIS nations (the Central Asia–China

pipeline, etc.)

RAILWAY WHEELS

In the medium term, OMK will continue to hold a leading po-

sition on the domestic market, with at least a 50% market

share.

OIL AND GAS PIPES

We expect to increase the share of cut high-strength pipes

and pipes with premium and semi-premium class threaded

joints in our portfolio.



SPRINGS

We have set a course to develop new types of springs

for imported vehicles as part of our import substitution

programme. OMK is expanding production of springs

for imported vehicles, undergoing certification

as a supplier for conveyors for imported automotive

equipment in Russia, entering foreign markets, working

to improve Chusovoy brand awareness, including among

clients abroad, and to create a new brand of springs

for imported models.

ROLLED FLAT PRODUCTS

The company’s plans include starting production

at the Casting and Rolling Mill of high-strength rolled

products 4–12 mm thick for heavy construction machinery

and certification of rolled products according to building

codes. There are plans to start production on the Mill 5000

of a range of high-strength products for heavy industry

and construction.

Measures implemented at the Casting and Rolling Mill

and the Mill 5000 will improve product properties

by optimizing their chemical composition and rolling

conditions.

WATER AND GAS LINE PIPES AND SHAPED PIPES

OMK intends to ensure reliable filling of orders for complex

deliveries and to increase the volume of work on direct

orders from small consumers. The company is striving

to enter the high-volume market with stable annual

production volumes and to develop the fastest-selling

standard sizes for construction. It plans to develop

thin-walled shaped pipes, and to enter the flat-oval

and oval pipe segments in the future.

PIPELINE FITTINGS

We are introducing factory-ready modular equipment

for oil and gas field development, process vessels,

and reactor columns, which will enable us to hold

our leading positions in the market for pressed

and welded medium diameter pipe and high frequency

current manufactured parts and assembly units.

PIPELINE VALVES

We plan to increase sales of new types of pipeline valve

by developing promising new designs and technologies.

STRATEGIC VISION AND OBJECTIVES2.8


G4-СПМ


MARKET OVERVIEW2.9

THE COMPANY’S PRIMARY SALES MARKETS ARE RUSSIA AND THE CIS NATIONS DUE TO THE STABLE DEVELOPMENT OF THE OIL AND GAS INDUSTRY, THE ACTIVE DEVELOPMENT OF HYDROCARBON FIELDS, AND THE CONSTRUCTION OF NEW DOMESTIC AND EXPORT PIPELINES. THE COMPANY’S BUSINESS IS HIGHLY DIVERSIFIED.

The primary OMK sales markets are Russia and the CIS nations,

but the company supplies products to more than

countries worldwide



GLOBAL ECONOMY2.9.1

GLOBAL IMPACTS ON WORLD MARKETS IN 2015 INCLUDED:

• Drop of 50% in annual average oil prices,

and a 25–40% fall in commodity prices. Consequently, world steel

prices dropped 20–40% depending on the region

• Strengthening of the US dollar

• Lifting of international sanctions on Iran

• Hardening of protectionist policies in all regions

• Reciprocal sanctions between Western nations and Russia

According to a World Bank estimate, world GDP growth remained

practically unchanged (2.5% in comparison with 2.6% in 2014).

Economic growth rates in emerging economies remained at

4.4%.

According to World Steel Association (WSA) data, world steel production

in 2015 was 1.6 billion tonnes, 2.8% lower than in 2014, of which:

• China produced 50.3% of the total

• Russia produced 4.4%

World steelmaking capacity utilization decreased from 72.5% to 64.6%

in 2015.

RUSSIA’S SHARE IN WORLD STEEL PRODUCTION IN 2015:

WORLD STEELMAKING CAPACITY UTILIZATION FOR 2015:

WORLD STEEL PRICES FELL BY:

↑ 4.4%

↓ 64.6%

↓ 25–40%



DOMESTIC MARKET2.9.2

In 2015, as in 2014, various trends were observed

in the segments of the domestic market in which OMK

operates. Consumption of large diameter pipes increased

30% to 3.3 million tonnes due to strategic projects

(data from the Pipe Industry Development Fund).

However, a decrease was recorded for almost all other

types of pipe (7% for casing pipes, 10% for oil and gas line

pipes, 11% for shaped pipes, and 20% for water and gas line

pipes). As a result, the total capacity of the domestic pipe

market increased insignificantly (+1% relative to 2014)

to 10.8 million tonnes, with production capacity in the order

of 15 million tonnes.

In 2015, the sharp drop in world oil prices was

an adverse factor for the market, and led to a reduction

in the investment programmes of the largest oil companies

in Russia. Oil and gas producers were forced to re-examine

and extend the schedules for a number of projects

to modernize refinery equipment. The Blagoveshchensk

Valves Plant, one of the few Russian full-cycle plants with

its own casting and blank production, was affected

by the adverse impact of Chinese pipeline valve suppliers

on the market.

The railway wheels market continued to shrink in Russia,

the CIS, and the 1520 mm gauge market as a whole.

The significant drop in railway wheel production at VSW

has entered its third year.

Against the background of the drop in consumption

in the Eurasian Economic Union (EAEU), wheel supplies

from Ukraine at dumping prices further aggravated

the situation. An anti-dumping investigation was conducted

on this case, which resulted in a 4.75% duty on imports

of one-piece rolled wheels from Ukraine to the EAEU

in addition to the existing import tariffs. Customs tariff

regulations have also changed as of 1 January 2016 due

to the decision by Russia to stop levying a 0% import

duty on its trade with Ukraine. Currently, Russia applies

standard tariffs like those on imports from overseas

to imports of goods, including one-piece rolled railway

wheels from Ukraine.

The automotive springs market, in which OMK

is the leader in Russia, also shrank due to the adverse

impact of economic factors and, as a result, the decrease

in automotive freight shipments and truck production.

SHRINKAGE OF THE MARKET FOR VARIOUS TYPES OF PIPE IN 2015

million tonnes

million tonnes

7–20%

15

↑ 10.8

TOTAL PRODUCTION CAPACITY OF RUSSIAN PIPE COMPANIES

TOTAL CAPACITY OF DOMESTIC PIPE MARKET



PROSPECTS FOR EXPANSION OF EXPORTS2.9.3

MIDDLE EAST

We view this region as one of the most promising tubular

goods sales markets, especially since the sanctions

on Iran have been lifted. In 2015, our representative office

in the UAE participated in many tenders to supply pipe

for pipeline construction, in Iraq and Saudi Arabia

in particular. The change in the political and economic

situation (the drop in oil prices and the wars in Iraq

and Syria) led to a temporary suspension of sales for these

projects. OMK’s primary competitors in the Middle East

are manufacturers from Turkey, Saudi Arabia, and Iran.

EUROPE

The drop in world energy and commodity prices had

a positive impact on Europe’s economy. As a result,

European GDP grew by 1.9% in 2015. Nevertheless,

the region faces serious risks, including the high

unemployment level in the developed nations, a decline

in trade, political instability in a number of countries, etc.

The region is promising for OMK from the viewpoint

of supplying large diameter pipes for trunk gas pipelines.

A decision was made in 2015 to develop a project for two

additional pipeline legs on the Baltic seabed – the Nord

Stream 2 project. Elsewhere, construction of the TAP gas

pipeline began. This pipeline will tie into the TANAP system

and deliver natural gas from Turkmenistan, Azerbaijan,

and possibly Iraq to Southern Europe.

AFRICA

OMK has successful experience in supplying tubular goods

to the African continent. In particular, more than

30,000 tonnes of large diameter pipes were shipped

in 2009–2011 for the construction of the OML 58 gas

pipeline in Nigeria by Total and the national government.

The region has significant potential for oil and gas projects.

However, high political and economic risks are typical,

and therefore development of the majority of large oil

and gas fields and pipeline construction were halted

in 2015. Egypt, Algeria, Angola, Mozambique, and Tanzania

may become the primary growth markets for hydrocarbon

production in the coming years.



PROSPECTS FOR EXPANSION OF EXPORTS2.9.3

ASIA

The slowdown of economic growth in China continues

to be the main influencing factor on the status of this

region. China’s GDP increased by 6.8% in 2015. China fell

behind India (+7.3%) on this indicator for the first time

in a long time.

Due to its excess steel capacity, China was forced

to announce reductions of 100–150 million tonnes until

2020. The share of Chinese steel exports

to its domestic production increased from 11% to 14%.

USA

Overproduction of oil and a high level of imports of cheap

products led to the filling up of existing storage facilities

and forced the US Government to cancel the prohibition

on oil exports which was imposed 40 years ago.

The number of drilling rigs in operation dropped steadily,

falling 60% by the end of 2015, leading to shrinkage

of the OCTG market. Local manufacturers could

not withstand the competition from cheaper imports,

and steel mills were forced to shut down.

CENTRAL AND SOUTH AMERICA

The difference in the rates of development of the two

primary customs blocs became even more prominent

in 2015. Slowdowns or recessions were observed

in the Mercosur countries (Venezuela, Brazil,

and Argentina), which continue to adhere to protectionist

principles. However, the members of the Pacific Alliance

(Chile, Peru, Colombia, etc.) retain more stable rates

of development and are striving to increase trade volumes

by reducing customs tariffs and reaching new markets.

The drop in energy prices aggravated the internal

problems of the major oil and gas companies

on the continent: Petrobras in Brazil and YPF in Argentina.

As a result, a decrease in investment in energy projects

is being observed in the region.



3 CORPORATE GOVERNANCE



APPROACH TO CORPORATE GOVERNANCE3.1

OMK is not a public company, but its corporate governance system is built on the basic principles of the Corporate Governance Code, including:

• The company shall ensure equal and fair treatment

of all shareholders as they exercise their right

to participate in governance of the company

• Shareholders shall be provided equal and fair

opportunities to share in the company’s profits

by receiving dividends

• The corporate governance system and practice

ensures equal conditions for all shareholders —

owners of shares of one category (type), including

minority shareholders and foreign shareholders,

and equal treatment of them by OMK

• Shareholders have been provided with reliable

and effective means for accounting for rights

to shares,

as well as the opportunity to dispose of the shares

belonging to them freely and without encumbrance

• The company’s corporate secretary is responsible

for conducting all ongoing communications

with shareholders, coordinating actions to protect

the rights and interests of shareholders, and

supporting effective action by the board of directors

• The level of remuneration paid by the company shall be

sufficient to enable it to attract, motivate, and retain

employees who have the required skills

and qualifications

• The system of remuneration for members

of the executive bodies and other key executives

of the company shall provide for their remuneration

to be dependent on the company's performance

and their personal contributions to achieving it

• The company shall organize an internal audit to ensure

a systematic, independent evaluation of the reliability

and effectiveness of the company's risk management

and internal control system and its corporate

governance practices

• OMK’s operations are sufficiently transparent for

shareholders, investors and other interested parties

• The company shall disclose complete, up-to-date

and reliable information about itself on a timely basis

to allow its shareholders and investors to make

informed decisions

• OMK shall provide information and documents

at the request of shareholders in accordance with

the principle of equal and unhindered access

• Any actions that may materially affect the company's

share capital structure and its financial position and,

accordingly, the position of its shareholders (“material

corporate actions”) shall be taken under fair terms

and conditions that ensure that the rights

and interests of shareholders as well as other

interested parties are observed

• The company shall provide a procedure for material

corporate actions which allows shareholders

to receive timely and complete information on

such actions, provides them with the opportunity

to influence decision making about such actions

and ensures compliance and an adequate level

of protection of shareholder rights in the performance

of such actions


G4-34


APPROACH TO CORPORATE GOVERNANCE3.1

In its operations, OMK is focused on best global practices

and corporate governance standards. An important aspect

of OMK’s corporate governance is that OMK uses its non-public

status not to ensure secrecy about its operations, but rather

to respond more promptly to the challenges and needs that

the company might face.

Among OMK’s functional strategies, which are reflected

in the constituting documents of the corporate governance

system, is the Declaration of Corporate Ethics. The basic

objective of this document is to ensure that members

of the Management Board, managers, and company employees

adhere to high standards of corporate ethics, take action

in the event of conflicts of interests, and conduct business

in a responsible manner. An important feature of the system

of internal documentation is its consistency and flexibility.

Any external and internal challenges are quickly reflected

in the provisions of local regulations. In particular, a new version

of the OMK Declaration of Corporate Ethics was approved

in 2015 (effective as of 1 April 2015), demonstrating

the company’s flexibility on issues of corporate governance.

OMK adheres to a sustainable development policy aimed

at accomplishing its mission, supporting the company’s strategy,

and streamlining and standardizing sustainable development

operations across all companies controlled by OMK.

The document describes the basic priorities in sustainable

development, requirements for reporting and analysis

of operations, as well as the allocation of responsibilities

for implementing the policy.

THE OMK CORPORATE GOVERNANCE SYSTEM IS BASED ON THE FOLLOWING CORPORATE VALUES:

• ENSURING MAXIMUM PROFITABILITY IS OBTAINED FROM SHAREHOLDER CAPITAL

• DEMONSTRATING RESPECT FOR AND TRUST IN EMPLOYEES AND PARTNERS

• SUPPORTING INNOVATIONS AND CONSTANTLY IMPROVING PRODUCT QUALITY

• MAINTAINING A BALANCE BETWEEN THE INTERESTS OF SHAREHOLDERS, MANAGEMENT AND EMPLOYEES



MANAGEMENT STRUCTURE3.2

The most recent optimization of OMK’s management

structure began in 2015 and was completed in January

2016. This measure was aimed at improving efficiency

and speed in strategic decision-making and ensuring

that issues are reviewed in a timely manner. The ensuing

structure has increased the personal responsibility of each

manager for performance results.

Chairman of the Management Board Anatoly Sedykh

exercises the authority of the Sole Executive Body.

Company operations are managed by the Chairman

of the Management Board (Sole Executive Body)

and the collegial executive body — the Management Board,

which consists of eight elected members. Some

of the authorities for managing the company are delegated

to President Vladimir Markin and Deputy Chairman

of the Management Board Natalya Eremina.

The authorities of Chairman of the Management Board

Anatoly Sedykh include management of strategic issues,

expansion of the company, new projects, investment,

marketing, and efficiency.

The role of the President focuses on managing production,

one of the most important areas of management.

The directors of production units are subordinate

to the President. Deputy Chairman of the Management

Board Natalya Eremina is responsible for overall

management of other areas of operations.

The company plans to complete the work on delegation

of authorities and definition of the areas of responsibility

between members of the Management Board

and to more precisely define the competencies

of the managing directors in 2016.

Thus, the management system in the OMK Group

is constantly being perfected to improve the efficiency

of group operations in all significant aspects.

The Russian company OMK Holding controls all OMK

companies (the subsidiaries VSW, Trubodetal, APP, BVP,

OMK-Project and OMK), since it owns the majority

of the equity capital.

The controlling company, OMK, managed the routine

operations of the primary companies in the group (VSW,

OMK Steel, Trubodetal, APP, CSW, BVP and OMK-Project)

in 2015, being given the functions of the sole executive

body of these companies. OMK is a 100% subsidiary

of OMK Holding. OMK provides corporate governance

for the OMK Group.


G4-7


MANAGEMENT AND OVERSIGHT STRUCTURE3.2.1

External auditor

(elected by shareholders)

Sole executive body –

Chairman of the Management Board

(Anatoly Sedykh)

Revision Committee

(elected by shareholders)

Internal Audit Service

(documents regulating the activity of the Internal Audit Service

are approved, and the director is appointed, by the Chairman

of the Board; internal audit procedures are approved

by the shareholder)

The sole shareholder of OMK is OMK Holding

(General Director – Anatoly Sedykh)

Collegial executive body — OMK Management Board



MANAGEMENT BOARD3.3

In 2015, 112 meetings of the Management Board

(40 in person and 72 in absentia) were held,

during which issues on more than 190 topics were

considered. The key areas were improving

the efficiency of facilities, budgeting and achieving

objectives, implementation of social programmes

in areas where the company operates, strategic

development, and future projects.

ANATOLY SEDYKH

Chairman of the Management Board

Anatoly Sedykh was elected Chairman of the OMK Management Board at the General

Meeting of Shareholders on 29 January 2013. He has held leadership positions

in the company since 1999. Initially, he headed Vyksa Steel Works and led the company

out of crisis. Subsequently, he was appointed OMK Director General and Chairman

of the Board of Directors of VSW. In 2002, he was elected Chairman of the Board

of Directors of the Company, and was OMK President between 2003 and 2006.

Anatoly Sedykh is a member of and heads the following committees: efficiency

management, HR, audit, financial, strategic development, information technology,

and economic security.

He was born in 1964 and graduated from the Moscow Institute of Steel and Alloys

(Ph.D. in Economics).

VLADIMIR MARKIN

President

Vladimir Markin rose from pipe finishing subforeman at the Vyksa Steel Works to OMK

President, a post he has held since April 2006.

He has held management positions in the company since 2001. He has been Director

General of OMK Technical Centre, OMK Marketing and Sales Director, Deputy Large

Diameter Pipe Shop Foreman, Marketing and Sales Manager, and Deputy General Director.

Vladimir Markin is a member of the following committees: efficiency management, HR, audit,

financial, strategic development, economic security. He heads the operational activity

and occupational safety committee.

He was born in 1954 and graduated from the Moscow Institute of Steel and Alloys with

a degree in Metallurgical Engineering.



MANAGEMENT BOARD3.3

NATALYA EREMINA

Deputy Chairman of the Management Board

Natalya Eremina joined OMK as the Head of the Controlling

Department in 2001. In 2004, she was appointed Director

for Corporate Finance and Investor Relations. She was

appointed OMK Vice President in 2006.

She previously worked at Metallinvestbank as Head of the

Interbank Credit Department, Head of the Lending Division,

and Deputy Chairman of the Management Board.

Natalya Eremina is a member of the following committees:

efficiency management, HR, audit, financial, occupational

safety, strategic development, information technology,

and economic security. She heads the government

relations committee.

She was born in 1971 and graduated from the Department

of Mechanics and Mathematics at Lomonosov Moscow

State University.

DMITRY CHERNYSHEV

Member of the Management Board, Director of the Asset

Development and Investment Department

Dmitry Chernyshev was appointed Director of the Asset

Development and Investment Department in February 2016.

He was appointed Vice President and Director for Research

and Strategy in November 2007. He has been working with

the company since 2002 as Project Manager and First

Deputy Director General of APP and Director for Strategic

Development of VSW. Throughout 1996–2001, he held

different positions in the business development divisions

of various Russian industrial companies.

Dmitry Chernyshev is a member of the following

committees: HR, financial, strategic development,

and government relations.

He was born in 1974 and graduated from Lomonosov

Moscow State University and the Academy of the National

Economy of the Government of the Russian Federation

with a degree in Strategic Management.

EDUARD STEPANTSOV

Member of the Management Board, Head of Commercial

Department

Eduard Stepantsov has been the Head of the Commercial

Department since February 2016. Previously, he was

appointed Vice President in December 2008. He joined OMK

in 1999 as OMK Technical Centre Director General. In 2001,

Eduard Stepantsov was appointed OMK Deputy Director

General and Director for Commercial Issues. He worked

in the investment business from 2003 to 2008.

Eduard Stepantsov is a member of the following

committees: financial, occupational safety, strategic

development, and government relations.

He was born in 1963 and graduated from the Irkutsk

Institute of the National Economy with a degree

in Economics and Procurement Planning.



YULIA SHKHIYANTS

Member of the Management Board, Director of the

Economics and Finance Department

Yulia Shkhiyants has been the Director of the Economics

and Finance Department since February 2016. She was

previously appointed OMK Vice President

in February 2013. Yulia Shkhiyants joined the company

in May 2007 as Director for Economics and Finance.

She previously served as Chief Financial Officer

of Greenoak Holdings, Finance Director of Zepter

International, and as a senior auditor at KPMG.

Yulia Shkhiyants is a member of the following committees:

efficiency management, audit, financial, information

technology, and government relations.

She was born in 1975 and graduated from the Peoples’

Friendship University of Russia with a degree in Economics.

SVETLANA NIKOLASHINA

Member of the Management Board, Director of the

Human Resources Department

Svetlana Nikolashina has been the Director of the Human

Resources Department since February 2016. She was

appointed HR Director in 2003 and Vice President

in February 2015. From 2002 until 2003, Svetlana

Nikolashina was HR Director of VSW. She previously

worked for Severstal in project teams and as HR Director

in the company’s subsidiaries.

Svetlana Nikolashina is a member of the HR

and occupational safety committees.

She was born in 1979 and graduated from

the St. Petersburg State University of Engineering

and Economics with a degree in Finance and Credit

and the Academy of National Economy of the Government

of the Russian Federation with an MBA in Strategic

Management. She has also taken HRM training courses.

ALEXEY MITENKOV

Member of the Management Board, Director for IT and

Intelligent Security Systems

Alexey Mitenkov has been Director for IT

since February 2013. In February 2016, he was appointed

Director of the new Intelligent Security Systems

Department, which is tasked with preventing risks and

investigating fraud. Alexey Mitenkov worked as Director

General of OMK-Audit from February 2009 until February

2016. He joined the company in April 2008 as Deputy

Director for Economics and Finances. From 2000 to 2008,

he worked at KPMG.

Alexey Mitenkov is a member of the information technology

committee.

He was born in 1977 and graduated from the Finance

Academy under the Government of the Russian Federation

with a degree in Finance and Credit.

MANAGEMENT BOARD3.3



4 KEY INDICATORSCONTENTS KEY INDICATORSMANAGEMENTSTRATEGYOVERVIEW CONTACT INFORMATIONSUSTAINABLE DEVELOPMENT


MESSAGE FROM THE DIRECTOR OF THE ECONOMICS AND FINANCE DEPARTMENT AND MEMBER OF THE MANAGEMENT BOARD

4.1

DEAR FRIENDS, COLLEAGUES AND PARTNERS,

THIS PAST YEAR HAS NOT BEEN AN EASY ONE. SIGNIFICANT CURRENCY VOLATILITY WAS OBSERVED IN RUSSIA AND THE COUNTRY SUFFERED UNDER THE IMPACT OF ADVERSE FACTORS, INCLUDING SANCTIONS. LIQUIDITY IN THE BANKING SYSTEM WAS LOW, ESPECIALLY EARLY IN THE YEAR, AND THIS HAD A NEGATIVE IMPACT ON THE AVAILABILITY AND COST OF CREDIT.

Nevertheless, OMK achieved good financial results in 2015.

OMK experienced growth in the key pipe segment of the

business. The Large Diameter Pipe Division was especially

successful, nearly doubling revenues in comparison with

the preceding year. At the same time, there was a decrease

in revenues from pipeline fittings (due to the change

in sales structures) as well as from railway wheels, due

to the falling demand for this product.

In 2015, OMK continued to work to improve efficiency

and reduce costs, which, together with the increase

in production volumes, made it possible to increase EBITDA

by 44% in comparison with 2014, to RUB 36 billion, and once

more achieve a net profit, of RUB 10 billion. This profit

was significantly impacted by:

• Negative trends in exchange rates in the amount

of RUB 5 billion

• Write-offs of expenses in the amount of RUB 2.8

billion due to the Chusovoy Steel Works construction

project, cancelled as a result of the sharp changes

in the macroeconomic situation, which impacted our

investment capabilities

We maintained our chosen strategy to reduce our credit

portfolio and improve the company’s liquidity. Net payoff

of credits in 2015 was RUB 10 billion, or nearly half

of the free cash flow. The ratio of net debt to EBITDA

dropped to 1.7 (compared with 2.5 in 2014).

We are taking a positive view of our prospects for 2016,

despite the difficult market situation and the fact that the

Russian economy has still to reach a trajectory of growth.

A reduction in expenses and participation in our strategic

partners’ forthcoming major projects will enable

us to further reduce debt and improve the company’s

financial stability.

Yulia Shkhiyants



FINANCIAL PERFORMANCE4.2

Large Diameter Pipe Division

Oil and Gas Pipe Division

Almetyevsk Pipe Plant

Railway Wheels Division

Trubodetal Plant

Chusovoy Steel Works

Blagoveshchensk Valves Plant

North America Division

Other

RevenueRUB billion

Net profitRUB billion

EBITDARUB billion

Percentage of total revenues

161 10 36

2011 2012 2013 2014 2015 2011 2012 2013 2014 20152011 2012 2013 2014 2015

105 20.5

3

129 252529

112119 10.5

15

-13

161 36

10

52%

28%

4,5%

2,5%

2%

2%

1,5%

4,5%

3%


G4-ЕС1


MESSAGE FROM THE PRESIDENT4.3

The Large Diameter Pipe Division showed good results,

producing more than 1.3 million tonnes of product.

The key to success here, in my view, is our improvements

to the efficiency of process management: from delivery

of raw materials to production and shipping. We

significantly improved order filling reliability, reduced

production time, and improved quality. According

to feedback from our leading consumers, including

Gazprom and Transneft, OMK was recognized as the best

pipe industry supplier in 2015. The teams at the Large

Diameter Pipe Division and Vyksa Steel Works deserve

major credit for this.

The Oil and Gas Pipe Division also finished the year with

growth in comparison with 2014, despite the crisis in the

consuming industries and market shrinkage. I would also

like to note the improvement of its client relations: both

production and delivery times were reduced.

We continued to expand our capabilities with regard

to integrated offerings for the oil and gas industry.

The company created the Strategic Projects Centre, which

will coordinate work to develop promising types of product,

implement import substitution projects, and enter new

sales markets. It will also expand interdivisional projects:

from development of business models to the organization

of series production.

Production of springs and railway wheels decreased due

to falling demand. But, thanks to the professionalism

of staff in the sales units, the Railway Wheels Division and

Chusovoy Steel Works were able to partially compensate

for the decrease. We significantly increased wheel exports,

including to the USA, India, and the European Union, and

made our first deliveries to Cuba. Production of springs

for foreign haulers operating in our country increased

significantly.

DEAR COLLEAGUES,

OMK OVERCAME THE ECONOMIC CRISIS IN 2015 AND POSTED GOOD RESULTS IN A NUMBER OF AREAS. THIS WAS GREATLY AIDED BY THE IMPROVEMENT OF THE PROCESS MANAGEMENT SYSTEM AND THE MORE INDEPENDENT OPERATION OF DIVISIONS AS PRODUCTION UNITS, WHICH WERE PROVIDED WITH THE NECESSARY RESOURCES AND GIVEN THE CAPABILITIES TO INITIATE AND IMPLEMENT INVESTMENT PROJECTS.



We made a number of important decisions to improve

efficiency in the reporting year. These included the further

expansion of the production system, improving equipment

reliability, and reducing down time. Due to the introduction

of a target-setting system, the efficiency of the teams

increased: from production line

personnel to managers.

Roadmaps were developed for the divisions (with

measurable targets for a period of up to three years).

This will enable the business units to look more confidently

towards the future and better plan their resources

and development.

The company is methodically increasing the percentage of

its efficient suppliers. To this end, we have developed

MESSAGE FROM THE PRESIDENT4.3

a system of supplier certification and qualification. OMK

also switched to category management in 2015, in order

to supply our plants more efficiently.

To best satisfy client requirements, we introduced a CRM

system that enabled us to improve the transparency

of sales processes, work more efficiently, and significantly

improve relations with partners.

Competition is increasing in our key industries, especially

the pipe industry. OMK will continue to develop projects

to reach new product niches in 2016, for example,

by expanding production of springs for imported trucks,

modular valves, and shaped pipes with large cross sections

for steel construction. We are participating in Russian

and international strategic pipeline projects; in particular,

we are supplying pipes for the Power of Siberia and Nord

Stream 2 pipelines, and increasing deliveries abroad

to the CIS and Africa.

I would like to thank all OMK employees for their

conscientious work and commitment. Your knowledge

and experience, dedication, and constant development will

create a foundation for the success of the entire company!

Vladimir Markin



LARGE DIAMETER PIPES RAILWAYWHEELS

CASINGPIPES

WATER AND GASPIPES

SMALL AND MEDIUM DIAMETER PIPES

OIL AND GAS PIPES

thou tonnes

thou tonnes

thou units

thou tonnesthou tonnes

thou tonnes↑ 1,380 ↑ 1,034

↑ 410

↓ 320

↑ 167↓ 284

-29%

+1%-5%

+2.5%

+4%

OPERATING RESULTS IN 2015

+30%

4.4



SHAPED PIPES

PIPELINE FITTINGS

PIPELINE VALVES WIDE SHEET

ROLLED PRODUCTS (ROLLS AND SHEETS)

AUTOMOTIVE SPRINGS

thou tonnes thou tonnes

thou tonnes

thou tonnes

thou tonnesthou tonnes

↑ 173 ↑ 1,181

↓ 43.4

↓ 16

↑ 937↑ 6.7

-15%

+32%+5%

+15%

-21%

OPERATING RESULTS IN 2015

+15%

4.4



4.4 OPERATING RESULTS IN 2015

LARGE DIAMETER PIPE DIVISION

PRODUCTS:

• Wide sheet steel for production of large diameter

pipes, heavy industry, shipbuilding, and construction.

Width: 900–4850 mm

Thickness: 7–150 mm

Maximum capacity: up to 1.2 million tonnes per year

• Straight-seam and single-seam ERW pipes for trunk oil

and gas pipelines with inner and outer anti-friction or

anti-corrosion coatings.

Strength class: up to Х80

Diameter: 508–1420 mm

Maximum capacity: up to 2 million tonnes per year

OMK produced 1.38 million tonnes of large diameter pipes

in 2015. The Thick-Plate Mill 5000 produced 937,000

tonnes of product. Both numbers represent

company records.

In particular, we have increased the volume of supplies

to Gazprom, Transneft, and various oil company

projects. Supplies of line pipes for the Power of Siberia,

Bovanenkovo-Ukhta, and Southern Corridor gas pipelines

continued, and large diameter pipes were fabricated for

the first time for the Ukhta-Torzhok gas pipeline (second

leg, Gazprom), Yug petroleum product pipeline (branch

to the Komsomolsk Refinery, Transneft), development

of the Orenburg field (Gazprom Neft), and the gasification

project in Macedonia.

We anticipate that the large diameter pipe market will

remain strong in 2016 as a result of major strategic

projects. In particular, shipments of large diameter pipes

for construction of the Nord Stream 2 pipeline, for which

OMK will supply 745 km of pipes, are expected to begin

in Q3.

2011 2012 2013 2014 2015

2011 2012 2013 2014 2015

690

300

800

540

1,058

708

1,030

50

1,380

937

Production of large diameter pipes (thousand tonnes)

Production of wide sheet for large diameter pipes on Thick-Plate Mill

5000 (thousand tonnes)

Photo: gazprom.ru




OIL AND GAS PIPE DIVISION

PRODUCTS:

• Hot rolled flat sheet steel in rolls and sheets for small

and medium diameter pipes. Can also be used in ship-

building, heavy industry, and construction.

Width: 30–1750 mm. Thickness: 1–12.7 mm. Maximum

capacity: up to 1.2 million tonnes per year

• Oil and gas, water, shaped, and casing pipes

For a detailed list, see Appendix B. 2011 2012 2013 2014 2015

2011 2012 2013 2014 2015

748 797

920

873753

1,077 1,100

971

1,181

Division’s tubular goods production

volume* (thousand tonnes)

Casting and Rolling Mill production volume

(roll and sheet), (thousand tonnes)

* Including pipes 508 and 530 mm in diameter for VSW

Electric Pipe Welding Shop 3

1,029

Demand for oil and gas pipes in Russia fell by 10% in 2015.

Nevertheless, due to the well-coordinated work of the

commercial and production departments, OMK was able

to increase production in a shrinking market.

A 7% drop in demand for casing pipes was also recorded.

Consumption volumes fell against a background of difficult

economic conditions for the majority of industries in which

water, gas, and shaped pipes are used. The most noticeable

decline occurred in the construction sector. As a result,

demand for water and gas pipes dropped by 20%, while

consumption of shaped pipes fell by 11%. OMK’s active

and effective sales policy made it possible to partially

neutralize the impact of adverse factors and ensure

a moderate increase in production of this product.

Photo: gazprom-neft.ru




TRUBODETAL PLANT

PRODUCTS:

• Pipeline nodes, cold and hot bent branches, stamped

and welded pipeline parts: bends, T-bends, reducers,

and ends. Used in construction of trunk pipelines,

pipelines for the development of oil and gas fields, dis-

tribution and pumping stations, gas processing plants

and oil refineries, nuclear power plants, and thermal

power plants. Diameter: 57–1420 mm

Maximum capacity: up to 30,000 tonnes per year

The drop in pipeline fittings sales volumes in 2015 was

due to the “high base” effect in 2014, when the Trubodetal

Plant supplied this product for the construction of

Southern Corridor gas pipeline facilities. These are thick-

walled products designed for operation at extremely high

pressures. Accordingly, they have a higher mass than

traditional products.

In the reporting year, the Trubodetal Plant supplied

products for construction of the Power of Siberia and

Bovanenkovo-Ukhta (both Gazprom), Yamal LNG (NOVATEK),

and East-West (Turkmengaz, Turkmenistan) pipelines.

In 2015, the Trubodetal Plant continued to establish

production of products for the energy industry —

particularly corrosion resistant parts for the nuclear

and thermal power industries — expanded the size range

of stainless steel and high temperature grades of steel,

and developed a number of modular designs

for oil and gas fields.

2011 2012 2013 2014 2015

2321

13

1916

Pipeline fittings production volume

(thousand tonnes)





BLAGOVESHCHENSK VALVES PLANT

PRODUCTS:

• Cast wedge gate valves, spring-loaded safety relief

valves, rotary check valves, changeover valves, safe-

ty relief valve assemblies, wellhead and shutoff valves,

etc. Applications: oil and gas extraction, oil and gas

processing, petrochemicals, thermal power generation

Diameter: 25–800 mm. Maximum capacity:

up to 13,900 tonnes per year

In 2015, BVP delivered products to the following companies:

Gazprom, Transneft, Tatneft, Bashneft, Rosneft, Gazprom

Neft, Surgutneftegas, Sibir, TAIF, RussNeft, Irkutsk Oil

Company, etc. The plant’s products were used for

the largest oil refinery construction and modernization

projects at: Kirishinefteorgsintez, Kuibyshev Refinery,

Ryazan Refinery, Novokuibyshevsk Refinery, Gazprom

Neftekhim Salavat, Omsk Refinery, Moscow Refinery,

Antipinsky Refinery, Nizhegorodnefteorgsintez,

Volganeftepererabotka, Permnefteorgsintez, Tobolsk-

Neftekhim, Tanenko, Ufa Refinery, Ufaneftekhim, etc.

The main consumers of BVP products abroad were

the Mozyrsky Refinery (Belarus), Turkmenneft

(Turkmenistan), and CAEPCO (Kazakhstan).

2011 2012 2013 2014 2015

9.6 9.4

7.0 6.4 6.7

Pipeline valve production volume

(thousand tonnes)





APP DIVISION

PRODUCTS:

• Water and gas pipes – ERW single-seam, including with

external polyethylene coating. Applications: oil and

gas industry, water supply and heating, construction,

agriculture. Diameter:

17–219 mm. Wall thickness: 1.5–8 mm. Length: 6–12 m

• Shaped tubes with square cross section. Used in ma-

chinery and tractor production, construction, furni-

ture production, and other industries. Cross section:

15х15–180х180

For the first time in the past five years, the annual produc-

tion volume of the Almetyevsk Pipe Plant decreased by 4%

in comparison with the previous reporting year. This trend

was the result of the general decrease in pipe consumption

in the Russian market, including in the Volga region, a key

region for the plant.

2011 2012 2013 2014 2015

188215 226

247 237

APP tubular goods production volume

(thousand tonnes)

Photo: sibur.ru




RAILWAY WHEELS DIVISION

PRODUCTS:

• One-piece rolled railway wheels

and wheel centres for freight and

passenger trains, including Lastochka

high-speed trains. Diameter:

710–1098 mm, 140 sizes.

Maximum capacity:

850,000 units per year

• One-piece rolled railway wheels

for fast and high-speed trains.

Maximum capacity:

10,000 units per year

2011 2012 2013 2014 2015

742850

661

450320

Railway wheel production volume

(thousand units)

Demand in the 1520 mm gauge market dropped significantly

under the impact of adverse factors, causing

a drop in production of railway wheels at Vyksa Steel

Works. The drop was partially compensated

for by the expansion of exports, which tripled in 2015

in comparison with 2014. Production of a new product,

wheels for Lastochka high-speed trains, was also launched

at the plant.




CSW DIVISION

PRODUCTS:

• More than 800 sizes of springs using the latest

designs, including parabolic, as well as arms for air

suspensions. Supplier to key Russian (KamAZ, Ural,

NefAZ, etc.) and foreign truck manufacturers.

Capacity: 110,000 tonnes per year

The decrease in production at Chusovoy was caused

primarily by the shrinkage in the springs market.

Nevertheless, the plant successfully introduced an import

substitution programme.

The prices of springs for imported trucks increased

sharply due to the increase in prices for imported spare

parts. Against this background, during the reporting year

Chusovoy expanded its product line for springs

for imported vehicles, which are equal in quality to foreign

springs, but cheaper. Chusovoy offers products equal

in quality to their foreign counterparts.

By responding promptly to client requests, Chusovoy more

than doubled production of springs for imported vehicles.

The plant improved its relationships with dealers

so as to best satisfy customer demands.

2011 2012 2013 2014 2015

66 6759

5543.4

Spring production volume

(thousand tonnes)




NORTH AMERICA DIVISION

PRODUCTS:

• Casing and tubing for oil and gas field

development and well construction.

Diameter: 60-178 mm. Wall thickness:

4.8-12.7 mm. Maximum capacity:

up to 200,000 tonnes per year

2013 2014 2015

57

39 39

Production volume

(thousand tonnes)

Average oil prices fell by 50% in 2015 compared

with the previous year, which led to a 60% decrease

in the number of drilling rigs operating in the USA.

The demand for casings dropped 50% as a result, leading

to a decrease in production at the company’s American

plant, OMK Tube. The factory switched to production

of tubing with premium and semi-premium fittings

and signed contracts with several new dealers.



5 SUSTAINABLE DEVELOPMENT ACTIVITIES



5.1 MESSAGE FROM THE DEPUTY CHAIRMAN OF THE BOARD

During the reporting year, OMK contributed more than

RUB 825 million to charitable and sponsorship projects

in the regions where it operates, including support

for popular and elite sports, assistance to children’s

institutions and war veterans, patriotic education,

and support for educational and cultural projects.

Expenditure on social programmes for personnel,

including employee payments, benefits, wellness, and other

corporate projects increased by 8%, to RUB 747 million.

We are building a corporate culture in which the life

and health of our employees are a priority. In the reporting

year, we continuously refined our occupational safety

and industrial safety systems, and worked to minimize

the environmental impact of our facilities.

DEAR COLLEAGUES,

THE SITUATION IN THE STEEL MARKETS HAS BEEN DIFFICULT RECENTLY, IMPACTED BY A COMPLEX MACROECONOMIC SITUATION. THE INDUSTRY HAS ENCOUNTERED A NUMBER OF CHALLENGES, WHICH WERE REFLECTED IN OUR OPERATIONS AND DEVELOPMENT PLANS. IN RESPONSE, OMK HAS DEVELOPED A SUBSTANTIAL PROGRAMME TO IMPROVE EFFICIENCY AND CUT COSTS. TO RETURN TO A SUSTAINABLE GROWTH TRAJECTORY, WE ARE NOW REDUCING EXPENSES, OPTIMIZING INTERNAL PROCESSES, AND REDUCING NOMINALLY FIXED COSTS. OUR EMPLOYEES REMAIN THE KEY ELEMENT IN EFFICIENCY HERE; THE QUALITY AND DELIVERY SCHEDULES FOR OUR PRODUCTS DEPEND ON THE WORK THEY PUT IN EVERY DAY. WE ARE THEREFORE CONTINUING TO FOCUS ATTENTION PRIMARILY ON EMPLOYEE GROWTH AND RETRAINING, AND SOCIAL AND CHARITABLE PROGRAMMES.


G4-1


5.1 MESSAGE FROM THE DEPUTY CHAIRMAN OF THE BOARD

We are actively developing new forms of charitable

cooperation. In addition to traditional tools based

on targeted assistance and sponsorship, we are expanding

social partnership and involving local communities

and our employees in initiatives. In 2015, we conducted

the first OMK Partnership charitable and social projects

competition, in which employees of our facilities,

non-profit organizations, and federal and municipal

institutions participated. As a result,

101 projects obtained company financing and support,

while the total budget for the programme was

RUB 13 million. This initiative will continue in 2016,

and the second competition will gain momentum.

We are continuing to pursue our chosen corporate

strategy. In the future, we will actively invest

further in our operating regions, carry out charitable

and cultural projects, improve working conditions, and care

for the environment. Developing our social responsibility

is of fundamental importance for us, because we know that

our employees’ lives do not stop at the plant entrance.

I am very grateful to the entire OMK team, from rank

and file employees to members of the Management Board,

for the great work they did last year to support

the stability and development of the company.

I hope that 2016 will prove to be a successful year

for everyone, full of great achievements!

Natalya Eremina

million roubles

million roubles

825

747

OMK CONTRIBUTIONS TO SPONSORSHIP AND CHARITABLE PROJECTS

EXPENDITURE ON SOCIAL PROGRAMMES FOR PERSONNEL



5.2 APPROACH TO SUSTAINABLE DEVELOPMENT

THE COMPANY IS GUIDED BY INTERNATIONAL BEST PRACTICES IN THE SPHERE OF CORPORATE SOCIAL RESPONSIBILITY AND STRIVES TO INTEGRATE THE PRINCIPLES BEHIND THEM INTO ALL BUSINESS PROCESSES. OMK’S PRINCIPLES ARE ACCOUNTABILITY, TRANSPARENCY, ETHICAL CONDUCT, RESPECT FOR THE POSITIONS OF STAKEHOLDERS, RULE OF LAW, AND COMPLIANCE WITH INTERNATIONAL STANDARDS FOR CONDUCT AND HUMAN RIGHTS.

PERSONNEL

OMK strives to help its employees reach their full potential

in work. To achieve this, the company devotes efforts

to creating safe and comfortable working conditions,

as well as opportunities for professional and career

growth. Management is actively expanding social dialogue

with employees and their representatives.

COMMUNITY INVOLVEMENT AND DEVELOPMENT

The company is a responsible employer in every region

in which it operates. OMK invests in the expansion

of local initiatives in sports, healthy lifestyle, culture,

arts, education, environmental programmes, and land

improvement projects.

HUMAN RIGHTS

OMK understands the particular importance of respecting

human rights in all of our operating regions. We bear

accountability for acting with due caution to promptly

identify, prevent, and take action on actual or likely human

rights violations.

RESPONSIBLE BUSINESS PRACTICES

The company complies unwaveringly with all legal

requirements and adheres to the principles of ethical

behaviour in its interactions with internal and external

interested parties, following the principles of accountability

and transparency in our operations. OMK’s efforts are

aimed at preventing corruption and supporting fair

competition.

THE ENVIRONMENT

Following precautionary principles, OMK creates safe

working conditions for personnel and contractors

and guarantees the environmental safety and high quality

of its products. To achieve this, new, safer management

techniques and technologies are introduced every year

at OMK facilities, and equipment is installed

to minimize environmental impact. The company invests

in environmental protection measures, prevents accidents

and improves its readiness to deal with them, develops

responsible resource management, and takes actions

to mitigate and adapt to climate change.

CONSUMER RELATIONS

OMK plants produce safe and reliable products meeting

Russian and international quality standards. In its consumer

relations, the company abides by the principles of product

safety and open access for consumers to objective

information for making informed management decisions,

and protects against dishonest or deceptive advertising

or labelling.



5.3 PERSONNEL

KEY INDICATORS

WORKFORCE AT END OF 2015

WAGES AND PAYMENTS TO EMPLOYEES AND TAXES FROM PAYROLL FUND

WORKFORCE PRODUCTIVITY

PERCENTAGE OF ENGAGED EMPLOYEES

INVESTMENT IN TRAINING AND PERSONNEL DEVELOPMENT

PERSONNEL TURNOVER

EXPENDITURE ON SOCIAL PROGRAMMES FOR PERSONNEL

PERCENTAGE OF PERSONNEL UNDER 30 (INCLUSIVE)

persons million roublesmillion roubles

million roublesmillion roubles (revenue per person)

↓ 24,248 ↑ 747

↓ 24%

↑ 17,562

↓ 127

11%

↑ 6.0

↑ 50%

+5.2%

-44.1%+27.7%

+7%

+8.4%

-2%

-6.7%


G4-10


5.3 PERSONNEL

Gender balance, % Percentage of women in personnel categories, % Age group, %

Personnel structure by category (persons)

2014

38 33 4135 30 3923 38

60 32

10 36

56 2962 65

2015

Men Managers

Managers

under 30 yearsWomen Specialists

Specialists

30–50 yearsBlue-collar workers

Blue-collar

workers

50+ years

2014 2015

2,107 1,6615,788

19,127

4,857

17,730

2014 2015

2014 2015

PERSONNEL STRUCTURE

Number of personnel

* Managing company

APP VPSTrubodetal BVP CSW OMK Tube OthersMC*

888 14,4411,767 2,058 2,583 196 3,077317

Workforce

for 2015

825 14,2421,635 1,949 2,401 100 2,790306

Workforce

as of 31 December 2015


G4-LA12


OMK HR SERVICE DEVELOPMENT STRATEGY

5.3 PERSONNEL

The increasing competition in the steel industry requires

high productivity, engagement, thoughtfulness and new

suggestions for improving efficiency from each employee.

A focus on creating an environment where personnel can

Primary HR processes Contribution to company development (HR Value)

Management of HR indicatorsIntegration of HR processes, HR analyticsTarget groups (talent pool) and career planningCorporate KPI system was translated into employee targetsEvaluation of personnel performance and competenciesTransparent and consistent HR decisionsProactive selection and developmentPersonnel management in unanimity with managersManaging engagement

HR Service tasks — values development:Effectiveness (cost/benefit)Competence (I can do it)Engagement (I try)Service (HR partnership)

Strategic partner

Organizational structurePersonnel planningPersonnel adaptationPersonnel developmentManaging turnoverManaging HR budget

Business partner

Personnel trainingPersonnel selectionPay systemPersonnel rating

HR service/consulting

HR record keepingStaff chartWage paymentMandatory training

HR Department

2003 2006 2015 2016

contribute actively and sensibly to the life of the company

is especially important under these conditions.

All of this was reflected in the HR strategy approved

at the end of 2014.



SERVICE EFFECTIVENESS COMPETENCE ENGAGEMENT

Priorities

Formation of HR partnership structure

Personnel record keeping using

modern information systems

Social support system

operating according to best practices

Optimizing OMK’s organizational

structure:

• Reducing span of management

• Optimum number of personnel

• Centralization of functions

• Projects to improve efficiency

and performance

Improving the payroll system:

• Wage indexing

• Performance standards

Improving the efficiency of social

facilities:

• Developing key performance

indicators for facilities

• Internal benchmarking

Improving professional skills and

competencies:

• Annual goal setting and evaluation

cycle

• A management and professional

career at OMK

• Training and development

programmes run by internal experts

and instructors

• Evaluation of professional knowledge

using test assignments developed

by internal experts

• Professional events to share

experience and results

• Professional skill competitions

Increasing engagement

• Studying personnel engagement

• Developing and implementing plans

to improve engagement

Social accountability:

• Introduction of SA8000 social

accountability standard

• Creation of OMK ethics commission

and VSW ethics committee

• Creation of OMK social council

Improving personnel awareness:

• Creating OMK newspaper

• Expanding charity and sponsorship

initiatives

• Developing a strategy for expanding

sponsorship and charity initiatives

• Expanding corporate volunteerism

PRIORITIES FOR IMPROVING THE PERSONNEL DEVELOPMENT SYSTEM

5.3 PERSONNEL

1. Focus on business results,

rather than on individual HR tasks

2. Synergy from integration

of various HR processes

3. Systems approach to problem solving in which valuable

employees know their importance

and role in achieving company objectives

PRINCIPLES FOR IMPLEMENTATION OF HR STRATEGY


61OMK Annual Report 2015 61OMK Annual Report 2015

INTEGRATING HR PROCESSES INTO THE GOAL-SETTING SYSTEM

5.3 PERSONNEL

To achieve the maximum efficiency from employees, the company strives

to ensure a high degree of openness.

The goal of re-engineering the HR Service is to integrate all processes so that they operate

as a single mechanism. However, building the system is only half the result; the synergy

of the processes must be made transparent and evident. The main process is efficiency

management. The entire HR partnership chain must be directed towards this goal.

Company goals

Correction of

total

comprehensive

income (TCI)

Development

in key groups

Selection

and adaptation

HR

committee –

selection

Evaluation

of results

of work and com-

petency

Solutions:

motivation, target groups

Goal setting

Organizational

design

Feedback, development,

and support

Qualification profile

Department goals

Payment

of bonusesStandards for

target

group

Training as

required

Selection of

high-potential

employees

Official grade

Employee goals

Non-financial

recognition

Achievement of

goals, competency

level

Job

description



THE GOAL-SETTING SYSTEM AT OMK IS AIMED AT GIVING GREATER ASSURANCE THAT STRATEGIC OBJECTIVES WILL BE ACHIEVED.

SINCE 2014, THE SYSTEM HAS BEEN DEVELOPED IN PARTNERSHIP WITH THE HR SERVICE ON THE BASIS OF THE AUTOMATED SUCCESS FACTORS SYSTEM (SAP), FOR WHICH TECHNIQUES FOR CALCULATING 250 BASIC KPIS WERE AGREED IN 2015. AN EFFICIENCY MANAGEMENT COMMITTEE AND AN OFFICE FOR GOAL-SETTING AND PERFORMANCE EVALUATION DIRECTLY SUBORDINATE TO THE CHAIRMAN OF THE MANAGEMENT BOARD WERE CREATED TO COORDINATE THE EFFORTS OF VARIOUS DEPARTMENTS.

5.3 PERSONNEL

Number of employees included in goal-setting system

No. Personnel category 2014 2015 2016 (plan)

Total 76 256 957

1 Senior managers 67 73 70

2 Office/shop managers 9 178 279

3Senior foremen/de-

partment managers 0 5

606

(production

and maintenance)

4 Blue-collar workers 0 0 2

The study of personnel engagement showed that the efficiency culture summary index rose by 7% to 49%.

The index includes the evaluation by employees of goal setting in the company, feedback on performance,

and the relation between performance and remuneration, as well as the goals themselves. It must be noted

that the study reflects the opinion of all employees, not only those categories of managers included

in the goal-setting process. Thus, the efficiency culture is transmitted by managers to their subordinates.

This has a systemic impact on the quality of management in the company.

IMPROVING THE EFFICIENCY CULTURE SUMMARY INDEX

↑ 49% +7%



5.3 PERSONNEL

STRATEGY IN ACTION

The attention of the HR department in 2015 was

concentrated on optimizing expenditure, improving

workforce productivity, updating techniques for the annual

goal-setting and evaluation cycle, expanding target groups

of personnel, and organizing and motivating employees.

Managing personnel engagement and developing

an active production environment — a desire for

continuous improvement, initiative, and commitment

to a common cause – was an important task in 2015.

OMK began re-engineering the HR Service in 2015

to improve the HR services provided to the business.

HR partners are the main link in the new structure.

Through a ‘single window’ format, they provide advice

to managers on personnel management issues, suggest

solutions to emerging problems, and share responsibility

for the result. In fulfilling their role, HR partners hire

specialist experts and correct the actions of service

functions (such as HR record keeping, standardization,

mass selection, and organization of training).

The introduction of HR partners enables our company

to conform to the best practices in organization

of HR management systems.

To become an HR partner, an employee must have

extensive knowledge of HR management, understand

the challenges of the business, and be able to respond

quickly to changes in the external and internal

environment. A school for HR partners was created

to train such specialists in 2015. So far 25 people have

been trained, including plant HR directors. The programme

consisted of three modules:

• Seminars on HR functions to acquire knowledge

in all fields related to HR management

• Business case solution

• Training courses in public speaking, change

management, and working with internal clients

The HR Committee plays a significant role in effective

company management. Created in 2013, this collegial

advisory body answers directly to the Chairman

of the Board, makes decisions regarding the appointment

of senior managers, and evaluates their performance.



5.3 PERSONNEL

Career guidance

OMK companies provide career guidance for school

and university students to:

• Increase the popularity of technical specialities among

young people and students

• Create a positive perception among young people of

technical professions, thereby increasing the prestige

and attractiveness of specialities in the metallurgical

industry

• Create a new type of employee – a successful

person who operates twenty-first-century, high-tech

equipment and has a steady salary, breaking the

stereotype that “a blue collar worker does unskilled

labour”

• Improve the level of education of young people

enrolling in vocational training schools

• Improve the level of education of students in vocational

training schools

All company plants offer field trip opportunities:

more than 1,000 students

participated in such trips during the reporting year. Events

for senior students are conducted jointly with training

institutions to encourage graduates to choose professions

in the steel industry. Career guidance events were held

for 14–16 year old pupils in Vyksa municipal district:

the fourth ‘Industry’ business simulation and the second

‘Trajectory’ professional self-determination academy.

The objective of the events was to help students choose

their future profession. Approximately 3,000 students

aged 5–16 participated in the fourth “Magic of Science

and Creativity” technical festival, the goal of which

is to help young schoolchildren select a technical field

according to their abilities and preferences.

The first career guidance magazine for students

in the Vyksa municipal district was launched at VSW.

Students can learn a lot about metallurgical professions

from the magazine, including from VPS specialists,

as well as about the educational institutions where these

professions can be learned.

Effectiveness of career guidance programmes in Vyksa

Ninth grade students (14–15 year olds) enrol in technical schools and colleges in the area 65%

(of these, 80% enrol in technical specialities)

continue to the tenth grade 35%

Graduates of secondary education enrol in specialized technical colleges 50%

Graduates of basic technical schools and colleges find jobs in VPS departments more than 60%

University partnership programmes

VSW

• The plant runs the ‘OMK Campus’ corporate programme

in welding jointly with the Peter the Great St. Peters-

burg Polytechnic University

• In cooperation with Nizhny Novgorod State Technical

University, 22 employees were trained in additional pro-

grammes on electric power supply and welding

• Training of 39 shift foremen in primary bachelor’s vocational

education programmes began at the branch of the National

University of Science and Technology MISiS in 2015

• More than 400 students of higher educational institu-

tions (Vyksa Branch of National University of Science and

Technology MISiS, National University of Science and Tech-

nology MISiS, Nizhny Novgorod State Technical Universi-

ty, Murom Institute of Vladimir State University, Bauman

Moscow State Technical University, and STANKIN Moscow

State Technical University) received practical training

in production departments

The Vyksa Branch of the National University of Science and

Technology MISiS received financial support in the amount

of RUB 17,759,000 to improve student education in 2015.

CSW

• A specialized machinery, metallurgy, and metalworking

department of the First President of Russia B.N. Yeltsin

Ural Federal University operates at the plant. The depart-

ment provides special student training, with continuation

of production, pre-diploma practice under the supervi-

sion of the plant’s leading specialists. The project is funded

equally by the company and the university. OMK expendi-

ture in 2015 amounted to RUB 1.86 million.



5.3 PERSONNEL

Managing organizational structure and workforce planning

RESULTS OF PROCESS OPTIMIZATION

IN 2015

Closure of the pipe steel smelting facility project

Material incentives

REDUCTION IN MANPOWER OVER THE YEAR (staff positions)

PROJECT AT VSW AUTOMOTIVE SHOP (million RUB)

↓ 1,000

64

-7%

VSW-TECHNO PROJECT (million RUB)

83The employees laid off (140 persons) were offered jobs, re-

training, and pensions. Manpower was also reduced due to

the fact that the company did not hire new employees to

replace those dismissed for disciplinary reasons (approxi-

mately 150 persons).

Due to the sharp change in the macroeconomic situation,

the decision was made to close the project in Chusovoy

to construct a pipe steel smelting facility. The personnel,

including four senior managers, were offered positions

at other OMK facilities in various regions. Some Trubodetal

employees in Chusovoy working on the project were laid

off and were paid compensation in accordance with legal

requirements.

Personnel turnover

Turnover at OMK facilities remains at 11%, which is 19%

lower than the industry average. As before, turnover

at the major facilities (VSW, CSW) remains in the 4–6%

range. We have set a goal of retaining highly qualified

employees, and we have been successful.

The improvement of the payroll system in the company

is based on developing and applying valid and accurate

criteria for paying remuneration according

to the contribution of divisions and each specific employee

to the common cause.

The semi-constant component of OMK employee wages

is approximately 70% and depends on time worked

and working conditions (harmful conditions, at night,

etc.). The variable bonus component accounts for 30%.

Bonuses are paid according to evaluation of collective shop

indicators or product quality, workforce productivity

on a shift, consumption of primary raw material (metal),

or other expense items (for example, electricity).

Employees may also receive one-time payments

for contributions to company projects for improving

efficiency and work as an efficiency expert.

For managers, there is a goal-setting system:

key performance indicators which determine the annual

bonus amount. Senior managers, supervisors subordinate

to senior managers, and certain key employees receive

annual bonuses. Indicators with target values are approved

for each position for a year. These are both financial

(EBITDA), and functional (for example, efficiency in use

of equipment, market share of product, engagement

of personnel). Development tasks are also set: development

of new types of product, introduction of an ERP system,

etc.



5.3 PERSONNEL

Ratio of average wage

in controlled companies and average wage

in region, %*

Expenditure on social programmes at OMK’s Russian

facilities (RUB million)

Facility Region

VPS Nizhny Novgorod Region 1.2

CSW Perm Territory 0.9

BVP Bashkortostan 1.1

APP Tatarstan 1.0

Trubodetal Chelyabinsk Region 1.4

Item 2014 2015

Direct social payments 248 201

Housing programme 7 14

Medical assistance 11 10

Nongovernmental pension support 22 30

Sanatorium and resort treatment

and wellbeing for employees and

their family members

53 38

Meal provision 85 92

Sports 3 2

TOTAL 429 387

* Rosstat data (not including small businesses) were used

in the calculation.

The drop in expenditure on social programmes was

due to various organizational changes at the facilities

and the reduction of the company workforce as a whole.

The company strives to support the health

of its employees by providing them with good hot meals.

Consequently, subsidies were introduced for BVP (they had

been already introduced at other facilities). In 2014–2015,

the company also actively enlisted employees to participate

in various nongovernmental pension support programmes

via the Nongovernmental Pension Fund Gefest on parity

terms with the employer as part of a programme for state

co-financing of the creation of pension funds and Gefest

corporate programmes.



Pension contributions

Various nongovernmental pension support programmes

are in place at OMK via the Nongovernmental Pension Fund

Gefest. The basic principle is that the company doubles

the voluntary contributions of its employees, and the

employees determine the amount of their contributions

independently. As at the end of 2015, more than 6,000

employees participated in nongovernmental pension

support programmes, and 2,200 people participated

in voluntary pension support programmes (three parties

in equal shares: the employee, the employer, and the state).

Pension payments from Gefest amounted to RUB 15 million

RUB in 2015 and remained at the previous year’s level.

The additional pension was between 2% and 9% of the state

pension for OMK operating regions in 2015.

5.3 PERSONNEL

Company Average corporate

pension from

Nongovernmental

Pension Fund

Gefest in 2015 (RUB/

month)

Region Average state pension

for region (RUB/

month)

Corporate pension

as a percentage

of state pension

VSW 1,108 Nizhny Novgorod

Region

11,900 9

CSW 863 Perm Territory 11,800 7

Almetyevsk Pipe Plant 171 Tatarstan 11,400 2

Trubodetal 277 Chelyabinsk Region 11,800 2

OMK Steel 219 Nizhny Novgorod

Region

11,900 2

Blagoveshchensk

Valves Plant

437 Bashkortostan 11,250 4

OMK 515 Moscow 13,500 4

OMK Audit 240 Nizhny Novgorod

Region

11,900 2



5.3 PERSONNEL

Non-financial incentives

Batashev Prizes

The 12th Ivan and Andrey Batashev* Prize awards

ceremony was held in Vyksa on 9 April. Altogether,

84 candidates and five main production teams were

nominated in 11 categories, five of which were intended

for representatives of working specialities. The finalists

included representatives from all OMK facilities, as well as

from OMK IT, OMK Ecometal, and the Moscow office.

* Andrey Rodionovich (died 1799) and Ivan Rodionovich

Number of rewards and bonuses received

by employees during the reporting year

National government 3

Departmental 55

Regional 56

Municipal 58

Corporate 80

Awards to OMK facilities 535

Total 787

Professional 2015 Competition

OMK held the company-wide ‘Professional 2015’ competition

among representatives of 11 professions and specialities

in 2015. The goal of the competition was to raise

the prestige of professions, improve employee

professionalism, and increase employees’ interest

in the professions that are most in demand by the business

and have either a shortage of specialists on the job market

or a low level of training in educational institutions.

The 134 finalists drawn from plant competitions

demonstrated their knowledge of occupational safety,

the production system, corporate culture, and the

operations of the company as a whole. The final challenge

involved the competitors doing hands-on work at various

work positions or on multimedia simulators.

Talent management

A highly talented employee at OMK is an employee who gets

results, who plans to continue working at the company

and achieve new results, and who is also willing to move

to a different city. Employee supervisors and HR

Department representatives are involved in selecting

potential employees, in a process which consists

of several stages. Due to the focus on the business,

6% of employees in the company have been identified

as having high potential, which corresponds to the industry

average (Training Index).

The company’s leadership devotes significant attention

to talent management and improving the efficiency

of management teams. A diagnosis of managerial potential

was conducted for managers and specialists

in production specialities. Through the evaluation process,

the performance of 755 employees was reviewed, their

competencies and behaviours evaluated (using the 360

degrees technique), their motivational profile assessed,

and their abilities to analyse information tested.

The evaluation showed that 24% of employees (of the total

number of managers) were capable of ensuring continuity

of management – that is, one out of five employees

is capable of replacing his supervisor. (1741–1821) Batashev were major Russian industrialists

and factory owners who built many metallurgical plants,

including the Vyksa plant (1766).



5.3 PERSONNEL

Work on the managerial skills of line managers was

the primary focus of plans to increase engagement

developed using the results of the 2014 study carried

out at the company’s plants and among management.

According to data provided by the international consultant

Aon Hewitt, 70% of personnel engagement is dependent

on direct managers. The company arranged training

in communicating with team members for team leaders

and other managers; customized manager checklists were

prepared, and additional options were made available

for acknowledging services and giving feedback: meeting

schedules for production sections and honour boards,

including through the corporate portal. The 2015 personnel

engagement study showed an increase in employee

satisfaction with the focus factors.

The plans for 2016 are focused on improving employee

satisfaction with the scope of work, improving the man-

agement skills of managers (as in 2014), and targeted work

with units that showed a relatively low level of engagement.

A pilot project showed the promise of this approach. It was

conducted in 2015 in one department of the Moscow office,

2015 focus factors OMK 2014 OMK 2015

Line managers 49% 56%

Recognition 33% 35%

Feedback 39% 43%

and included an additional survey and a group session

on preparing change plans.

The 2015 study also revealed that impolite communication

was a problem among teams. A decision was therefore

made at the end of the year to create an OMK Ethics

Commission to review employee complaints regarding

inappropriate behaviour and human rights violations

as a whole. Complaints are received via an OMK hotline,

which previously only specialized in reports of theft

and other crimes. Employees themselves decide which

resource to contact. Communications with management

are also possible via the Reception Desk section of the

corporate portal, which has been operating since 2013.

These resources were created due to the requirements

of the SA8000 social accountability standard, which

is being introduced at OMK facilities.

During the reporting period, 2,500 submissions were reviewed,

20% more than in 2014.

Breakdown of submissions to corporate portal Reception Desk in 2015, %

15 20

4025

production system, medical

services, relationships

within teams

wages working conditions

at plants

transportation of

employees from place

of residence

INCREASING ENGAGEMENT

The primary tool for obtaining feedback

from employees is the annual study of personnel

engagement, conducted using the international Aon Hewitt

methodology. In the study, employees are asked both

standard questions specified by the technique,

covering such areas as salary, career possibilities,

and attitude towards management, and questions from

the company about the level of satisfaction with

the cafeterias, social facilities, etc.

The study is part of the annual cycle for improving working

conditions. Managers use the results

of the quantitative (survey) and qualitative (focus groups)

studies to draw up plans for improving engagement; once

these are implemented, further surveys are conducted.

The 2015 study, the third in the company’s history, showed

an increase in the percentage of engaged employees

to 50%. The average indicator for metallurgical companies

in Russia (47%) was exceeded for the first time. Employee

participation in the study rose from 75% to 87%.

2,500submissions


G4-26 G4-27


Meetings with management

Employees can tell and demonstrate to a managing

director, division director, or shop supervisor

how the production process is going in his or her section,

what has been done to improve it and what problems exist,

and immediately receive feedback. Such meetings are also

held regularly during the managing director’s tours

of the production facility or in planned shop meetings. Plant

conferences and information days are also held regularly,

to which interested parties (representatives of local

government administrations and law enforcement bodies)

may also be invited.

Corporate media

The primary channel for informing employees

is the corporate portal (120,000 views during the year,

a 10% increase over 2014). The company created a single

weekly corporate newspaper OMK Territory in October

2015. This decision made it possible to create a common

information space at OMK, within which all production

sites are represented. The list of subjects covered

by the newspaper was developed according to employee

wishes expressed during a special survey in summer

2015. It has a circulation of 15,500 copies. The newspaper

is published weekly and distributed at the Almetyevsk,

Blagoveshchensk, Vyksa, Moscow, Chelyabinsk,

and Chusovoy sites. The magazine OMK Command is aimed

at managers and has a circulation of 2,000. Five issues

were published during the reporting year.

5.3 PERSONNEL

Conferences

Functional conferences

Fourteen internal functional conferences were held in 2015

to share experience, best practices, and information

on current trends in the corresponding professional fields.

Approximately 800 employees received information

on the company’s strategy through the conferences.

Predicting the future and scientific discoveries

More than 50 company employees involved in the

development of new technologies, strategy, and new

markets participated in the corporate conference

“Predicting the Future and Scientific Discoveries”

in 2015–2016.

Annual scientific and practical conference for young

specialists

The objective of this conference is to identify and mobilize

the creative potential of the company’s young specialists

to solve technological problems and improve production,

reduce costs, and increase profit. More than 120 employees

from all of the company’s facilities, as well as students

from Bauman Moscow State Technical University

and the Vyksa branch of the National University of Science

and Technology MISIS participated in the event. Two thirds

of the suggestions made at previous conferences have

been applied in production.



Evaluation

In 2015, as part of the annual personnel performance

evaluation, evaluation results were supplemented with

an evaluation of performance by competencies (“360

degree” technique). Previously, in 2013–2014, the evaluation

of competencies covered primarily managerial tasks and

quality (planning, systemic thinking, and setting objectives

for subordinates). Leadership skills, such as, for example,

the ability to acknowledge the contributions of employees

and to maintain feedback with subordinates regarding their

performance, became an important addition in 2015.

A project for professional testing of OMK employees

was implemented in 2015. Internal experts developed more

than 60 professional tests that were administered

to more than 8,000 employees. The test results were used

to create functional training and career development

programmes for 2016.

ELECTRONIC LIBRARY

Company employees were given access to the

electronic library of one of the leading publishers of

business literature in 2015, for independent study

and acquisition of additional professional knowledge.

Employees downloaded over 50,000 copies of more

than 400 titles.

5.3 PERSONNEL

Training

OMK managers and specialists underwent training aimed

at improving personal effectiveness and knowledge relating

to their job descriptions and specific roles in 2015.

Category In-person training (persons/cours-

es)

Distance learning (persons/courses)

Managers 6,194 22,000 ‘Managerial Minimum’

Specialists 6,753 351,078 (pre-certification training: 1,078 electronic

textbooks and 350,000 standard operations and steps

for performance of operations) Blue-collar workers43,018 (including 5,490 external

and 37,528 internal)

Distance learning proved to be both popular and effective

in 2015. A team of distance learning tutors was created

and trained at all OMK facilities to develop the programme.

More than 1,000 managers were trained as part

of the ‘Managerial Minimum’ target corporate programme

aimed at the continual development and improvement

of managerial skills. Ninety percent of students evaluated

the programme as ‘good’ or ‘excellent’ from the viewpoint

of its benefit for the business (according to questionnaire

results). The cost savings from the use of distance learning

(in comparison with classroom training) were

RUB 4.06 million. Likewise, distance learning was used

for English language training for 80 OMK employees who

work with foreign colleagues and partners.

Target programmes for training foremen and team leaders

to improve personal effectiveness and economic literacy

were introduced at OMK Group facilities.

In addition to mandatory recertification training, target

courses on technology and maintenance of high-tech

equipment were conducted for workers.

Training expenditure was reduced because expensive

employee training projects (MBA, one-time measures),

as well as retraining to prepare for work on major new

projects, came to an end

in 2014.

The training was held in-person (seminars, training

sessions and conferences) and remotely (online tests,

reading materials, and webinars).


G4-LA9 G4-26


5.3 PERSONNEL

Trade unions

The trade union organizations at OMK facilities represent

various trade unions in the Federation of Independent

Trade Unions of Russia: the Miners’ and Metallurgical

Workers’ Union of Russia (VSW, Trubodetal, CSW),

the Russian Nuclear Power and Industry Worker’s Union

(BVP), and the Russian Agribusiness Workers’ Union (APP).

In addition, a workers’ collective council operates at the

Casting and Rolling Mill in Vyksa (a branch of OMK Steel).

Therefore, interaction takes place mainly at the facility

level. A social council was created at the OMK level

in 2015 to coordinate relations.

All mandated legal conditions for the operation of trade

unions have been provided at the company’s facilities.

The reasoned opinion of trade unions is considered

in all cases stipulated by the Labour Code of the Russian

Federation. Joint commissions on labour disputes

are in operation and employee appeals on labour relations

issues are granted review. Trade unions participate

in the distribution of benefits as well as in a number

of the company’s social projects: they participate

in the expert commissions for the OMK Partnership social

and charitable projects competition; they work with facility

management to develop plant action plans according

to the findings of engagement studies; and they participate

in arranging sporting and cultural events.

Collective bargaining agreement

Major work was done in 2015 to change the benefits

for employees in harmful and hazardous production jobs.

All workstations at OMK facilities underwent

a special working conditions evaluation. Negotiations were

conducted with trade unions, new three-year collective

bargaining agreements were concluded,

and supplementary agreements were signed with more

than 10,000 employees. There were no collective labour

disputes during the reporting period.

Social council

A social council was created at OMK in 2015, on the initiative

of the trade unions at the Group’s facilities. This new

advisory body, which includes trade union leaders, plant

HR directors, and company management representatives,

was called upon to make relations more systematic

and ensure that the interests of the parties in the social

partnership received consideration. At the July meeting,

the parties agreed to introduce a social chart that makes

it possible to determine, visualize, and rank (according

to decision level) the social and labour problems in labour

collectives. The pilot project began at Trubodetal, and the

spread of this practice to other OMK facilities is expected

in 2016. The social council also supported the introduction

of the SA8000 social accountability standard and reached

an agreement on trade union participation in measures

to study personnel engagement, as well as in employee

health management measures.

Rewards

• The Vyksa Steel Works and the Trubodetal plant won

the annual ‘Mining and Metallurgical Facility with High

Social Effectiveness’ competition, conducted jointly

by the Miners’ and Metallurgical Workers’ Union

of Russia and the Association of Mining and Metallurgi-

cal Industry Owners of Russia.

• For the second time, HR Director Svetlana Nikolashina

topped the rating of HR directors

(in the metallurgical and mining industries)

conducted jointly by the newspaper Kommersant

and the Association of Managers.

• In 2015, OMK was consistently among the top twenty

Russian companies in the ‘Very High Level of Social

Accountability’ monthly social accountability rating

produced by the Agency for Political and Economic

Communications.

• OMK was declared the best employer among Russian

companies in the metallurgical and mining

industries according to the Randstad Award 2015,

which carries out an independent study

of the brand attractiveness of an employer.


G4-11


5.3 PERSONNEL

INTRODUCTION OF SA8000 SOCIAL ACCOUNTABILITY STANDARD

In 2015, OMK continued to introduce the SA8000 social accountability

standard as a result of the obligations set forth in the company’s

constitution, its desire to improve personnel engagement, and international

market requirements for suppliers of tubular goods.

In the initial stage, the standard will be applied to the Vyksa Steel Works,

the Casting and Rolling Mill, and company management. A self-evaluation

of compliance with this standard was conducted at these facilities

in January and February, and did not reveal any critical nonconformities.

In order to harmonize the management system with the standard’s

requirements, the company developed a plan for introducing the standard,

consisting of roughly a hundred measures. As of the end of the reporting

period, 85% of these measures have already been implemented. The

majority of the measures pertained to documenting rules and procedures

which, being legal requirements, were already in use by the company.

In addition, the company established an OMK Ethics Commission

and VSW Ethics Committee in order to meet the standard’s requirements

on internal review procedures for complaints concerning violations

of employee rights. An OMK Social Council was also created to fulfil

requirements for a team responsible for dialogue between management

and employees on social issues.

Training was also conducted: 17 employees and managers took

an introductory course on the SA8000 standard, while ten people

underwent training on internal auditing on the basis of the standard.

The participants received certificates.


G4-15



The integrated occupational safety

and industrial safety assurance system

at OMK facilities is based on engaging

employees in the decision-making process

and management of workplace safety.

This approach makes it possible to maintain

a high level of compliance with safety principles

at all management levels and in the workplace.

The OMK Occupational Safety Committee

is joined by the facilities’ occupational safety

coordinating committees and shop working

groups to form a unified managerial hierarchy.

OCCUPATIONAL SAFETY MANAGEMENT SYSTEM

COMPANY MANAGEMENT

Management Board

Occupational Safety

Committee

(members of the Management

Board and managing directors

of facilities)

FACILITIES, DIVISIONS

Facility Safety Coordinating

Committees

(managing directors of facilities

and divisions, area managers,

and shop supervisors)

Shop safety working groups

(shop supervisors, foremen,

and team leaders)

Monitors practical implementa-tion of the company’s objectives, development strategy, and policy in the sphere of environmental protection, occupational safety, and industrial safety

Health, safety

and environment policy

OMK bylaw on the

Occupational Safety Committee

Bylaw and order

of the managing director

Initiate, direct, coordinate, and verify the overall efforts of management in the sphere of safety on the basis of industry and legal requirements


G4-DMA



Expenditure on occupational safety 291.8

Expenditure on fire safety 79.0

Expenditure on industrial safety 21.1

Expenditure on radiation safety 7.7

Total 399.6

Number of industrial safety audits in subsidiaries 15

Number of industrial safety audits in contractor com-

panies

672

Expenditure in 2015 (RUB million) Number of industrial safety audits

in subsidiaries and contractor companies in 2015

Corporate standards adopted in 2015

• Contractor management in the field of occupational

safety and environmental protection

• Handling hazardous materials

• Performing highly dangerous work

• Working at height

Introduction of OHSAS 18001 Occupational Health

and Safety Management system

The requirements of the OHSAS 18001 international occupational health

and safety management system were introduced at VSW, CRM, APP,

Trubodetal, and CSW. All these facilities have certificates of compliance with

these requirements. It is planned that these processes will be introduced

at the Blagoveshchensk Valve Plant in 2016

and certification obtained.

ACHIEVEMENT OF KEY INDICATORS

Frequency of overall (industrial+domestic)

injuries in OMK Group, Ff*

Percentage of incidents for which

an internal investigation was conducted

85.52

≤ 71.85

70.35 Actual in 2014

Goal for 2015

Actual in 2015

* Total injury frequency factor. * 100%/total number of incidents recorded.

Goal, %* Incidents Internal investigations of compli-

ance with STK.12-66.1

Actual, %*

Extraordinary 7 7

Significant 101 99

Insignificant 245 245

45 Total 353 351 99.43


G4-18



Percentage of managers, specialists, and white-collar workers who took the

‘Conscientious Safety Management’ course

SUPPLY OF PERSONAL PROTECTIVE EQUIPMENT TO PERSONNEL

Special evaluation of working conditions

at workplaces

Goal* Number of trainees 2015

(actual)*

2011 2012 2013 2014 2015Total

over 5 years

85% 909 4,227 5,436 7,645 4,293 22,510 88.9%

2015 goal, %* Special evaluations of working conditions

conducted in 2015 (workplaces)

2015 (actual), %

100 8,628 80

* Of average workforce for 2015 (25,327 persons).* Of total number of workplaces (10,353).

In 2015, special evaluations of working conditions were not conducted fully

due to the introduction of new positions, changes in existing positions, and

reorganization of shops and sections.

In 2015, OMK introduced a new edition of the corporate

standard ‘Personal Protective Equipment for Employees

of OMK and Controlled Companies’. Work was done

on the basis of this standard to determine a sole supplier

of personal protective equipment (PPE) for OMK Group

facilities. An expert council on PPE was set up (three

meetings were held). Eleven technical specifications were

developed for the fabrication of men’s and women’s

summer clothing, as well as for winter clothing to protect

against low temperatures and general contamination.

All personal protective equipment issued to company

employees meets the following criteria:

• Prevents or reduces the impact of hazardous

and harmful factors

• Complies with technical aesthetic

and ergonomic standards

• Includes instructions describing the rules for using

and storing PPE and stating its shelf life

• Includes labels which comply with GOST

and other standards regulating the labelling of PPE

• Has been evaluated for compliance with hygienic,

physiological, protective, and operating requirements

All personal protective equipment is selected

according to the gender, height, and clothing

and footwear size of the employee, as well

as the specifics of the work they are performing.




SPECIAL EVALUATION OF WORKING CONDITIONS

Pursuant to Federal Law No. 426-FZ ‘Special Evaluations

of Working Conditions’, from 2014 all companies

are obligated to conduct special evaluations of working

conditions in place of the previous workplace certification

procedure.

Special evaluations of working conditions were conducted

at all OMK facilities in 2015. Summary lists obtained from

special evaluations of working conditions are available

on the websites of OMK facilities.

Scope of special evaluation of working conditions in 2015, persons

Number of employees Classes of working conditions

2 3.1 3.2 3.3 3.4 4

VPS 9,638 1,855 2,896 4,471 373 12 0

APP 431 227 153 51 0 0 0

Trubodetal 1,539 316 374 474 286 89 0

BVP 1,930 592 717 549 162 0 0

CSW 2,129 298 413 699 567 152 0




REDUCTION OF INDUSTRIAL INJURIES AND WORK-RELATED ILLNESSES

A total of 92 people were injured in accidents, which

is 25.8% lower than in the previous year. A zero level

of fatalities was not achieved. There were two fatal

incidents in 2015 (at VSW and BVP). To reduce the risks

associated with industrial accidents, OMK regularly

monitors the implementation of safety measures

introduced as a result of accident investigations.

The primary causes of injuries in 2015 were:

• Violations of occupational safety requirements

by employees (casualties) and failure of direct

supervisors to comply with occupational safety

requirements

• Lack of the necessary tools and accessories

(employees use improvised tools and accessories

or untested and faulty ladders)

Catching (jamming) between stationary and moving parts of machinery and equipment

Falling or stumbling when walking on the premises, in the shop, or on a slippery surface

Impact from flying parts and fragments of equipment, injuries and cuts from tools and equipment

Falling of heavy objects or equipment during operation or when moved manually

Falling of a person from height (from a maintenance platform, ladder, etc.)

Effect of open flame, molten metal, hot equipment parts, or steam

Work with hoisting mechanisms

28

19

26

15

2123

11 10

17

6 541

5

Primary causes of accidents over 12-month period 2014–2015

↓ -32% ↓ -42% ↓ -55% ↓ -33% ↓ -80%↑ +70%

2014 2015


G4-LA6


Indicator 2014 2015

Fatal injury frequency rate (FIFR):

Number of fatalities as a result of accidents/total number of hours

worked by all personnel x 1,000,000

— 0.05

Lost time injury frequency rate (LTIFR):

Number of persons injured as a result of accidents with loss

of work time/total number of hours worked by all personnel

x 1,000,000

3.07 2.37

Note: The industrial injury rate includes fatal accidents

Work-related illness rate:

Number of newly identified work-related illnesses/total number

of hours worked by all personnel x 1,000,000

0.52 0.41

Total number of newly identified and confirmed work-related

illnesses

21 16

Number of newly identified work-related illnesses/number

of working personnel x 10,000 (this type of calculation is standard

Russian practice)

8.6 6.9

Lost workdays rate:*

Number of workdays lost as a result of accidents/total number

of hours worked by all personnel x 1,000,000

72.61 56.24


* Only scheduled workdays are considered in the calculation of ‘lost workdays’. Calculation

begins on the day the employee is injured, i.e., on the day the sick note begins.

PROGRAMMES TO MAINTAIN EMPLOYEE HEALTH

The health management policy adopted by the company is based

on the requirements of Russian law and the recommendations of the International

Association of Oil and Gas Producers (IOGP), as well as the best practices of major Russian

and international companies. The policy provisions are implemented in a manner that seeks

to introduce a uniform standard for emergency medical response, expert review of fitness

to work, and the process for establishing a responsible attitude towards health in all OMK

facilities.

The following measures were planned as part of implementation of the policy:

• Introduction of an emergency medical response system in the workplace

• Improvement of the first aid training programme in compliance

with Russian law and the recommendations of the European Resuscitation Council (ERC)

• Development of a corporate standard for evaluating fitness to work on the basis

of updated regulations (Russian Ministry of Public Health Order No. 302n)

• Development of a corporate programme for prevention of cardiovascular disease

• Development of ‘Health School’ technical programmes in the following areas: ‘Eating

Healthily’, ‘Hypertension’, and ‘Diabetes’

• Organization of ‘health days’ at facilities



REDUCING THE ABSENTEE RATE

Scheduled periodic medical examinations of employees

involved in work with harmful and hazardous working

conditions were conducted at OMK facilities in 2015.

The groups of employees requiring follow-up observation

and rehabilitation were determined. All recommendations

from the periodic medical examinations regarding follow-up

observation of employees were fulfilled.

Employees are treated at health care facilities (at CSW, APP).

IDENTIFICATION OF KEY INDUSTRIAL SAFETY RISKS

In 2015, specialists in the occupational safety directorate

of the parent company and industrial safety specialists

at the facilities conducted audits of the industrial safety

management system at all facilities according to the

following criteria:

• The presence of a register of highly hazardous objects

and equipment at the facilities

• Maintenance of records of the specified service life

of equipment

• Industrial safety expert reviews of equipment

are carried out

• Identification of accidents, availability of accident

response plans, conducting of drills

• Recording, investigation, and consideration of incidents

and steps taken in response to investigation results

• Compliance with requirements for training in regulated

jobs

• The presence of a register and procedure

for performing highly hazardous work

• Compliance with requirements for oversight

of hazardous industrial facilities

• Fulfilment of orders issued by oversight and regulatory

authorities

For all identified instances of noncompliance, the company

furnished managers with recommendations for correction,

and developed improvement measures.

An occupational safety programme and procedures

for internal investigations of incidents were developed

and introduced at APP. Audits of the occupational safety

management system were conducted at APP; the results

were submitted to facility management and an action plan

was developed. The programme will be completed in 2016.

COMPLIANCE WITH INDUSTRIAL SAFETY REQUIREMENTS AND OCCUPATIONAL SAFETY BY CONTRACTORS

The corporate standard ‘Contractor management

in the field of occupational safety, environmental

protection, and fire safety’ was introduced to ensure

compliance with industrial safety and occupational safety

requirements.

This standard establishes the requirements for interaction

with contractors to ensure safe working conditions

and compliance with environmental requirements when

organizing work to be performed at company facilities

or at other facilities where it has an interest.

Training is conducted on this standard. Work is under way

to create a uniform database of unscrupulous contractors.

Evaluation of a contractor on the basis of the requirements

of the standard begins at the selection stage. The

evaluation of the contractor according to established

criteria is documented. Contractor employees undergo

new-hire training, and records are kept, prior to starting

work. During the training, contractor employees are

informed of the occupational safety and environmental

protection requirements; environmental protection, health

and industrial safety policy; and procedures for access to

and movement around the facility site, including in vehicles.

During contract work, OMK specialists regularly inspect

contractors. In the future, a database of vendors,

contractors, and workers will be created and placed

on the corporate portal.



G4-15


FIRE SAFETY

A fire safety management system has been created at OMK

in compliance with current legal requirements. Regular

audits of the fire safety management systems at facilities

were conducted in 2015, on the basis of which action plans

to eliminate the most likely risks were created.

The current fire safety system is aimed primarily

at preventing fires. In emergencies, employees of the fire

service ensure the safety of persons and property. There

were no fire incidents in 2015.

The fire safety management system includes ten elements:

• Readiness of the nearest fire department

• Accountability for fire safety

• Compliance with state fire inspectorate instructions

• Emergency situations and fire safety commission

• Organization of open flame work

• Organization of training

• Organization of work on fire protection systems

• Procedure for notification, response, record keeping,

and investigation of incidents

• Organization of fire prevention work

• Systemic fire safety issues at company facilities

TRAINING ON THE DEVELOPMENT OF AN OCCUPATIONAL AND INDUSTRIAL SAFETY MANAGEMENT SYSTEM

‘Safety Management. Systems Used by Facility Managers’

seminar for senior managers.

Duration of seminar — 2 days (16 hours),

1 day — practical audit at production site. Training

is provided for managing directors, department managers,

and shop supervisors.

Expected result: managers understand the need for

changes in the occupational safety and industrial safety

field and become acquainted with the primary elements of

an occupational and industrial safety management system.

Seminar for line managers: ‘Effective Safety Management Techniques with Training and on Behaviour-Based Safety Audits’

Duration of seminar — 2 days (16 hours),

1 day — practical audit at production site. All managers,

specialists and white-collar workers at a facility undergo

the training.

Expected result: line managers who undergo the training

understand the changes to be introduced and participate

in them.



G4-26


Seminar for employees: ‘Development of a Conscientious Attitude Towards Safety’

Duration of seminar – 1 day (8 hours). All employees

at a facility undergo the training.

Expected result: employees understand the changes

to be introduced in the occupational and industrial safety

management system, support them, and participate

in their introduction. At a minimum, each employee

understands that the attitude towards safety

in the company and at the facility has changed radically.

Seminar on internal investigation of incidents: ‘Investigation of Incidents and Analysis of Key Causes’

Duration of seminar — 1 day (8 hours). Process shop

and section supervisors undergo the training. The number

is determined such that a minimum of two supervisors

in each department are trained.

Expected result: trained specialists capable of conducting

internal incident investigations to prevent similar incidents

in the future, conduct surveys, and seek key causes

of incidents.

Risk assessment seminar: ‘Risk Assessment, Evaluation, and Management’

Duration of seminar – 1 day (8 hours). All production shop

supervisors undergo the training.

Expected result: production supervisors understand

the basis of the programme, are able to identify

and manage risks, and work in the future with their

subordinates to introduce this programme in the

workplace. Managers and employees use the results

of risk assessment to determine measures for effective

protection while working and create high standards

for safe working procedures.

Seminar: ‘Effective Working Procedures for Occupational Safety and Industrial Safety Management Office (Department) Specialists’

Duration of seminar — 1 day (8 hours). All managers and

occupational and industrial safety management office

(department) specialists undergo the training.

Expected result: occupational and industrial safety

specialists understand their role in developing

and introducing safety programmes. The accountability

of line supervisors and occupational and industrial safety

specialists for safety is defined; safety specialists know

how to cooperate with the entire organization.

Seminar: ‘Behaviour-Based Safety Audits’

Duration of seminar — 1 day (8 hours). All production

section supervisors undergo the training. The seminar

is conducted as necessary at the request of a shop

manager.

Expected result: supervisors obtain the following skills:

1. Ability to identify and prevent situations that might

lead to adverse consequences

2. The art of convincing people to take precautions

at work in the future

3. Ability to complete reports and analyse information

on audits conducted




PLANS TO DEVELOP SAFETY AND OCCUPATIONAL SAFETY SYSTEM

In the medium term, there are plans to continue projects

aimed at:

• Changing the safety culture

• Monitoring the work of contractors

• Improving the safety of production processes

• Developing a transportation safety system

• Protecting the health of personnel


Target

Target

Reducing industrial injuries (LTIFR)* Development of an occupational safety management system

Development of an industrial safety management system

Actual 2014 LTIFR Actual 2014

System

was not evaluated

Actual 2014

System

was not evaluated

Actual 2015 LTIFR Actual 2015

Actual 2015

3.07 ↓ 2.37 2.3

2.6* LIFTR – Lost Time Injury Frequency Rate.

2016 2017 2018 2019 2020 2016 2017 2018

1.92 2.8

1.41.561.73

3.2

Target

2.132.5

↓ -10% ↓ -10% ↓ -10% ↓ -10% ↓ -10%

2016 2017 2018

3.03.1

2.8


G4-18


GROSS ATMOSPHERIC POLLUTANT EMISSIONS

GROSS POLLUTANT DISCHARGES INTO WATER BODIES

ATMOSPHERIC EMISSIONS

Actual payments for adverse environmental impact

Total fines for violation of environmental protection laws

Total consumption of energy used in production

DISCHARGES INTO WATER BODIES

GENERATION OF PRODUCTION WASTE

WASTE DISPOSAL

thou tonnes thou tonnesthou tonnes

million roubles million roublesmillion roubles

thousand roubles GJ

↓ 5.2 ↓ 1,067.9

↓ 29.4

↓ 3.2

↓ 11.2↓ 0.4

153,500 16,542,858.23

-34.7%

-11.1%-33.3%

-10.7%

-55.8%

-22.4%


KEY ENVIRONMENTAL INDICATORS


G4-21



Total investment in environmental protection (RUB million)

2014 2015

Total

Investment in capital assets for environmental protection, including: 63.7 126.9

• For capital construction of facilities relating to primary environmental protection 13.3 117.2

• For materials and equipment 36.4 36

• Miscellaneous 14.1 29.6

Payments to state budgets at all levels associated with environmental protection

and sustainable use of natural resources, including:

141.5 103.8

Compensation for environmental damage 1.2 1.4

2014 2015

Operating expenses for environmental protection, including: 807.9 1,122.9

• Air quality 75 89.3

• Wastewater collection and treatment 648.4 685.3

• Waste management 73 140

• Protection and remediation of land, surface water and groundwater 3.6 4.7

• Protection against noise and other physical nuisances 57 4

• Preservation of biodiversity and protection of natural areas 0.00 21.4

• Research 0.00 3.2

• Miscellaneous (payment for environmental protection services, expenditure on major

repair of fixed assets)

7.9 175.1




Area of disturbed land in 2014–2015, hectares

Direct greenhouse gas emissions, tonnes of СО2-equivalent

2014 2015

Total disturbed land 194.1 194.3

Land not remediated

and not rehabilitated194.1 194.3

Quantitative record keeping of greenhouse gas emissions was not conducted in 2014, since

СО2 emissions from fixed sources were not regulated by Russian law.

2015

Total direct and indirect greenhouse gas emissions as the sum

of direct and indirect emissions, including:84,782.78

CSW 84,771.0

Trubodetal 11.78

Direct greenhouse gas emissions from fuel combustion and leaks

(coverage area 1), including: 84,782.78

Carbon dioxide (СО2) 84,776.66

Methane (СН4) 0.91

Nitrogen oxide (I) (N2O) 5.21

Indirect emissions associated with electricity purchased

(coverage area 2) 0.0


G4-EN15


Total weight of waste, tonnes

2014 2015

Waste on hand at beginning of year 20,025,830.35 19,935,225.88

Waste generated during year 0.00 1,075,122.69

Waste received from third parties

(with and without transfer of ownership)1,199,456.87 115,616.21

Received from OMK business units 0.00 115,616.21

Waste utilized during year 86,618.04 696,030.36

Used by third parties 80,955.24 696,030.36

Waste neutralization and processing 591,119.88 306,026.73

By third parties 610,673.70 23,678.89

Total waste sent to landfill 35,913.35 165,827.71

By third parties 206,645.00 78,909.21

Ownership transferred 44,650.84 682,219.36

Waste transferred to third parties 116,684.03 798,698.35

To OMK business units 405,263.64 533,511.12

Waste on hand at end of year 19,935,225.879 19,615,260.89

Change, % -0.45 -1.6


Atmospheric pollutant emissions, tonnes

2014 2015

Weight of atmospheric pollutant emissions,

including:6,830.27 4,901.75

nitrogen oxides (NOx) 3,347.32 1,671.85

sulphur dioxide (SOx) 90.32 136.49

carbon monoxide (CO) 1,760.48 1,825.15

benzo(a)pyrene 0.01 0.0004287

volatile organic compounds (VOCs) 152.02 246.66

hydrocarbons (not including VOCs) 16.81 17.60

solids 1,415.42 939.97

miscellaneous 47.88 64.02


G4-EN23



ENVIRONMENTAL MANAGEMENT SYSTEM

OMK facilities base their environmental protection

activities on uniform principles:

• Compliance with legal requirements regulating

environmental protection activity

• Accident prevention and continuous reduction

of adverse environmental impact

• Sustainable use of natural and energy resources

• Improving the knowledge and accountability

of personnel with regard to environmental issues

• Developing an integrated management system

which complies with international standard ISO 14001

Environmental protection activity is coordinated

by the OMK Occupational Safety, Environmental,

and Quality Directorate using clear planning and regular

monitoring and evaluation of operations. The parent

company ensures that all OMK facilities act in accordance

with the nature and scale of environmental risks, including

by performing oversight functions and carrying

out internal audits of current and planned projects.

Each facility has its own occupational safety

and environmental management programme, which

is coordinated by specialist departments directly

subordinate to the managing director. A special

representative responsible for integrated systems

management, who monitors compliance with the

requirements of ISO 14001:2004, and also manages

reporting on the results of the environmental management

system, including making recommendations on improving it,

is appointed by order of the facility managing director.



Function OMK

Monitoring of environmental risks, oversight and performance of internal audits of current and planned projects

Parent company (Moscow)

OMK Occupational Safety, Environmental, and Quality Directorate

Integrated management system OMK policy on environmental protection, health and industrial safetyOMK management standards and performance in environmental protectionConsolidation of business unit goals at the company levelMonitoring achievement of goals, monitoring programme performance by business unit management

Number of internal audits for compliance with environmental protection standards in 2015

Key production assets

VSW CRM BVP CSW APP Trubodetal

Environmental protection activity Occupational Safety and Environmental Office

Occupational Safety and Environmental Department, lead environmental protection engineer, environmental protection engineer

Managing Director, Occupational Safety and Environmental Department, lead environmental protection specialist

Occupational Safety and Environmental Office

Technical Director Occupational Safety and Environmental Department

Environmental Safety Department, Occupational Safety and Environmental Office

Sanitary and Industrial Laboratory, Occupational Safety and Environmental Department

Industrial and Environmental Safety Department, Occupational Safety and Environmental Office

Occupational Safety and Environmental Department, environmental protection engineer

Lead environmental specialist, Occupational Safety and Environmental Department

Monitoring of compliance with environmental protection laws, codes, and regulations

Occupational Safety and Environmental Department, environmental protection specialist

Presence of certificate of compliance with international environmental management system standard ISO 14001: 2004



G4-DMA G4-15


Objective Unit of mea-surement

2015 (target)

2015 (ac-tual)

Difference between planned and actual indi-cators for 2015

Target 2016

VSW

Reduction of discharges into water bodies: tonnes/year

- suspended matter, to 61.5 42.61 -18.89 41.36

- petroleum products, to 11.25 2.1 -9.15 2.00

Reduction in volume of waste sent to landfill, to tonnes/year 28,161.11 16,990 -11,171.1 16,141

CRM

Reduction in volume of waste sent to landfill, to tonnes/year 77,185.46 50,691.87 -26,493.6 48,157

Reduction in atmospheric pollutant (phenol) emissions, to tonnes/year 11.8 10.8

BVP

5% reduction in volume of production and consumption waste sent to landfill, to tonnes/year 483 457.76 -25.24

Reduction in payments for exceeding maximum allowable concentration (MAC) of pollutants in wastewater to RUB thousand 1,690 1,490

CSW

Reduction in quantity of waste from offices and amenities disposed in environment, to tonnes/year 450 170.6 -279.4

Bringing volumes of solid municipal waste disposed to standard level of generation per facility employee tonnes/year 0.07 0.05

Bringing performance indicator for recycled and processed waste from total waste generation volume to not less than

% 40.2 42.5

APP

Reduction in adverse impact on air quality: units 0

- replacement of filter sleeves in dust collector at exterior insulation section of electric pipe welding shop No. 2, units

180 180

- conversion of vehicles to natural gas fuel in automotive shop, units 1 1 0

Achievement of percentage of recycled and processed waste % 93.7 93.7 0 93.7

Trubodetal

Reduction of copper content in wastewater mg/dm3 0.004 0.0105 0.0065 0.004

Reduction of environmental impact by introducing planned measures:

• Shutdown of hazardous industrial facility – boiler plant No. 1

• Replacement of oil-filled transformer HEIM-1370 by dry-type transformer SGB-1250

• Replacement of gas scrubber with emission to atmosphere by local scrubbing on abrasive cleaning units units 3 3 0



G4-18



THE GOALS SET FOR 2015 WERE COMPLETELY FULFILLED, EXCEPT IN THE CASE OF TRUBODETAL’S TARGET TO REDUCE COPPER CONTENT IN WASTEWATER. IT WAS NOT POSSIBLE TO ACHIEVE THE TARGET INDICATOR OF 0.004 MG/DM3, PRESUMABLY DUE TO THE COPPER CONTENT IN THE INCOMING WATER LINE. IT WAS DECIDED THAT WHEN CONDUCTING ANALYSES OF WASTEWATER IN 2016, THE INCOMING WATER LINE SHOULD ALSO BE ANALYSED TO OBTAIN A MORE OBJECTIVE PICTURE OF THE COPPER CONTENT IN THE WASTEWATER.

ENVIRONMENTAL SAFETY MEASURES AT OMK FACILITIES

VSW

During 2015, the company conducted 492 studies of environmental protection targets

in production departments, social facilities, industrial waste disposal facilities,

and plant sites. Industrial emissions (2,911 analyses), air quality (1,638 analyses), noise levels

(496 measurements), wastewater and natural water pollution (2,764 analyses), and soil

conditions (156 analyses) were tested.

In order to achieve the goal of reducing production waste sent to landfill, the facility

developed a programme to design a system for separate waste collection. This called

for a visualization of separate waste collection, a search for new waste processing

technologies, and identification of new types of production by-products for recycling.

The introduction of this programme at the facility reduced the volume of waste sent

to landfill by 12,653 tonnes in 2015.

CRM

In 2015, an agreement entered effect under which ‘ferrous metal dust’ waste is, after

processing, used for the remediation of disturbed land at solid domestic waste disposal

sites and construction sites, as well as for the levelling of land disturbed during storage

of industrial, construction, and domestic/municipal waste.

The facility introduced centralized collection and storage of paper and cardboard waste.

Collection of polymer wastes was introduced.

An agreement was signed for the sale of ‘process water treatment waste’

to a third party as secondary raw material.

Remediation work was carried out on 22,683 m2 of land affected by facility operations.

BVP

Two projects were implemented in 2015:

• Improvement and landscaping of the main site sanitary protection zone. Project

completion – September 2016

• Site preparation for use of the lot for production operations. The government

environmental expert review finding is expected in March 2016

CSW

Eighteen measures were planned in 2015. The environmental programme achieved

the following results:

• Savings of 10,520,000 kWh of electricity

• Savings of 21,520,000 m3 of fuel

Research was conducted on the application of ferroalloy production slag recycling

technology to obtain material for remediation of disturbed land. This waste was eliminated

from the list of current CSW waste.

CSW discharges process wastewater into the Chusovaya and Usba Rivers after treatment

at local treatment plants; this has an adverse impact on water bodies, bioresources,

and their habitats.



The facility makes a quarterly payment to the Russian

Federation government for this impact. In addition, the

facility has a programme to artificially grow aquatic

bioresources. Accordingly, 43,559 pike fry weighing up to

three grams are released into the Kamskiy Reservoir every

year. The damage to aquatic bioresources is being

re-evaluated in 2015–2016 due to the closure of a number

of production facilities.

Trubodetal

In 2015, the following measures were conducted to mitigate

adverse environmental impact:

• The Cojafex model ВР-1600 induction pipe bender

was repaired, making it possible to reduce pollution

of process wastewater

• Gas-fuelled boiler plant No. 1 was shut down

temporarily, making it possible to reduce: nitrogen

dioxide emissions by 1.6 tonnes/year and carbon

monoxide emissions by 3.83 tonnes/year; water

consumption by 400 m3 per year; and natural gas

consumption by 6 million m3 per year

• The oil-filled transformer HEIM-1370 was replaced

by a dry-type transformer SGB-1250. Transformer

oil consumption was reduced by 0.9 tonnes

• The obsolete gas scrubbers in shop No. 2 and the tool

shop were replaced by UPV 2000А dust collectors,

from which purified air is supplied to the shop work

zone. The elimination of two sources of atmospheric

emissions made it possible to reduce abrasive dust

emissions by 0.396 tonnes/year and ferrous oxide

emissions by 0.612 tonnes/year

APP

In 2015, the following measures were implemented

to mitigate adverse environmental impact:

• The dust collector sleeves on three lines were replaced

in electric pipe welding shop No. 2

• Emission sources downstream of the combined cycle

gas turbine and industrial emissions were monitored

• Harmful substances were monitored at the boundary

of the sanitary protection zone

• Noise level monitoring

• Diagnostics of atmospheric emissions

from vehicles

• Conversion of one vehicle to natural gas fuel

• Upgrading of exterior lighting

• Major overhaul of the shunting diesel locomotive

• Planting spruce trees

• Washing vehicles in specialized washes

PRECAUTIONARY PRINCIPLE

Evaluation of possible adverse consequences

of current and planned operations at two facilities:

CSW

A procedure was introduced to identify potential

accidents and emergencies that might have

an environmental impact and determine responses

to them. An accident response action plan is being

developed on the basis of the government register

of hazardous industrial facilities and the register

of potentially hazardous industrial facilities at CSW.

The register is created every year by specialists

in the Industrial and Environmental Safety

Department, endorsed by the head of the Civil

Defence and Emergencies Department, and approved

by the person authorized by plant management

to take responsibility for the integrated management

system.

VSW

Environmental protection is considered

in modernization projects that might have

an adverse impact on the environment. Maximum

allowable concentrations are also measured

at the facility and measures are conducted

to mitigate environmental impact during adverse

weather conditions. Oil spill response drills

are conducted, involving the VSW environmental

analysis laboratory.



G4-14


STAKEHOLDER ENGAGEMENT

VSW

Facility specialists publish weekly reports on monitoring

of the sanitary protection zone of the facility and natural

reservoirs in the corporate newspaper.

A press tour for media from Vyksa municipal district

to the second construction site for the VSW solid domestic

waste disposal site was organized in 2015. Specialists from

the Environmental Safety Department prepared overviews

for corporate media and the district newspaper Vyksunskiy

rabochiy.

CRM

There were no environmental complaints or legal

investigations relating to the operation of the CRM during

the reporting period.

BVP

Public hearings on the site preparation project

to use the lot for BVP production activity were held

in August 2015.

Materials on the project’s environmental impact

assessment were placed in the public receiving area

for public review.

On the basis of a complaint from a resident

of Blagoveshchensk, the Federal Supervisory Natural

Resources Management Service (Rosprirodnadzor)

Directorate for the Republic of Bashkortostan sent notice

No. 04-03/07300, dated 3 December 2015,

to the Blagoveshchensk Valve Plant, requiring the plant

to submit the results of in-process environmental

monitoring at BVP for steel smelting shop No. 3, concerning

emissions in the gas scrubber from the steel smelting

furnaces. All required documents were submitted on time.

CSW

Pursuant to current legislation, the company provides

information on request to external stakeholders

in the form of inspection and oversight bodies and local

residents.

Five articles on the environment were published

in the newspaper Chusovoy metallurg in 2015. Seven articles

on the environment were placed on the CSW production

system portal. The plant did not receive any complaints

regarding environmental protection issues in 2015.

Trubodetal


information on request to external stakeholders.

No complaints or requests were received from

stakeholders in 2015.

APP


information on request to external stakeholders.

No complaints or requests were received from

stakeholders in 2015.





ENERGY CONSUMPTION AND ENERGY EFFICIENCY

Energy consumption

Energy consumption by business units

Indicator Unit

of measurement

2014 2015

Electricity consumption (VSW) MWh 626,359.25 637,218.90

Natural gas consumption (VSW) thousand m3 203,547.00 202,263.70

Electricity consumption (CRM) MWh 800,171.42 865,961.20

Natural gas consumption (CRM) thousand m3 58,736.82 59,029.30

Electricity consumption (Trubodetal) MWh 20,265.01 15,921.40

Natural gas consumption (Trubodetal) thousand m3 16,853.00 9,647.00

Electricity consumption (BVP) MWh 42,455.93 43,804.60

Natural gas consumption (BVP) thousand m3 7,178.23 6,591.20

Electricity consumption (APP) MWh 29,564.33 26,582.91

Natural gas consumption (APP) thousand m3 4,741.80 3,998.60

Electricity consumption (CSW) MWh 87,178.44 62,261.10

Natural gas consumption (CSW) thousand m3 82,649.08 51,234.86

Indicator Unit of

measurement

2014 2015

Electricity as a result of energy conservation programme MWh 18,140 11,746

Natural gas as a result of energy conservation programme thousand m3 4,199 984

Total energy saved as a result of energy efficiency programme GJ 206,054 75,271

* using the new technique, the effect is calculated in terms of energy resources (gas and electricity) purchased.

Total energy savings*

Energy budget by facility (RUB million)

6,047 5,727TOTAL

2014 2015

APP

CRM

Trubodetal

BVP

CSW

2,675

1,999

199

224

123

828

2,529

2,170

148

215

121

544

VSW


G4-EN3


WATER CONSUMPTION

Water consumption (thousand m3)

Parameter Unit of measurement

2014 2015

Water intake from all sources, including: thousand m3 14,542.54 10,109.12

• Water intake from underground sources

thousand m3 4,500.08 4,134.33

• Water intake from surface sources thousand m3 9,619.46 5,479.26

• Water supply from water supply networks of other entities

thousand m3 423.00 495.53

Volume of recycled and reused water thousand m3 352,804.86 368,479.94

Total water volume used thousand m3 367,347.40 378,589.06

Percentage of recycled water supply % 96.04% 97.33%


Actions to improve energy efficiency were taken under the methodical supervision

and oversight of the OMK Energy Development Office in compliance with the regulation

‘Procedure for Development, Endorsement, and Oversight of Energy Conservation

Programmes’.

Actions to improve energy efficiency at OMK facilities are managed by the chief power

engineer; personnel at CSW, VSW, and the CRM conducted energy audits to improve energy

efficiency in 2015.

In 2015, planned investment in energy conservation projects at all OMK facilities amounted

to RUB 54.18 million, with an effect equivalent to RUB 49.19 million. Actual investment

was RUB 32.96 million, with an effect equivalent to RUB 45.05 million. The deviation from

the plan was due to a failure to implement some activities and a shift in the deadlines

for the introduction of a number of measures.

The energy conservation programme at OMK facilities in 2015 included 78 measures,

the most significant of which were:

In 2015, an energy conservation programme was developed for 2016–2019, with a planned

annual effect of RUB 361.8 million at the 2019 horizon and costs of RUB 822.1 million. Plans

are to obtain a cumulative total effect in the amount of RUB 1.100 billion over the life

of the programme (2016–2019). The programme was developed primarily by OMK power

engineers, since practice has shown the poor effectiveness of specialist companies hired

to conduct legally mandated energy audits.

Measure Investment,

RUB thousand

Savings, RUB thou-

sand

Plan Actual Plan Actual

VSW Modernization of lighting

in VSW shops and sections4,419.8 4,856.0 4,498.3 4,780.0

VSW Investment project to supply

liquid argon, oxygen,

and nitrogen to VSW

5,462.4 0.0 6,480.0 826.0

CSW Reduction of expenses, actual

reduction of specific power

requirements, elimination

of inefficient consumption

of energy resources, elimination

of leaks in networks, and

replacement of steam heating

with municipal heating water

1,490.0 5,200.0 5,742.3 7,110.0

CSW Replacement of two pumps

at the onshore pumping station

with lower power pumps

2,415.0 234.0 3,376.0 6,906.0




EXTERNAL SOCIAL POLICY

An active social policy is an integral part of OMK’s strategy.

The company views social programmes as long-term

investments in the stability of the local communities

in the regions where it operates. We aim to ensure

a decent standard of living for all OMK employees

and we build relationships with state authorities

and partners from big and small businesses. We form

long-term relationships with society and maintain an open

dialogue with non-governmental organizations.

In 2015, OMK’s priorities in its operating regions were:

• Maintaining economic stability

• Helping to stabilize the labour market

• Implementing social, cultural, educational,

and environmental projects to meet the needs

of a specific region

• Building relationships with regional partners

OMK conducts socially-oriented projects both through

its facilities and companies, and through charitable funds

(OMK Participation and the Ivan and Andrey Batashev

Fund).

In pursuing social projects in our operating regions,

OMK operates under the social partnership model.

This is a modern model of interaction, reconciling

the interests of state bodies, regional business,

and public organizations.

To develop local communities, the company launched

the OMK Partnership social and charitable projects

competition; introduced a corporate volunteerism

programme; and developed a programme for expanding

social entrepreneurship in the city of Chusovoy, which

will be implemented in the first half of 2016.

Meetings and workshops on the involvement of small

and medium-sized business in the city of Vyksa were held

at the Art Ovrag modern art festival in 2015. The company

has involved business partners in its volunteer

and charitable projects.

The primary focus areas of our charitable programmes

have traditionally been:

• Support of popular and elite sports

• Support for educational programmes

• Support for culture

• Social programmes (assistance to children’s facilities

and vulnerable segments of the population)

• Assistance to spiritual and religious organizations

• Military and patriotic education and assistance

to war veterans


G4-21


CHARITABLE PROGRAMME MANAGEMENT SYSTEM

After analysing the effectiveness

of charitable programmes during the

2011–2014 period, the company decided

to switch from traditional charity —

which was based on providing targeted

assistance on request from those needing

material support and patronage —

to a social investment model based

on social partnership.

In 2015, the company began to create

a new model using a systemic approach

to management of socially-oriented

projects in our operating regions.


MANAGEMENT BOARD

PUBLIC RELATIONS DIRECTORATE HR DEPARTMENT

Draft single budget for charity, reporting, and draft regulatory

documents

Budget requests and reporting

Procedural support and coordination

Appointing and inviting experts

Tender bids

EXPERT COMMISSIONS FOR OMK PARTNERSHIP COMPETITION

CHARITY RECIPIENTS

NON-PROFIT ORGANIZATIONS, FEDERAL GOVERNMENT BODIES, MUNICIPAL ENTITIES, AND OMK EMPLOYEES

FACILITY DEPARTMENTS DESIGNATED BY THE MANAGING DIRECTOR

Project funding

Requests for targeted assistance and reporting on projects

Project implementation

Approval of regulatory documents: ‘Sponsorship and Charitable Activity at OMK’,

‘Corporate Policy on Management of External Social Programmes’, and

‘Strategy for Expansion of Sponsorship and Charitable Activity in 2015–2016’.

Bylaw on the OMK Partnership competitionBudget approval

COMPANY MANAGEMENT


G4-DMA


CONTENTS OVERVIEW STRATEGY BUSINESSMANAGEMENT SUSTAINABLE DEVELOP-MENT

CONTACT INFORMATION

OMK Annual Report 2015


SUPPORT OF POPULAR AND ELITE SPORTS

The company sponsors major tournaments and

is expanding the sports infrastructure in the cities where

it operates. The priority sports for OMK are sambo, skiing,

and football.

The following projects were implemented with OMK

support in 2015:

Tournaments and competitions:

• Battle of the Champions (Russian Martial Arts

Association)

• Sambo tournament in honour of the Batashev brothers

in Vyksa

• Plant Olympics

• Marital arts holiday

‘Sports. Recognition. Success’ in Chusovoy

Infrastructure development:

• Construction of sports venues in cities where

the company operates

Support for athletic organizations, associations,

and initiatives:

• Metallurg, Volga, and CSW football clubs

• Sports Against Narcotics Programme (VSW)

• Prizes for high athletic achievements (VSW)

• Charitable assistance to fitness and popular sports

institutions in regions where the company operates

ASSISTANCE TO CHILDREN’S INSTITUTIONS AND VULNERABLE SEGMENTS OF THE POPULATION

OMK provides charitable support to disadvantaged

children, young people, and senior citizens in its operating

regions.

ASSISTANCE TO RELIGIOUS AND SPIRITUAL ORGANIZATIONS

In 2015, OMK provided assistance to the Vyksa bishopric

of the Russian Orthodox Church and support for the

construction of a shrine to the Virgin Mary in Chusovoy.

SUPPORT FOR EDUCATIONAL PROGRAMMES AND INSTITUTIONS

The company’s primary tasks in this area are career

guidance, education, and promotion and use of new

technologies, tools, and techniques in education and

training. For more details, see ‘Career Guidance’

and ‘University Partnership Programmes’ in the Personnel

section.

SUPPORT FOR CULTURE

OMK supports projects aimed at restoring cultural heritage

sites and popularizing current trends in contemporary

culture and modern art.

The fifth Art Ovrag festival of new urban culture was held

in Vyksa in June 2015. The festival was attended by 8,000

city residents and guests and featured 50 theatrical, music,

architecture, food, sports, and dance events.

Over the three days of the festival, more than 2,000 people

visited the master class given by the Moscow Museum

of Modern Art and the Volga Branch of the Government

Modern Art Centre. At other sites in the central park,

cooking master classes, sports competitions and parkour,

skateboarding, bicycle motocross, and street workout

workshops, dance exhibitions, and rap battles.

EXAMPLES OF SOCIAL PROJECTS IN 2015




SUPPORT FOR VETERANS

Since 2006, OMK has organized the Victors’ Ball charitable

project jointly with the Central Museum of the Great

Patriotic War on Poklonnaya Hill and the Maris Liepa

Charitable Fund. Its main purpose is to express gratitude

to the generation that strove for victory, and to unite

veterans from various countries. The tenth Victors’ Ball

to mark the seventieth anniversary of victory in the

Second World War was held in Moscow in April 2015.

The event was attended by 500 guests, including 120

Second World War veterans from Moscow, the Moscow

area, Vyksa, Chelyabinsk, Chusovoy, Blagoveshchensk,

Crimea, and Sevastopol, as well as countries of the former

USSR, Eastern Europe, and Israel. Guests included Heroes

of the Soviet Union and Russia, bearers of the Order

of Glory and veterans of the armed forces.

The veterans were congratulated by National Artist

Andris Liepa, Director of the Central Museum of the

Great Patriotic War Vladimir Zabarovskiy, and Chairman

of the OMK Management Board Anatoly Sedykh.

Famous artists performed for veterans and guests.

National Artist of Russia Larisa Dolina, National Artist

of Russia Alexander Morozov, and popular singer Alsou

sang songs from the war years.

SOCIAL SUPPORT PROGRAMMES WHEN PRODUCTION FACILITIES ARE CLOSED

When production sites downsize or are closed,

the company’s social policy aims to develop a constructive

dialogue with stakeholders, increase charitable assistance

to vulnerable groups of the population, create new jobs,

and expand small and medium-sized business and social

entrepreneurship.




2011 2012 2013 2014 2015

304.6

379.1314.3

213.3 199.0

Expenditure on charitable

and social projects, RUB millionFund volume 13.3

Distribution by city:

Almetyevsk 1

Blagoveshchensk 1.8

Vyksa 4

Chelyabinsk 2.5

Chusovoy 4

Distribution by participant:

Organizations 7.8

OMK employees 5.5

OMK PARTNERSHIP COMPETITION

A long-term programme to support a social initiative,

the OMK Partnership social and charitable projects

competition, was introduced in 2015. Employees of OMK

facilities, non-profit organizations, and government and

municipal institutions from the company’s operating

regions were invited to participate. Four workshops

on social project management, fundraising, and project

promotion for potential grant recipients and five

workshops on corporate volunteerism were held during

the preparation for the competition. A total of 201

applications were received from five cites: Almetyevsk,

Blagoveshchensk, Vyksa, Chelyabinsk, and Chusovoy.

The technology for collecting and evaluating

the applications and the system for evaluating

the effectiveness of the company’s social investments were

successfully tested in 2015. The initiative was deemed

a success. The second competition was announced

in February 2016.

The goal of the competition is to create possibilities

for introducing innovative technologies to develop

the regions where the company operates, employee

involvement in social projects at their own initiative,

and voluntary participation.

The objectives of the competition are to improve

the quality of life in cities where OMK operates, develop

a systemic approach to solving social problems

in the regions, ensure maximum transparency

in the selection of priority projects, and submit

the projects’ results to a qualitative evaluation.

Grant fund, RUB million

Number of competition projects

2015 results

Roughly 30,000 people became the beneficiaries

of the competition projects. Grant recipients received

additional funding for projects (co-funding) in the amount

of RUB 8 million.

Organizations OMK

employees

Total

Approved by ex-

pert commissions

60 41 101

Implemented 58 36 94

Structure of expenditure on charitable

projects in 2015, RUB thousand

304,649

Support of popular

and elite sports

21,934

Support for educational programmes

20,698

Miscellaneous expenditure and special projects

175,160

Support for culture

35,189

Social programmes (assistance to children’s institutions and vulnerable segments of the population)

25,499

Assistance to religious organizations

15,246

Military and patriotic education and assistance to war veterans

10,923


G4-SO1 G4-26



Caring Grandchildren

A project by Chusovoy Technical School students to carry

out minor repairs in the homes of senior citizens, veterans,

and disabled persons. The project became preproduction

practice for students.

Hospital Mothers

Volunteers were specially trained to become ‘hospital

mothers’. They work at the Chusovoy City Hospital

and care for orphans and abandoned children under

long-term care.

The Golden Years – Life Goes On!

Assistance to Second World War veterans and former

Chusovoy Steel Works employees. The Perm Organization

of Disabled Persons organized support groups. One

hundred and fifty city veterans visited exhibitions, attended

computer courses and financial literacy courses, studied

Nordic walking, and learned how to live a healthy life.

Support for Foster Families Programme

This comprehensive programme improved parenting

skills in foster families, including measures to avoid foster

children being returned to orphanage facilities. Thirty

specialists from the Pelican Centre in Vyksa and 30 foster

families participated in the project.

Young Entrepreneur

A camp for older school pupils in the village

of Novosineglazovskiy (Chelyabinsk), where they learned

to create their own business projects, attended master

classes, and took field trips to the Chelyabinsk business

incubator.

A sociological survey of employees was conducted early

in the year and to determine their level of motivation

for volunteer activities, the actions that most interested

them, their readiness to take the initiative themselves,

and preferred incentives for volunteers. Employees

led volunteer projects as part of the OMK Partnership

competition, donated blood, and participated in OMK

Participation charitable fund events: ‘Everyone Run’,

‘In Peace on the Christmas Tree’, ‘Together to School!’,

‘Children to Children’, and ‘Heart to Heart’. They also

planted trees, helped senior citizens and veterans, and

participated in the Spiritual Bazar annual charitable fair.

Altogether, 9,000 people volunteered at OMK facilities.

Throughout the year, 91 volunteer events involving

employees were held.

Expansion of volunteerism helps to create mechanisms

for long-term partnership with non-profit organizations

and municipal institutions, to improve the quality

of life in local communities, and to resolve social issues

in the regions where we operate.

Examples of projects run by non-profit organizations and fed-eral and municipal institutions

EXPANDING VOLUNTEERISM




Bountiful Garden

This initiative is run in Chusovoy and Almetyevsk.

The aim is for the plant to purchase surplus agricultural

products from private gardeners and have volunteers

create vegetable baskets for needy, unemployed senior

citizens who are former employees of the plant. More than

100 people participated in the initiative.

Spiritual Bazar charitable fair in Moscow

For the first time, more than 40 company volunteers

from various regions, joined by students from the National

University of Science and Technology MISiS, participated

in 200 creative master classes for children. With the

support of volunteers, each fair participant was offered

the opportunity to craft an original New Year’s gift for

friends and family. Employees and representatives of OMK’s

partners, Metallinvestbank and supervisors of the Russian

Martial Arts Association and Maris Liepa Charitable Fund,

participated in the events.

The bank gave each guest the opportunity to order

an individual bank card with a drawing done by his

or her child in the master class. The cards were produced

in partnership with the OMK Participation fund:

the fund receives RUB 5 from each purchase.

A total

of 32 cards were created during the fair.

Our Forest

More than 600 VSW volunteers, together with residents

and representatives of the administration of Vyksa,

restored the forest around the city damaged

by the 2010 fires.

Charity in IT

A project to transfer used computer equipment

to various vulnerable groups for charity purposes

was implemented for the first time. The project was led

by a volunteer — Legal Office Manager Aleksandr

Domoratskiy. The goal of the project was to ensure

long-term use of computer equipment, and to improve

the equipment available to non-profit organizations in our

operating regions. Two non-profits were the beneficiaries:

the Boksitogorsk Municipal District Social Service Centre

independent municipal institution (Leningrad Region) and

the Nizhny Novgorod regional organization of disabled

persons, the Russian Order of the Red Banner of Labour

Association of the Blind. Four sets of computer equipment

(monitors, system units, keyboards, and mice) were

transferred as part of the initiative. Three computers

were used for a computer class for senior citizens

in Boksitogorsk. Twelve people have attended computer

courses at the Boksitogorsk Municipal District Social

Service Centre since 1 September 2015. At the Nizhny

Novgorod Association of the Blind, the computer is used

for office work.

EXAMPLES OF VOLUNTEER PROJECTS OUTSIDE THE GRANT COMPETITION

New Year’s Presentation

at the Nikulin Moscow Circus

OMK and the OMK Participation charitable fund gathered

guests at the Nikulin Moscow Circus on Tsvetnoy Boulevard

for the thirteenth time in December 2015. More than

500 children from disadvantaged families received tickets,

ice cream, and gifts. Volunteer OMK employees assisted

in organizing and conducting the celebration.



III

III

III


BLOOD DONATION DRIVES

Expansion of the corporate blood donor movement

continued in 2015. Since the project began, more than

300 company employees have become steady donors.

OMK employees gave more than 140 litres of blood during

the year.

The company involved its partners in giving blood, including

employees of Metallinvestbank, representatives of the

Russian Martial Arts Association, and students of the

National University of Science and Technology MISiS.

As part of the OMK Partnership competition, the Irkorka

Chelyabinsk city social movement to assist children

suffering from cancer (village of Novosineglazovskiy)

implemented the ‘Only Man Can Save Someone’s Life’

project, aimed at increasing the number of blood donors

in Chelyabinsk Region and encouraging residents

of the village and Trubodetal employees to give blood.

The ‘Everyone Can Be A Donor’ event was held

in the square in front of the Novosineglazovskiy Palace

of Culture: those who wanted to gave blood, there was

a charity book fair and a performance by music and dance

groups was also organized. Iskorka volunteers conducted

an open lesson on ‘How to Become a Donor’ and organized

a drawing contest ‘Give Blood — Save a Life’ for students

at Novosineglazovskiy schools. A total of 402 people

participated in the project.

AWARDS

Second place in the ‘Best Programme (Project) Promoting Expansion of Volunteerism in Russia’

category in the ‘Leaders of Corporate Charity’ awards for the ‘Programme to Expand Corporate

Volunteerism in OMK’

Third place in the ‘For Participation in Solving Social Problems in Regions and Expanding Corporate

Charity’ category of the regional stage of the federal competition ‘Russian Organization with High Social

Effectiveness’ (VSW)

Third place in the Donors Fund ‘Objective Charity’ competition (OMK)

A certificate from the Russian Ministry of Culture for the project to restore the Batashev-Shepelev gardens

in Vyksa municipal district, Nizhny Novgorod Region (VSW)

First place in the ‘A Good Deed’ category in the ‘Changing World’ competition for social achievements

organized by the Chelyabinsk Region Assembly (Trubodetal)

A certificate of the Russian Government Prize for quality at facilities with more than

1,600 employees (evaluation of a company’s social policy and corporate social responsibility) (Trubodetal)

A letter of appreciation from managers of the Russian Federation Civic Chamber’s coordinating centre for

organization, expansion, and popularization of voluntary blood donation (Trubodetal)

II




CORPORATE PROCUREMENT TAKES PLACE IN A TWO-LEVEL SYSTEM:

• The procurement office of the parent company provides planning, methodology,

control, development, and evaluation of procurement activity

• Processing is carried out by the facilities’ procurement offices

The introduction of a new form of procurement — category management — began in 2015.

This is presently the most progressive form of procurement operation, making it possible

to handle the two most important tasks: management of the total cost of ownership

of materials and equipment on the one hand, and the strategic orientation of procurement

on the other.

The new SAP SRM corporate electronic procurement system was introduced in 2015.

With the introduction of this system in all business units, OMK manages procurement

according to unified rules and a single base of vendors.

Procurement volume over the year was more than RUB 90 billion at 2015 prices.

In total, more than 85–90% of OMK’s procurement comes from Russia. More than 6,000

suppliers are involved in procurement procedures, and the list of goods exceeds 50,000.


G4-12



UPDATING REQUIREMENTS FOR SUPPLIERS AND CONTRACTORS

Beginning in 2015, new agreements and supplemental

agreements with suppliers included schedules that set

forth guiding principles on working conditions, health

and safety, use of child labour and forced labour, and

requirements on compliance with laws on occupational

safety, industrial and fire safety, and environmental

protection.

Guiding principles for operations of OMK contractors

(excerpts)

Working conditions

Contractors shall evaluate their employees on the basis

of their ability to perform the work assigned to them,

and not on the basis of physical and/or personal qualities

or beliefs, implementing principles to prevent discrimination

on the basis of race, skin colour, sex, religious views,

political beliefs, national origin, or sexual orientation.

Health and safety

Contractors shall provide their employees with safe

workplaces, and also introduce procedures to minimize

the risk of accidents, damage, and health hazards.

Requirements for compliance with law by OMK

partners (excerpts)

OMK partners shall:

• Provide safe working conditions and comply with

environmental, occupational safety, and fire safety

requirements

• Follow procedures, rules, and instructions that

are optimal from the environmental and economic

viewpoints, as well as from the viewpoint of

occupational safety

• Be familiar with the company’s policy on environmental

protection, health, and industrial safety, and follow the

company’s fundamental principles and values in the

course of their work

• Ensure that employees involved in work are trained

in the fundamentals of integrated environmental

protection, on-the-job safety, and health systems

management

Child labour and forced labour; labour abuse

Contractors shall not use the labour of persons under the

legal working age (child labour), nor shall they condone

abuse of employees or the use of various forms of forced

labour.

Wages and benefits

Contractors shall pay their employees fair and competitive

remuneration in full compliance with the applicable laws,

and also provide their employees with the opportunity to

develop skills and abilities.

Environmental protection

Contractors shall conduct their business so as to ensure

protection of the environment.

Bribes

Contractors acting on behalf of the company shall comply

with all applicable laws prohibiting bribery, including bribery

of government employees.



KEY ABBREVIATIONS USED IN THE OMK ANNUAL REPORT FOR 2015:

APP — Almetyevsk Pipe Plant

BVP — Blagoveshchensk Valve Plant

VSW — Vyksa Steel Works

VPS — Vyksa Production Site

CRM — Casting and Rolling Mill

CS — Compressor Station

Mill 5000 — Thick-Plate Mill 5000 at VSW

PPE — personal protective equipment

CSW — Chusovoy Steel Works

DETAILED STOCK LIST OF OIL AND GAS PIPES DIVISION

• hot-rolled sheet steel in coils and sheets for large and medium diameter pipes, also

used in shipbuilding, heavy industry, and construction.

Width: 30–1750 mm. Thickness: 1–12.7 mm.

Maximum capacity: up to 1.2 million tonnes per year

• Straight-seam and single-seam electrically welded pipes for gas, crude oil, refined

product, and water pipelines, heating systems, and development of oil and gas fields.

Strength class: up to X70.

Diameter: 159–530 mm.

Wall thickness: 4–12.7 mm.

Maximum capacity: up to 1 million tonnes per year

• Water and gas pipes and general-purpose pipes for water and gas pipelines, heating

systems, construction, and agriculture.


Wall thickness: 0.8–6.0 mm.


• Shaped pipes for construction, heavy industry, furniture manufacturing,

and other industries.

Cross section: from 10х10 to 300х300 mm and from 15х10 to 300х200 mm

• Casing pipes for development of oil and gas fields

and well construction.


Wall thickness: 5.2–11.1 mm.


6 APPENDIX А APPENDIX B

CONTENTS OVERVIEW KEY INDICATORSMANAGEMENT CONTACT INFORMATIONSTRATEGY SUSTAINABLE DEVELOPMENT


Table of standard elements of sustainability reporting guidelines

(GRI standard), Version G4, core disclosure variant

APPENDIX C

Section Indicator Definition page/comments

Strategy and analysis G4-1 statement from the most senior decision-maker of the organization

about the relevance of sustainability to the organization and the organization’s

strategy for addressing sustainability

11, 54

Organizational profile G4-3 name of the organization 5

G4-4 primary brands, products, and services 6

G4-5 location of the organization’s headquarters 5, 110

G4-6 countries where the organization operates 5

G4-7 nature of ownership and legal form 33

G4-8 markets served 7

G4-9 scale of the organization 8

G4-10 number of employees 57

G4-11 percentage of total employees covered by collective bargaining agreements 72

G4-12 supply chain 104

G4-13 significant changes regarding the organization’s size, structure, or ownership unchanged

G4-14 precautionary principle 92

G4-15 externally developed economic, environmental, and social charters, principles,

or other initiatives to which the organization subscribes or which it endorses

73, 80, 89

G4-16 membership of associations and/or national

or international advocacy organizations

OMK has been a member of the Russian

Union of Industrialists and Entrepreneurs

since 2001

6



APPENDIX C (CONTINUED)


Identified material aspects

and boundaries

G4-17 entities included in the organization’s consolidated financial statements 5

G4-18 process for defining the report content and the aspect boundaries 75, 83, 90

The structure of the report is determined

according to a strategic principle – the

report includes all indicators and projects

having a significant influence on fulfilment

of the approved strategic goals

G4-19 list of all material aspects 56

G4-20 material aspects for all legal entities included in report 56

G4-21 material aspects outside the organization 84, 96

G4-22 restatements of information provided in previous reports unchanged

G4-23 significant changes from previous reporting periods in the scope and aspect

boundaries

unchanged

Stakeholder engagement G4-24 list of stakeholder groups Shareholder, employees, partners, clients

and non-profit organizations, municipal

authorities

G4-25 basis for identification and selection of stakeholders with whom to engage The company seeks to build a dialogue, doing

so especially with partners that may have a

significant influence on the implementation of

the development strategy

G4-26 organization’s approach to stakeholder engagement 69, 71, 81, 100

The company uses various formats

for stakeholder engagement: scientific

conferences, business meetings, grant

competitions, sociological surveys, and

contractor audits

G4-27 key topics and concerns that have been raised

through stakeholder engagement

69

6



APPENDIX C (CONTINUED)


Report profile G4-28 reporting period 2

G4-29 date of most recent previous report May 2015

G4-30 reporting cycle Annual

G4-31 contact point 110

G4-32 ‘in accordance’ option chosen by the organization G4, core

G4-33 policy and current practice with regard to seeking external assurance

for the report

Not applicable

Governance G4-34 governance structure of the organization 31

Ethics and integrity G4-56 organization’s values, principles, standards, and norms of behaviour 18

Disclosures on Management

Approach

G4-DMA improving production efficiency 20, 24

development of innovations 22

occupational safety 74

personnel development 61

environmental safety 89

developing operating regions 97

Indicators G4-EC1 direct economic value generated and distributed 40

G4-EN3 energy consumption within the organization 94

G4-EN15 direct greenhouse gas emissions 86

G4-EN23 total weight of waste 87

G4-LA6 type of injury and rates of injury 78

G4-LA9 average hours of training per year per employee 71

G4-LA12 composition of governance bodies and breakdown of employees per employee

category

58

G4-SO1 operations with implemented local community engagement 64, 100

6



OMK

28-2, Ozerskaya Nab.,

Moscow, 115184, Russia

Tel.: (495) 231-77-71

Fax: (495) 231-77-72

Email: [email protected]

Corporate website: www.omk.ru

VYKSA STEEL WORKS

45, Ul. Bratiev Batashevykh,

Vyksa, Nizhny Novgorod Region, 607060,

Russia

Tel.: 8 800 250-11-50

Fax: (831-77) 3-76-05


CASTING AND ROLLING MILL

OMK Steel, Building 1/71, Industrial Zone No. 7,

Vyksa District, Nizhny Novgorod Region,

607060, Russia

Tel.: (831-77) 9-96-60

Fax: (831-77) 9-97-14


TRUBODETAL

23, Ul. Chelyabinskaya,

Chelyabinsk, 454904, Russia

Tel.: (351) 280-09-41

Fax: (351) 280-12-13


ALMETYEVSK PIPE PLANT

35, Ul. Industrialnaya,

Almetyevsk, Republic of Tatarstan, 423450,

Russia

Tel.: (85-53) 45-89-47

Fax: (85-53) 45-90-26


BLAGOVESHCHENSK VALVE PLANT

1, Ul. Sedova,

Blagoveshchensk, Republic of Bashkortostan,

453430, Russia

Tel.: (34766) 2-19-85

Fax: (34766) 2-13-78, 2-17-32


CHUSOVOY STEEL WORKS

13, Ul. Trudovaya, Chusovoy,

Perm District, 618200, Russia

Tel.: (34256) 6-33-33

Tel./Fax: (34256) 6-35-71


OMK TUBE

8800 Miller Road 2,

Houston, Texas, 77049, USA

Tel.: +1 281 456 0665

Fax: +1 281 609 8672


7 CONTACT INFORMATION

WWW.OMK.RU


mailto:press%40omk.ru?subject=

http://www.omk.ru

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mailto:office-lpk%40vsw.ru?subject=

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http://www.omk.ru

Documents

Annual Report 2015 - Журнал "Рынок ценных бумаг"kgo.rcb.ru/2016/otchet/omk_2015_en.pdfOMK Annual Report 2015 6 1.1 ABOUT THE COMPANY OMK’s business includes